2014 Tax Law Changes.
Tax Organizer 2014: For those of you who want an organizer (it will show your 2013 numbers and a place to enter 2014 numbers to help compile your tax records), please call us. Check our website for more details about things that effect your taxes (www.berttax.com).
Affordable Care Act (ACA): The much publicized law that requires that all individuals must be covered by some health insurance in 2014. There are exceptions to maintaining coverage for various reasons, so don’t panic. If you cannot get coverage through your job, then you should sign up through the exchange (www.heathcare.gov). There are tax / insurance subsidies if you purchase from the exchange which will help reduce the cost of the premiums. You must have filed a tax return to qualify and make a good estimate of your income for 2014 to avoid tax penalties when you file your 2014 taxes. On average for a good insurance plan, you are expected to pay 8.5% of gross household income in the exchange plans. There is a tax penalty for not having coverage in 2014, which will be $95 per person up to 2% of income ($2,045 max). If you have a plan through the Healthcare.gov marketplace (SHOP), you must bring your form 1095-A (or 1095-C if your employer used the SHOP or 1095-B if through a private vendor) these should come by January 31, 2015.
Personal Exemptions: The personal and dependent exemption for tax year 2014 is $3,950, up from $3,900.
Standard Deductions: In 2014 the standard deduction for married couples filing a joint return is $12,400. For singles and married individuals filing separately, $6,200, and for heads of household the deduction is $9,100.
Income Tax Rates: The marginal rates--10, 15, 25, 28, 33, 35 and 39.6 percent--remain the same as in the prior year. Incomes over $146,000 joint (or $88,000 single) will see certain deductions and credits phased out and pay more taxes.
Estate and Gift Taxes: There is an exemption of $5.34 million per individual for estate, gift and generation-skipping taxes, with a top rate of 40%. The annual exclusion for gifts is $14,000.
Long Term Capital Gains: For 2014, the same capital gains tax rates apply. 0% (for income below $73,800 joint or $36,800 single) or 15% (20% rate for high income filers)
Child and Dependent Care Credit: The child and dependent care tax credit was permanently extended for taxable years starting in 2013. If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses. For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses.
Earned Income Tax Credit (EITC): For tax year 2014, the maximum earned income tax credit (EIC) for low and moderate income workers and working families rises to $6,143. The maximum income limit for the EITC rises to $46,997 for single filers. The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.
American Opportunity Tax Credit: For 2014, the maximum Hope Scholarship Credit that can be used to offset certain higher education expenses is $2,500 per student, although it is phased out beginning at $160,000 adjusted gross income for joint filers and $80,000 for other filers. Lifetime Learning Credit: A credit of up to $2,000 is available for an unlimited number of years for certain costs of post-secondary or graduate courses or courses to acquire or improve your job skills. For 2014, the modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $127,000 for joint filers and $63,000 for singles and heads of household.
Student Loan Interest: In 2014 you can deduct up to $2,500 in student-loan interest as long as your modified adjusted gross income is less than $80,000 (single) or $160,000 (married filing jointly).
Individuals - Retirement Contribution Limits: For 2014, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is $17,500. For persons age 50 or older in 2014, the limit is $23,000 ($5,500 catch-up contribution). Contribution limits for SIMPLE plans remain at $12,000 for persons under age 50 and $14,500 for persons age 50 or older in 2014.
Standard Mileage Rates: The standard mileage rate in 2013 is 56 cents per business mile driven, 23.5 cents per mile driven for medical or moving purposes, and 14 cents per mile driven in service of charitable organizations.
Section 179 Expensing: In 2014 the maximum Section 179 expense deduction for equipment purchases is $500,000 of the first $2,000,000 of certain business property placed in service during the year. The bonus depreciation is 50% for qualified property that exceeds the threshold amount.
Important Tax Breaks RENEWED in 2014:
Teachers' Deduction for Certain Expenses: Primary and secondary school teachers buying school supplies out-of-pocket may be able to take an above-the-line deduction of up to $250 for unreimbursed expenses.
State and Local Sales Taxes: Taxpayers that pay state and local sales tax can deduct the amounts paid on their federal tax returns (instead of state and local income taxes)--as long as they itemize.
Mortgage Insurance Premiums: Mortgage insurance premiums (PMI) are paid by homeowners with less than 20% equity in their homes.
Exclusion of Discharge of Principal Residence Indebtedness: It’s back in for 2014! Typically, forgiven debt is considered taxable income in the eyes of the IRS; however, this tax provision, which expires at the end of this year, allows homeowners whose homes have been foreclosed on or subjected to short sale to exclude up to $2 million of cancelled mortgage debt. Also included are taxpayers seeking debt modification on their home.
Energy Efficient Appliances: This tax break has been around for a while, but if you're still thinking about making your home more energy efficient, now is the time to take advantage of this tax credit, which reduces your taxes (as opposed to a deduction that reduces your taxable income). The credit is 10% of the cost of building materials for items such as insulation, new water heaters, or a wood pellet stove. Note: This tax is cumulative, so if you've taken the credit in any tax year since 2006, you will not be able to take the full $500 tax credit this year.
