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About Us
Tax Changes for 2014
Welcome 2014! As the new year rolls around,
it's always a sure bet that there will be changes to the current
tax law and 2014 is no different. From health savings accounts
to retirement contributions and standard deductions, here's a
checklist of tax changes to help you plan the year ahead.
Filing Season Delayed by 10 Days
Taxpayers should note that the 2014 tax season
opens on Jan. 31, 2014.
In most years, the filing season opens on Jan.
21; however, due to the 16-day government shutdown that took
place in October 2013, the filing season is delayed by 10 days
this year. No returns, paper or electronic, will be processed by
the IRS before this date.
The April 15 tax deadline is set by statute
and will remain in place, although taxpayers can request an
automatic six-month extension to file their tax return. If you
think you need an extension, please let us know.
Individuals
For 2014, more than 40 tax
provisions are affected by inflation adjustments, including
personal exemptions, AMT exemption amounts, and foreign earned
income exclusion, as well as most retirement contribution
limits.
For 2014, the tax rate structure, which ranges
from 10 to 39.6 percent, remains the same as in 2013, but
tax-bracket thresholds increase for each filing status. Standard
deductions and the personal exemption have also been adjusted
upward to reflect inflation. For details see the article, "Tax
Brackets, Deductions, and Exemptions for 2014," below.
Alternative Minimum Tax (AMT)
Exemption amounts for the AMT, which was
made permanent by the American Taxpayer Relief Act (ATRA) are
indexed for inflation and allow the use of nonrefundable
personal credits against the AMT. For 2014, the exemption
amounts are $52,800 for individuals ($51,900 in 2013) and
$82,100 for married couples filing jointly ($80,800 in 2013).
"Kiddie Tax"
For taxable years beginning in 2014, the
amount that can be used to reduce the net unearned income
reported on the child's return that is subject to the "kiddie
tax," is $1,000 (same as 2013). The same $1,000 amount is used
to determine whether a parent may elect to include a child's
gross income in the parent's gross income and to calculate the
"kiddie tax". For example, one of the requirements for the
parental election is that a child's gross income for 2014 must
be more than $1,000 but less than $10,000.
For 2014, the net unearned income for a child
under the age of 19 (or a full-time student under the age of 24)
that is not subject to "kiddie tax" is $2,000.
Health Savings Accounts (HSAs)
Contributions to a Health Savings Account
(HSA) are used to pay current or future medical expenses of the
account owner, his or her spouse, and any qualified dependent.
Medical expenses must not be reimbursable by insurance or other
sources and do not qualify for the medical expense deduction on
a federal income tax return.
A qualified individual must be covered by a
High Deductible Health Plan (HDHP) and not be covered by other
health insurance with the exception of insurance for accidents,
disability, dental care, vision care, or long-term care.
For calendar year 2014, a qualifying HDHP must
have a deductible of at least $1,250 for self-only coverage or
$2,500 for family coverage (unchanged from 2013) and must limit
annual out-of-pocket expenses of the beneficiary to $6,350 for
self-only coverage (up $100 from 2013) and $12,700 for family
coverage (up $200 from 2013).
Medical Savings Accounts (MSAs)
There are two types of Medical Savings
Accounts (MSAs): the Archer MSA created to help self-employed
individuals and employees of certain small employers, and the
Medicare Advantage MSA, which is also an Archer MSA, and is
designated by Medicare to be used solely to pay the qualified
medical expenses of the account holder. To be eligible for a
Medicare Advantage MSA, you must be enrolled in Medicare. Both
MSAs require that you are enrolled in a high deductible health
plan (HDHP).
Self-only coverage. For taxable years beginning in 2014, the term "high deductible
health plan" means, for self-only coverage, a health plan that
has an annual deductible that is not less than $2,200 (up $50
from 2013) and not more than $3,250 (up $50 from 2013), and
under which the annual out-of-pocket expenses required to be
paid (other than for premiums) for covered benefits do not
exceed $4,350 (up $50 from 2013).
Family coverage.
For taxable years beginning in 2014, the term "high deductible
health plan" means, for family coverage, a health plan that has
an annual deductible that is not less than $4,350 (up $50 from
2013) and not more than $6,550 (up $100 from 2013), and under
which the annual out-of-pocket expenses required to be paid
(other than for premiums) for covered benefits do not exceed
$8,000 (up $150 from 2013).
AGI Limit for Deductible Medical Expenses
In 2014, the deduction threshold for
deductible medical expenses remains at 10 percent (same as 2013,
but up from 7.5 percent in 2012) of adjusted gross income (AGI);
however, if either you or your spouse were age 65 or older as of
December 31, 2013, the new 10 percent of AGI threshold will not
take effect until 2017. In other words, the 7.5 percent
threshold continues to apply for tax years 2013 to 2016 for
these individuals. In addition, if you or your spouse turns age
65 in 2014, 2015, or 2016, the 7.5 percent of AGI threshold
applies for that year through 2016 as well. Starting in 2017,
the 10 percent of AGI threshold applies to everyone.
