2014 Year In Review

Buck, CPA LLC 2014 Year End Tax Newsletter

Defending our fellow citizens against their government by making sure the IRS obeys the rules.

This year, once again, there are some things we are sure about and some that are still firmly planted in mid-air.

Some of the things of which we are certain (for now):

  • We are fairly certain that tax rates will remain unchanged, at least for now. The basic rates for individuals range from 10% up to 39.6%.
  • In addition, earned income (from w-2 wages and income earned from self-employment) in excess of $200,000 for singles and $250,000 for marrieds is hit with an additional 0.9% tax.
  • If you have investment income and your total taxable income is in excess of the figures stated above, then the investment income, only, is hit with a 3.8% surtax.
  • Long term capital gains are taxed at 0% if your ordinary-income tax rate is in the 10% or 15% bracket. It is 15% for all other brackets except the 39.6% bracket where long term gains are taxed at 20%.
  • These rates continue to hold true for qualified dividends as well, however, the 3.8% surtax will apply on qualified dividends if taxable income is above the amounts mentioned above.
  • Corporate rates remain as they have for many years ranging from 15% to 35% (with a 39% rate thrown in for taxable income between $100,001 to $335,000).

Our list of uncertain items rests firmly on the backs of the U. S. Congress. Most of us have gotten used to Congress dragging its feet on deciding whether to extend certain tax breaks we have become accustomed to having available. In recent years Congress has extended these provisions, but usually not until very near the end of the year or, even worse, not until after the New Year has arrived. When they wait until the New Year these provisions have been extended retroactively – meaning we still get the tax breaks for 2014, but tax planning has been taken away from us. (Last evening I watched an expose’ on 60 Minutes regarding the sorry state of our country’s infrastructure – roads, bridges, rails, airplane runways, air traffic control, shipping ports, etc. This is another example of Congress not doing its job on a timely basis or NOT AT ALL.) Following are some of the so called extenders that most of the experts believe (hope?) will actually be extended:

  • The option to deduct sales and use tax in lieu of state and local income tax – this can be a biggie if you live in a state with no state income tax
  • Deduction for bonus depreciation – for the last several years we have been allowed to take an additional first year depreciation of 50% on all NEW equipment, including vehicles. This will be a gamble if Congress does not extend prior to year end.
  • Sec 179 write-offs are presently limited to $25,000: it has been $200,000 and could be again if Congress extends it. This is another one that will be a risky situation if it is not extended before the end of the year.
  • The deduction for charitable contributions made directly from a qualified retirement account. If you are required to take distributions from a retirement account, you have been allowed to make a charitable contribution directly to the charity. You are not required to recognize the income, but still are allowed the charitable contribution as an itemized deduction. If Congress does not extend this one VERY soon, it will be too late to utilize this approach without taking a risk that it might not be extended.
  • In the past teachers have been allowed an above-the-line deduction of up to $500 for supplies they purchase and furnish in class.
  • One of the possible ways to get benefits for educational expenses has been to take an above-the-line deduction rather than a tax credit. This is usually used by taxpayers whose income is too high to allow the credit.
  • The deduction for mortgage insurance premiums may not be extended. If it is, it is one of the few you don’t have to gamble on because you will have paid for this insurance regardless of its deductibility.
  • Forgiveness of debt usually causes taxable income. However, for the past few years, if you had mortgage debt of up to $2,000,000 forgiven on your principal residence, it has not been required to be included in taxable income. This provision has expired for 2014 and beyond. It is hoped that it will be extended; this is another one that is not a yearend gamble.
  • Certain tax credits, primarily in the area of energy have not yet been extended. For most of us this is not a major issue.

Here are some things you might consider doing yet this year that can have a positive effect on   your tax bill:

  • Keep taxable income lower by accelerating expenses and deductions into 2014 and pushing income into 2015. These steps might be useful in keeping your income below the $200,000 and $250,000 thresholds mentioned above.
  • If you have investments that are showing a loss, sell before yearend and decrease your taxable income by up to $3,000. If the loss is greater than $3,000, you are allowed to carry the excess over to future years.
  • Pay for your deductible purchases with a credit card before yearend. You are allowed to deduction even if you don’t pay off the card until next year. A caveat here – this does not work if it is a store credit card.
  • You can bunch itemized deductions by prepaying some items into 2014 and either have enough deductions so that you can itemize this year (and perhaps take the standard deduction next year) or increase your itemized deductions for 2014.
  • It’s not too late to include your children (under the age of 18) as business deductions as long as they worked in your business (performing necessary work). Just be sure to pay them on a w-2. The child can earn up to $6,200 without having any tax consequences to the child, but you can take the entire amount paid as a business deduction.
  • Get married before December 31 and you are considered married for the entire year. This may or may not carry a tax advantage – it all depends on your personal facts and circumstances.
  • Gift appreciated investments or property to family members who are in the lowest tax brackets. They can sell the investments and, probably, not have any tax to pay. The limit for gifts in 2014 is $14,000 per person.

Finally, be aware that there are two new laws (or new applications of them) that will affect many of us:

  • Under Obamacare (Accountable Care Act or ACA) this year there will be a reporting requirement for all persons who enrolled in a healthcare plan through the Marketplace. In this case you will be provided a form 1095-A Health Insurance Marketplace Statement (it could also be a 1095-B or a 1095-C). Please be alert for this form – it will come from the insurance company. You will need to send a copy of it to your preparer when you send your normal tax information so that the correct entries can be made on your tax forms.
  • If you have depreciable assets, repairs and maintenance, property improvements property acquisitions or dispositions (there are other categories as well) it will be necessary to file form 3115 with your 2014 tax returns. Just be aware that your preparer will, most likely, need to follow up with you to endeavor to get it right.

All this taken into account, Donna and Tom wish you the best in the New Year and hope you will be well and prosperous.

Defending our fellow citizens against their government by making sure the IRS obeys the rules.

Please remember that we specialize in helping people who are having problems with the IRS, be they audits, collections or other. We provide a free initial consultation to determine what we can do to help. Your referrals are greatly appreciated.