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What’s New for 2014 Tax Year

Coral Springs, FL , January 19, 2015

What’s New for 2014 Tax Year

Filing season starts January 20, 2015.

Affordable Care Act, a.k.a. Obamacare or ACA

Affordable Care Act is on the top of the most frequently asked questions this year, and not surprisingly. So here is a little scoop of what’s coming your way.

Taxpayers who didn’t obtain medical insurance coverage in 2014 through Healthcare Marketplace or private insurance companies, or didn’t have coverage through employment, will pay penalty. Please note, if you have Medicare part A, you are considered covered and are not subject to any penalties (and having Medicare tax withheld from your paycheck has nothing to do with Medicare part A).

How much will be the penalty in 2014?

The penalty is the greater of $95 or 1.0% of excess household income over the filing threshold amount. Here is the filing threshold amount for each filing status in 2014:

Single, under 65 - $10,150

Single, over 65 - $11,700

Head of Household - $13,050

Married Filing Jointly, both under 65 - $20,300

Married Filing Jointly, both over 65 - $22,700

Let’s review this on the example. Single taxpayer who is 48 makes $50,000 in 2014 and doesn’t have medical insurance. 1.0% of the excess household income over the filing threshold amount will be $398.50 (($50,000 - $10,150) x 1.0%). And since $398.50 is greater than $95, the taxpayer will pay penalty of $398.50. Still less than what you would pay in annual premiums, but then you won’t have medical insurance that you may otherwise need.

How much will be the penalty in 2015?

If you don’t have medical insurance coverage in 2015, the penalty is going to be the greater of $325 or 2.0% of excess household income over the filing threshold amount. And remember, the open enrollment period to purchase health insurance coverage through the Healthcare Marketplace is open until February 15, 2015, so you still have some time to apply.

What should I do if I received credits towards my medical insurance premiums in 2014?

Expect to receive Form 1095-A from Health Insurance Marketplace in the mail and bring it to your tax preparer along with other tax documents. Based on the information in this form the tax preparer will be able to calculate whether you received too much in advance Premium Tax Credit or too little. If too much, you will have to repay it back and if too little, you’ll get extra refundable credit on your tax return.

Due Date of Form 1040

The 2014 tax year Form 1040 filing deadline is April 15, 2015. Extension to file can be obtained before April 15, 2015; it will allow filing individual tax return before October 15, 2015. Please note, extension to file late does not mean extension to pay tax late.

Due Date of Form 1120, 1120-S and 1065 (Business Tax Returns)

The 2014 tax year Form 1120, 1120-S and 1065 filing deadline for calendar year taxpayers is March 16, 2015. Extension to file can be obtained before March 16, 2015; it will allow filing business tax return before September 15, 2015. Please note, extension to file late does not mean extension to pay tax late.

Standard Deduction

            Married Filing Jointly - $12,400

            Single - $6,200

            Head of Household - $9,100

            Married Filing Separately - $6,200

Additional Standard Deduction for Age 65 and Over and/or Blind (Each)

            Married Filing Jointly - $1,200

            Married Filing Separately - $1,200

            Qualifying Widower - $1,200

            Single - $1,550

            Head of Household - $1,550

Personal Exemption - $3,950 per person     

Standard Business Mileage Rate – 56.0 cents per mile

Income Tax rates made permanent

For 2014 and beyond, the top individual income tax bracket is 39.6% for single taxpayers with taxable income of $406,751 or more ($457,601 or more for Married Filing Jointly). Taxpayers with income below the thresholds will not see an increase in tax rates.

2014 Capital Gain rates

Single Taxpayers

            0% if income is below $36,900

            15% if income is between $36,901 and $406,750

            20% if income is above $406,751

Married Filing Jointly Taxpayers

            0% if income is below $73,800

            15% if income is between $73,801 and $457,600

            20% if income is above $457,601

There are some exceptions to capital gain rates, for example, from sale of collectibles or small business stock that is taxed at 28%. Unrecaptured Section 1250 gain from selling real property is taxed at a maximum of 25% rate.

FICA Tax rate

An employee’s Social Security portion of FICA remains the same at 6.2% in 2014, and Medicare portion of FICA at 1.45%.

ITINs Expire after 5 years if not used on tax returns

Non-resident individuals who obtained ITIN (Individual Taxpayer Identification Number) after January 1, 2013 please note that your ITIN will expire in 5 years unless you file your tax returns at least 1 (one) time during the last 5 (five) years. If your ITIN was not used on any of the tax returns for 5 (five) consecutive years, it will expire and you would need to re-apply.

Medical Expense deduction

The Adjusted Gross Income (AGI) threshold for deducting medical expenses as an itemized deduction is 10%, unless taxpayer or spouse turns age 65 before the end of the year 2014. Example: If you are 50, your AGI is $50,000 and you had $8,000 in medical expenses, you can now deduct only $3,000 (if you itemize), prior to 2013 you could deduct $4,250. For taxpayers over 65 the AGI threshold for deducting medical expenses as an itemized deduction is 7.5%.

401(k)/403(b) Deferral Limits

Effective 2014 deferral limits to 401(k)/403(b) plans remained the same at $17,500 per year for individuals under age 50, and at $23,000 for individual taxpayers age 50 and over.

IRA Contribution Phase-Out Range for Active Participation in Employer Plan

The new Modified Adjusted Gross Income (MAGI) limits affecting deductions for traditional IRA contributions in 2014 are: Singles and Heads of Household - $60,000-$70,000, Married Filing Jointly - $96,000-$116,000, Married Filing Separately - $0-$10,000. For Married Filing Jointly with a spouse not active participant in IRA plans MAGI phase-out limit is $181,000-$191,000.

Contribution limit to IRA accounts has not changed for 2014 and remains at $5,500 for taxpayers under 50, and $6,500 for taxpayers age 50 and over.

Roth IRAs Phase-Out Range

The new Modified Adjusted Gross Income (MAGI) limits affecting deductions for Roth IRA contributions in 2014 are: Singles and Heads of Household - $114,000-$129,000, Married Filing Jointly - $181,000-$191,000, Married Filing Separately - $0-$10,000.

Contribution limit to IRA accounts has not changed for 2014 and remains at $5,500 for taxpayers under 50, and $6,500 for taxpayers age 50 and over.

Child Tax Credit

Child Tax Credit remains at $1,000 per child and this credit has been extended permanently. Child Tax Credit phase-out begins for Single and Head of Household at $75,000, for Married Filing Jointly at $110,000 and for Married Filing Separately at $55,000.   

Estate and Gift Tax Exclusion

The exclusion for the estate tax is indexed for inflation and for 2014 will equal to $5,340,000. The gift tax exclusion remains unchanged in 2014 and 2015 at $14,000 per person.