Eligible Long-Term Care Premiums
Premiums for long-term care are treated
the same as health care premiums and are deductible on your
taxes subject to certain limitations. For individuals age 40 or
younger at the end of 2014, the limitation is $370. Persons more
than 40 but not more than 50 can deduct $700. Those more than 50
but not more than 60 can deduct $1,400, while individuals more
than 60 but not more than 70 can deduct $3,720. The maximum
deduction $4,660 and applies to anyone more than 70 years of
age.
Medicare Taxes
The additional 0.9 percent Medicare tax on
wages above $200,000 for individuals ($250,000 married filing
jointly), which became effective last year, in 2013, remains in
effect for 2014, as does the Medicare tax of 3.8 percent on
investment (unearned) income for single taxpayers with modified
adjusted gross income (AGI) more than $200,000 ($250,000 joint
filers). Investment income includes dividends, interest, rents,
royalties, gains from the disposition of property, and certain
passive activity income. Estates, trusts and self-employed
individuals are all liable for the new tax.
Foreign Earned Income Exclusion
For 2014, the foreign earned income
exclusion amount is $99,200, up from $97,600 in 2013.
Long-Term Capital Gains and Dividends
In 2014 tax rates on capital gains and
dividends remain the same as 2013 rates; however threshold
amounts are indexed for inflation. As such, for taxpayers in the
lower tax brackets (10 and 15 percent), the rate remains 0
percent. For taxpayers in the four middle tax brackets, 25, 28,
33, and 35 percent, the rate is 15 percent. For an individual
taxpayer in the highest tax bracket, 39.6 percent, whose income
is at or above $406,750 ($457,600 married filing jointly), the
rate for both capital gains and dividends is capped at 20
percent.
Gift Taxes
The annual exclusion for gifts also remains at
$14,000.
Individuals - Tax Credits
Adoption Credit
In 2014, a non-refundable (only those
individuals with tax liability will benefit) credit of up to
$13,190 is available for qualified adoption expenses for each
eligible child.
Earned Income Tax Credit
For tax year 2014, the maximum earned
income tax credit (EITC) for low and moderate income workers and
working families rises to $6,143, up from $6,044 in 2013. 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.
Child Tax Credit
For tax year 2014, the child tax credit is
$1,000 per child.
Child and Dependent Care Credit
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 in 2014. For two or more
qualifying dependents, you can claim up to 35 percent of $6,000
(or $2,100) of eligible expenses. For higher income earners the
credit percentage is reduced, but not below 20 percent,
regardless of the amount of adjusted gross income.
Individuals - Education
American Opportunity Tax Credit and Lifetime Learning Credits
The American Opportunity Tax Credit
(formerly Hope Scholarship Credit) was extended to the end of
2017 by ATRA. The maximum credit is $2,500 per student. The
Lifetime Learning Credit remains at $2,000 per return.
Interest on Educational Loans
In 2014 (as in 2013), the $2,500 maximum
deduction for interest paid on student loans is no longer
limited to interest paid during the first 60 months of
repayment. The deduction is phased out for higher-income
taxpayers with modified AGI of more than $65,000 ($130,000 joint
filers).
Individuals - Retirement
Contribution Limits
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 remains
unchanged at $17,500. Contribution limits for SIMPLE plans
remains unchanged at $12,000. The maximum compensation used to
determine contributions increases to $260,000 (up $5,000 from
2013).
Income Phase-out Ranges
The deduction for taxpayers making
contributions to a traditional IRA is phased out for singles and
heads of household who are covered by an employer-sponsored
retirement plan and have modified AGI between $60,000 and
$70,000, up from $59,000 and $69,000 in 2013.
For married couples filing jointly, in which
the spouse who makes the IRA contribution is covered by an
employer-sponsored retirement plan, the phase-out range is
$96,000 to $116,000, up from $95,000 to $115,000. For an IRA
contributor who is not covered by an employer-sponsored
retirement plan and is married to someone who is covered, the
deduction is phased out if the couple's modified AGI is between
$181,000 and $191,000, up from $178,000 and $188,000.
The modified AGI phase-out range for taxpayers
making contributions to a Roth IRA is $181,000 to $191,000 for
married couples filing jointly, up from $178,000 to $188,000 in
2013. For singles and heads of household, the income phase-out
range is $114,000 to $129,000, up from $112,000 to $127,000. For
a married individual filing a separate return who is covered by
a retirement plan, the phase-out range remains $0 to $10,000.
Standard Mileage Rates
The rate for business miles driven is 56
cents per mile for 2014, down from 56.5 cents per mile in 2013.
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