Electric Vehicles: You can take a tax credit of up to $7,500 for qualifying plug-in vehicles. The list of vehicles are changed by IRS each year. Call us for additional information on tax credits for electric vehicles.
Tax Law Changes for 2013.
The deal that Congress and President Obama struck that finally—but only partially—avoided the fiscal cliff resulted in seven tax increases.
Those hikes combined with six tax increases from Obamacare that also began on New Year’s Day.
13 Tax Increases That Started January 1, 2013
Tax increases the fiscal cliff deal allowed:
1. Payroll tax: increase in the Social Security portion of the payroll tax from 4.2 percent to 6.2 percent for workers. This hits all Americans earning a paycheck—not just the “wealthy.” For example, The Wall Street Journal calculated that the “typical U.S. family earning $50,000 a year” will lose $1,000.
2. Top marginal tax rate: increase from 35% to 39.6% for taxable incomes over $450,000 ($400,000 for single filers).
3. Phase out of personal exemptions for adjusted gross income (AGI) over $300,000 ($250,000 for single filers).
4. Phase down of itemized deductions for AGI over $300,000 ($250,000 for single filers).
5. Tax rates on investment: increase in the rate on dividends and capital gains from 15 percent to 20 percent for taxable incomes over $450,000 ($400,000 for single filers).
6. Death tax: increase in the rate (on estates larger than $5 million) from 35 percent to 40 percent.
7. Taxes on business investment: expiration of full expensing—the immediate deduction of capital purchases by businesses.
Obamacare tax increases that took effect:
8. Another investment tax increase: 3.8 percent surtax on investment income for taxpayers with taxable income exceeding $250,000 ($200,000 for singles).
9. Another payroll tax hike: 0.9 percent increase in the Hospital insurance portion of the payroll tax for incomes over $250,000 ($200,000 for single filers).
10. Medical device tax: 2.3 percent excise tax paid by medical device manufacturers and importers on all their sales.
11. Reducing the income tax deduction for individuals' medical expenses.
12. Elimination of the corporate income tax deduction for expenses related to the Medicare Part D subsidy.
13. Limitation of the corporate income tax deduction for compensation that health insurance companies pay to their executives..
2012 Important tax rules
We wish you a great 2013 and hope your 2012 was healthy and fruitful. This is an update on the tax laws from 2007 and beyond. Much of the changes were actually renewals of the existing laws (thank goodness) which allowed for deductions and credits to NOT increase everyone’s taxes in 2012. We would expect your 2012 taxes to be very similar to your results from 2011, assuming nothing has drastically changed in 2012.
Individual Extenders: These deductions and credits were extended through the end of 2012:
Child tax credit ($1000 for each child under 17) same rule as 2009.
Earned Income credit (including third child credit) same rule as 2009.
Dependent Care Credits (Max $6,000 in dependent care paid on two children) same rule as 2009.
College Tuition Credits and Deduction same rule as 2009.
Teacher expenses extended through 2011. Same rule as 2009.
Student Loan Interest. Same rule as 2009 with some income phaseouts.
State & Local Sales Taxes. Same rule as 2009 extended through 2011.
Marriage Penalty Relief. Same rule as 2009.
Mortgage Insurance Deduction same rule as 2009.
Charitable Contributions from IRAs. Same rule as 2009, extended through 2011.
Energy Efficient Home Improvements (A/Cs, Water Heaters, furnaces, Windows, Doors, etc) $1500 Lifetime Max through 2011.
Extended income tax rates: : 10%, 15%, 25%, 28%, 33% and 35% through 2012. In addition, itemized deductions will continue to be allowed in full for high-income taxpayers.
Extended investment tax rates ending 2012: Everybody will get to keep their low investment tax rates for 2012. That means their qualified capital gains and dividends will continue to be taxed at 15%. Low-income tax filers will continue to enjoy a 0% tax rate on their capital gains or dividends.
College tuition credit: Retention of the American Opportunity tax credit, which is an expansion of the HOPE tax credit. The Opportunity credit is worth up to $2,500 (up to 100% of the first $2,000 spent and up to 25% of the next $2,500), and it may be claimed for four years' worth of college. Eligibility to take the credit is limited to those with modified adjusted gross income below $90,000 ($180,000 for couples filing jointly). Tuition and fees, same rule: This is one of the above-the-line deductions. You don't have to itemize to claim this tax break, which could be as much as $4,000. You take the deduction directly on your Form 1040 or Form 1040A.
AMT fix: More than 20 million tax filers will be protected from having to pay the so-called "wealth tax," otherwise known as the Alternative Minimum Tax. For tax year 2010, the bill will raise the amount of income that is exempt from the reach of the AMT to $47,450 for individuals and to $72,450 for couples filing jointly. In 2011, those exemption amounts will increase to $48,450 and $74,450 respectively. In addition, the bill will allow taxpayers to apply nonrefundable credits (which reduce one's tax bill dollar for dollar) to their tax liability -- whether under the AMT or the regular tax code.
