Good to Know About Possible Tax Traps
There are not a lot of surprises to worry about for taxpayers in 2014. The American Taxpayer Relief Act of 2012 enacted on Jan. 2, 2013, made many existing tax laws permanent and extended other provisions through 2013. However, even in the most stable tax and political environments, there’s always something to worry about when it comes to taxes. The following list contains the 10 tax traps you need to watch out for in 201
Submit Return but Be Prepared to Wait
If it is like last year, the IRS won’t be ready to process your 2014 tax returns until the last day of January next year. You can go ahead and submit your return electronically as soon as you’re ready; your e-filer will hold it until the IRS is ready to accept returns. If you’re eligible for free file, that IRS-software manufacturer partnership opens for filers on Jan. 17. If, however, you file a paper return, the IRS encourages you to wait until Jan. 31 to mail i
Get Ready to Wait Later in the Year
Some temporary tax provisions are renewed by Congress every year or so. In recent years, however, lawmakers have let the laws expire and then renewed them retroactively, most recently in the American Taxpayer Relief Act of 2012, also known as the “fiscal cliff” tax bill. Expect a replay in 2014. Fifty-five tax provisions expired on Dec. 31, 2013. This doesn’t affect your 2013 tax return, but tax planning for 2014 will be a different story.
Wealthier Taxpayers Should Watch for Added Taxes
In addition to paying a top ordinary tax rate of 39.6 percent if, as a single filer, your taxable income is more than $400,000 ($450,000 for married couples filing jointly), you could face added taxes. The most dreaded is the new net investment income tax of 3.8 percent, also known as the Medicare surtax because the money goes toward that health coverage program for older Americans. The tax applies to either your modified adjusted gross income or net investment income, whichever is lower, if you earn more than $200,000 as a single taxpayer or $250,000 as a married joint return filer
Don’t Forget to Sign Up for Medical Insurance
The Affordable Care Act will continue to roll out in 2014, meaning that uninsured individuals have some choices to make that could have tax implications. Enrollment for health insurance under Obamacare, as the health reform act is popularly known, went through March 31, 2014. If you don’t buy an insurance plan, you could face a penalty. The charge for 2014 is either 1 percent of your yearly household income or $95 per uninsured adult and $47.50 per child, up to $285 for a family. You pay whichever amount is high
File Jointly if Same-Sex Married Couple
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.
Good to Claim Simplified Home Office Deduction
The recession has prompted many workers to start their own businesses, many of which are run from their homes. There’s good filing news for these entrepreneurs. For 2013 returns filed in 2014, the IRS is now offering a simplified home office deduction. The 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 $1,500 annual home office deduction.
Keep an Eye on IRS Troubles
The IRS is proposing new regulations for groups seeking 501(c)(4) nonprofit status. This designation was the focus of a Treasury Inspector General for Tax Administration investigation of IRS handling of Tea Party-affiliated organizations seeking the preferable tax status. During subsequent congressional hearings, it was learned that IRS reviewers also targeted more liberal, progressive groups. The IRS is proposing limits on these so-called social welfare groups’ spending on political campaign-related activities. Expect continued debate on the groups’ activities and IRS oversight before any final regulations are issued.
Note Tax Preparer Regulation
The IRS effort to regulate professional tax preparers will continue in 2014, both in the court system and on Capitol Hill. The agency wants to register all tax preparers who aren’t already subject to certain standards (that is, attorneys, Enrolled Agents or CPAs) and require they pass competency exams and take continuing education classes.
Keep Eye on Tax Reform
The last overhaul of the federal tax code was in 1986. Will we finally see major changes in the Internal Revenue Code in 2014? Probably not. Will we hear a lot of talk about tax reform? Yes. It is an election year and talk of taxes makes for good campaign ads.
Inflation Tax Adjustments Need to Be Heeded
One thing we do know for sure for 2014, inflation had a nominal effect on around 40 tax provisions. Most notable is that income brackets were widened, meaning you can earn a bit more next year without being bumped into a higher tax bracket.