Tax Notifications and Updates for 2014
|This article discusses Tax Notifications and Updates for 2014:
Postponement of Filing Date
Taxpayers are still feeling the effects of the federal government shutdown which lasted for 16 days in October. According to the IRS, January 31st is the earliest date that the agency will begin processing individual tax returns, a postponement that was necessary in order to complete all the system updates which were affected by the shutdown. Taxpayers can still submit their returns electronically as soon as they are ready and the e-filer will hold them until processing begins. However, the IRS encourages anyone who plans to submit a paper return to wait until Jan 28th to mail it.
|Expiration of Temporary Tax Provisions|
Many of the temporary tax breaks established by the American Taxpayer Relief Act of 2012 expired on December 31, 2013. Although some of these will likely be renewed by Congress, it is up in the air as to which provisions that will be. This uncertainty could make tax planning in Tax Year 2014 very difficult. As it stands now, 55 of the temporary tax breaks established by the 2013 legislation are no longer in effect. These include such popular items as the above-the-line deductions for tuition and fees and out-of-pocket expenses for educators in addition to the itemized deduction for state and local sales taxes. Only time will tell which of these temporary tax relief measures will be reinstated.
|Changes in Medical Insurance|
The deadline for enrolling in health insurance under the Affordable Care Act is March 31, 2014. Taxpayers who fail to buy an insurance plan by the deadline will face a penalty which has been set at a certain amount for each adult, child or family or one percent of the yearly household income, whichever is higher. The penalty will be assessed with the filing of the 2014 tax return in 2015. It will be deducted from any tax refund if the refund is enough to cover it. Otherwise, the taxpayer will be sent a bill and any amount not paid will be deducted from future tax refunds.
|Joint Filing for Same-Sex Couples|
Married same-sex couples now have the same federal tax filing responsibilities as heterosexual couples. Following the Supreme Court invalidation of the Defense of Marriage Act, the IRS instructed same-sex married couples to file jointly or as a married couple filing separately even if the state where they live does not recognize their marriage. However, if their state of residence does not recognize same–sex unions, they could still have to file two separate state returns as single taxpayers.
|Increased Taxes for the Wealthy|
The American Taxpayer Relief Act of 2012 increased the top ordinary tax rate to 39.6 percent for taxpayers with a taxable income above $400,000 ($450,000 for married couples filing jointly). In addition, individuals who earn more than $200,000 as single taxpayers or $250,000 as married couples are faced with the new net investment income tax of 3.8 percent. This tax applies to either modified adjusted gross income or net investment income, whichever is lower. To top this off, single taxpayers who make more than $250,000 and jointly filing couples making more than $300,000 will see reductions to both their personal exemptions and their itemized deductions.
|A Simplified Home Office Deduction|
The IRS is offering a simplified home office deduction beginning with 2013 tax returns filed in 2014. This new optional deduction is $5 for each square foot of home office space, up to a maximum of 300 square feet. That comes to a maximum home office deduction of $1,500 annually. Taxpayers using this simplified deduction will use a worksheet in the Schedule C instruction book and enter the deduction amount on Schedule C instead of filling out Form 8829. As was the case previously, in order to qualify for the home office deduction, the office space must be used regularly and exclusively for business.
|Regulations for Tax Preparers|
Legislation giving the IRS statutory authority to regulate tax preparers has been filed in the House of Representatives. The IRS has been pushing to require that all tax preparers who are not professionally licensed CPAs, Enrolled Agents and attorneys be required to pass competency exams and meet continuing education requirements. Although a final decision on this matter may come in Tax Year 2014, it is currently being held back by a federal lawsuit claiming that such requirements are unconstitutional.
|Possibility of Tax Reform|
Although the last major overhaul of the Internal Revenue Code occurred in 1986, most critics do not expect major changes this year. However, this does not mean that there will be a lack of discussion in the topic of tax reform. Both Representative Dave Camp, Chairman of the House Ways and Means Committee, and Senator Max Baucus, head of the Senate Finance Committee, are currently soliciting input on tax reform from the public and say that there will be some tax reform before they leave their respective offices.
|Adjustments for Inflation|
Income tax brackets have been widened a tad, the standard deduction amounts have been increased slightly for each filing status and the personal exemption amount has been bumped up from $3,900 to $3,950. However, the limits on the amounts you can contribute to individual retirement accounts and workplace pension plans have been held the same as they were in 2013.
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