Bonus Depreciation: Extends the 2009 rule for a 50% bonus depreciation for 2010. A change in the bonus depreciation rules allows for 100% deduction in 2011. Also the Section 179 rule for first year equipment purchases up to $500,000 for 2010 and 2011.
The Ten Most Important Red Flags in to IRS.
Ever wonder why some tax returns are audited by the IRS while most are ignored? Well, there's a whole host of reasons to this age-old question. The IRS audits only about 1% of all individual tax returns annually. The agency doesn't have enough personnel and resources to examine each and every tax return filed during a year. So the odds are pretty low that your return will be picked for an audit. And of course, the only reason filers should worry about an audit is if they are cheating on their taxes. Here are the 12 most important ones:
1. Failure to report all taxable income. The IRS receives copies of all 1099s and W-2s that you receive during a year, so make sure that you report all required income on your tax return. The IRS computers are pretty good at matching these forms received with the income shown on your return. A mismatch sends up a red flag and causes the IRS computers to spit out a bill.
2. Claiming large charitable deductions. This comes up again and again because the IRS has found abuse on audit, especially with those taking larger deductions. If your charitable deductions are disproportionately large compared to your income, it raises a red flag. That's because the IRS can tell what the average charitable donation is for a person in your tax bracket. Also, if you don't get an appraisal for donations of valuable property or if you fail to file Form 8283 for donations over $500, the chances of audit increase. Be sure you keep all your supporting documents, including receipts for cash and property contributions made during the year, and abide by the documentation rules.
3. Home office deduction. In order to take this write-off, the space must be used exclusively and on a regular basis as your principal place of business. That makes it difficult to claim a guest bedroom or children's playroom as a home office, even if you also use the space to conduct your work. Exclusive use means a specific area of the home is used only for trade or business, not also where the family watches TV at night. Don't be afraid to take the home-office deduction if you're otherwise entitled to it. Risk of audit should not keep you from taking legitimate deductions. If you have it and can prove it, then use it.
4. Business meals, travel and entertainment. Schedule C is a treasure trove of tax deductions for the self-employed. But it's also a gold mine for IRS agents, who know from past experience that the self-employed tend to claim excessive deductions. Most under-reporting of income and overstating of deductions are done by those who are self-employed. To qualify for meals or entertainment deductions, you must keep detailed records generally documenting the following for each expense: amount, place, persons attending, business purpose and nature of discussion or meeting.
5. Claiming 100% business use of vehicle. Another area that is ripe for IRS review is use of a business vehicle. Claiming 100% business use for an automobile on Schedule C is red meat for IRS agents. Make sure you keep very detailed mileage logs and precise calendar entries for the purpose of every road trip. Sloppy recordkeeping makes it easy for the revenue agent to disallow your deduction.
6. Claiming a loss for a hobby activity. If your Schedule C loss-generating activity sounds like a hobby -- horse breeding, car racing and such -- the IRS pays even more attention. It's issued guidelines to its agents on how to sniff out those who improperly deduct hobby losses. Large Schedule C losses are audit bait, but reporting losses from activities in which it looks like you might be having a good time is just asking for IRS scrutiny. Tax laws don't allow you to deduct hobby losses on Schedule C. However, you do have to report any income earned from your hobbies. In order to claim a hobby loss, your activity must be entered into and conducted with the reasonable expectation of making a profit. If your activity generates profit three out of every five years (or two out of seven years for horse breeding), the law presumes you're in business to make a profit, unless the IRS establishes to the contrary
7. Cash businesses. Small business owners, especially those in cash-intensive businesses -- taxi drivers, car washes, bars, hair salons, restaurants and the like -- are an easy target for IRS auditors. The agency is well aware that those who primarily receive cash in their business are less likely to accurately report all of their taxable income. The IRS wants to narrow the tax gap, and history has shown that cash-based businesses are a good source of audit adjustments. It has a new guide for agents to use when auditing cash intensive businesses, telling how to interview owners and noting various indicators of unreported income.
8. Failure to report a foreign bank account. The IRS is intensely interested in people with offshore accounts, especially those in tax havens. U.S. tax authorities have had some recent success in trying to get foreign banks (such as UBS in Switzerland) to disclose information on U.S. account holders. sure that if you have any such accounts, you properly report them when you file your return. Keep in mind, though, that if you have never previously reported the foreign bank account on your return, and you decide to do so for the first time in 2010, that might also look suspicious to the IRS.
9. Math errors. One of the biggest reasons that people receive a letter from the IRS is because of mathematical mistakes they make on their tax returns..
10. Taking higher-than-average deductions. If deductions on your return are disproportionately large compared to your income, the IRS audit formulas take this into account when selecting returns for examination. But if you've got the proper documentation for your deduction, don't be afraid to claim it. There's no reason to ever pay the IRS more tax than you actually owe.