2014 Tax Changes You Should Know

Here’s your quick and dirty overview of what’s changing, expiring, and new for 2014 income taxes. 

High Earners

• Top tax rate is at 39.6%. Taxpayers earning in excess of $400,000 for individuals and $450,000 for married couples filing jointly.
• Medicare surtax of .9% applies to earnings in excess of $200,000 for individuals and $250,000 for married filing joint couples.
• Net Investment Income Tax from net investment income sources such as interest, dividends, capital gains, rental income, and royalty income causing a Modified Adjusted Gross Income (MAGI) of $200,000 for individuals and $250,000 for married couples
• Pease limitiations which reduce itemized deductions by 3% of the excess when your AGI exceeds $254,200 for individuals and $305,050 for married couples. The personal exemptions also begin phasing out at these thresholds.

Affordable Care Act

• Don’t have health insurance and don’t qualify for the exemptions — you’ll have to pay either 1% of your taxable income or a flat $95 per uninsured adult and $47.50 per uninsured child (up to $285 per family) per month, whichever is greater. This fee (penalty, tax, or whatever you want to call it) is due with your 2014 return in April 2015. That fee increases every year to $345 in 2015 and $695 in 2016.

Home Office Deduction

• IRS introduced the new simplified method to claim the home office deduction which is equal to $5 per sq.ft. of home office space with a max at 300 sq. ft.

Defense of Marriage Act (DOMA)

• IRS will recognize all legally married couples as legally married regardless of whether they live in a jurisdiction that recognizes same-sex marriage.

Foreign Account Tax Compliance Act (FACTA)

• New FACTA deadlines — withholding on new accounts becomes effective July 1, 2014 along with new due diligence and registration requirements.

Expiring provisions, at least until Congress makes any last minute changes

• Seniors can no longer make direct monetary gifts to charities from their IRA up to $100,000 without first reporting it as income.
• Teachers lose their $250 educator related expenses deduction.
• Tuition and fees deduction up to $4,000 for qualified higher education expenses is gone.
•  Energy-efficient tax credits up to $500 for installation of windows, insulation, doors, roofs, and certain water heaters and HVAC systems.
• No state income tax? The option to deduct local sales and use tax instead of state income tax is gone too.
• Qualifying homeowners can no longer exclude debt forgiven on a private residence as a result of foreclosure, a short sale, or a modified mortgage. That debt is now reportable and taxable.
• Business owners will see a reduction of the Section 179 expense deductionwhich allowed small to mid-size businesses to immediately deduct the purchase price of qualified assets rather than recoup costs over an extended depreciation schedule. The allowance was previously at $500,000 but has been reduced to $25,000 for 2014.

As always, if you have any questions or need help seeing how this fits your situation, contact us at 708.872.7366 or via email at info@simplifiedaccount.com