2014 Inflation Adjustments
Each year the IRS adjusts several tax items for inflation. Although these adjustments are small they will affect every taxpayer! Some of the items with inflationary increases are:
- The Standard Deduction
- The Personal Exemption
- Tax Brackets
These inflation adjustments will save the average married taxpayer about $100 in their overall income tax.
Election, Tax Time Uncertainty Continues!
All efforts by the Senate to renew the 50 plus temporary two year tax laws continue to be delayed. These laws expired at the end of 20 13 and hopefully will be renewed through 2015. With any luck, Congress could pass a big "extenders" bill in December.
Some of the specific big ticket business items that are on the table awaiting Congress to act are the Section 179 expensing, bonus depreciation and the research and development tax credit. Waiting for extension on the personal side are the deductions for charitable tax- free IRA distributions to charities, the $4,000 tuition & fees deduction, energy savings tax credits for home improvements, the deduction for mortgage insurance premiums and many more.
At any rate, tax time is rapidly approaching and at this point we are forced to look at the laws as they exist today. Be prepared! Collect information on these and we will use them if the laws are extended.
Coming Up For This Tax Filing Season
I have already mentioned the uncertainty surrounding the many tax laws that congress has yet to act upon. The following are large items that are already set in law that you can count on for the up-coming tax filing season. Don't forget about income limitations and phase outs.
Each qualifying child under age 17 knocks off up to $1,000 from your tax bill.
Two big credits are available. The American Opportunity Credit can reduce your tax bill by up to $2,500 per eligible student or up to $2,000 through the Lifetime Learning Credit.
0% Capital Gains Rate!
This capital gains rate is available to all taxpayers in the 10 and 15 tax brackets. Married taxpayers qualify for the 0 rate if their taxable income is $73,800 or less, for single taxpayers $36,900 or less, and head of household is $49,400.
Tax Free Gains on Home Sales.
Married couples can exclude up to $500,000 in gain from their income on the sale of their home, for single taxpayer the maximum exclusion is $250,000. Ownership and occupancy rules apply.
Energy Savings Credits.
You can claim a credit for up to 30 of the cost of buying and installing solar panels, solar water heaters, geothermal heat pumps and small wind energy systems.
Got It All?
Here is a list of frequently missed items. Check these against your list. Refinances. I need to see the settlement statement. Collect all documents associated with a refinance if you are unsure.
Child Care Expenses.
I need the full name, address, telephone number and tax ID number of your care providers.
Estimated Tax Payments.
Find the date and amount for payments. Look at dates near payment due dates. April 15, 2014, June 15, 2014, September 15, 2014 and January 15, 2015. A January 2014 payment would have been claimed on your 2013 return.
Sales of Property.
The most important thing is the settlement statement. Also gather all related documents.
Form 1098- T lists tuitions. I need these forms as well as details on the courses, all expenses and who the "student" was.
Sales of Stock.
Form 1099-B shows sale price and lots of other confusing data. If this form does not show the original purchase price you will need to find the original "buy" confirmation or ask your broker for the data.
Be careful to separate purchases of major equipment from other supplies.
If employer reimburses an expense, we need records to be sure we claim only the excess. An example is reimbursement of business travel miles at less than the Federal reimbursement amount (56¢ per mile).
K-l Form Information.
Schedule K-1 from partnerships, LLCs, S-corps and trustees always seem to arrive late. Don't worry. We can do the rest of your return and be ready to finish when the K-1 arrives. Make special note here ... we don't want to file your return only to find out we were still waiting for a Form K-l.
Social Security Benefits.
Find Form 1099-SSA. We must report the gross amount and not just your net monthly benefit. Your Medicaid Premiums listed on the Form may also get you a medical deduction.
Do you contribute to an IRA, Roth IRA or Health Savings Account? These and others can cut your taxes. Make sure that I have all of the information on contribution amounts and dates of the contribution.
Please call if you have an unusual or difficult transaction. Foreclosures, sales or exchanges of real estate, casualties and the like can cause a lot of extra work. We may need to schedule a special meeting and I may need extra time. Have all of the details ... help me- - help you!
Tips For You... Now!
Filing Delays Possible.
A couple of factors may cause delays in the "filing season". I have already mentioned that we could
see late law changes. Delays have occurred in recent filing seasons. A few years ago the IRS didn't accept electronic returns until February 15 and last year saw a filing season that was delayed until January 31 due to the Federal shutdown in late 2013. Be prepared! We should plan on the worst considering the number of tax laws that could be "extended" and the days that are left until the filing season begins. Let's watch Congress closely to monitor their progress. There may be a delay in the filing season in 2015.
Roth IRA Conversions & Re-characterizations.
Conversions generally come at an immediate tax cost but could result in major tax-free gains over the years as distributions begin. Managing the tax impact of a Roth IRA conversion requires careful analysis. Ideally, we should review the transaction carefully. Higher- income filers have to deal with phase-outs on itemized deductions and personal exemptions which can make computing taxable income more complex.
There are also other things to consider. Your conversion must be completed by December 31. Estimating your taxable income may be tricky until you've received all your tax reporting documents;- which typically aren't available until well after December 31. Consequently your income may end up being higher or lower than you anticipated. A solution: a re- characterization. It allows you to "undo" some, or all, of a conversion made the prior year. You have until October 15 of the year following conversion to re-characterize. This may be a solution if the tax on your conversion ends up exceeding your estimate.
The IRS recently adopted "repair regulations" that establish when an expense for a property is currently deductible as a repair or as an improvement that must be depreciated. The new regs identify repairs or routine maintenance as expenses that do not improve a unit of property. There are also safe harbor elections that can be made that will allow you to currently deduct the cost of an item without worrying whether it is a repair or improvement. One of the safe harbors is for routine maintenance. Routine maintenance will include inspections, cleaning, testing, replacing parts and other recurring costs that keep property in its ordinarily efficient operating condition. A second safe harbor is for taxpayers with average gross receipts for the last three years of $lO million or less. These taxpayers may elect to not capitalize improvements to an eligible building property if the total paid during the year for repairs, maintenance and improvements does not exceed the lower of $10,000 or 2 of the building's unadjusted basis. Repair regulations are very extensive and quite complex. The rules and calculations are more difficult than quantum physics! Please contact me to further discuss how these regulations may affect you.
Gift Tax Returns.
If you have given gifts that exceed $14,000 ($28,000 for a married couple) to any person in 2014 you are required to file a Gift Tax Return. The Return is due by April 15,2015. You will not owe any gift tax unless you have exceeded the lifetime gift-tax exemption of $5.34 million. If you do exceed the lifetime exemption amount, you could end up owing gift tax of up to 40. One reason to file the Return is to let the IRS know how much of the $5.34 million tax-free amount you have used so far.
Realign Your Portfolio. Many taxpayers have taken gains on investments up to this point in 2014 by rebalancing their portfolios. The markets have become increasingly volatile and by selling some losing investments to offset the gains you may also reduce your risk to further downturns in the markets. Remember, if you have more losses than gains the IRS will allow you to take up to $3,000 of net losses to reduce your income.
Increase or Accelerate Your Charitable Contributions.
The joys of giving cannot only help those in need, but can also help you as your donations to charitable organizations may count as tax deductible expenses! Make sure that all contributions are made by December 31 and that a receipt of your gift is included in your tax documents.
Make State Tax Estimates By December 31, 2014.
Most of these estimated payments are not due until January 2015 but if you make the payment in 2014 you may get the deduction on your 2014 tax return. Get the deduction a year earlier by making the payment a few weeks earlier.
Medical expenses such as hospital bills, doctor's charges and prescriptions can create sizable itemized deductions. Look for any balances still owed on medical related bills and pay them before the end of 2014.
Would you like to read a past issue. Please check out one of these issues:
Year End 2014
Year End 2013