The big issue for 2014 is what has not been addressed by Congress since the end of 2013.
There were 55 tax related items (deductions, credits, etc.) that expired on December 31, 2013. Congress has historically extended most of these items repeatedly (these tax provisions have been dubbed “extenders”), but they put off any action until after the elections on November 4th.
The planning problem is that Congress usually does extend the primary extender provisions, but they haven’t yet, they haven’t provided a time table to do so, and they don’t have to if it isn’t a priority to them. Politics can get in the way. In the past, Congress has extended these provisions even in the following year (ie- 2015), with retroactive treatment back to the prior year (ie- 2014). This makes year-end tax planning difficult.
Updated 12/5/2014, 12/17/2014 and 12/22/2014: The House passed a bill (the “Tax Increase Prevention Act of 2014”) that will extend most of the tax provisions discussed below on December 3rd, and the Senate passed it on December 16th. The President sign it on December 19th and it is now law. The good news is that we can now finish 2014 tax strategic planning with more confidence. The bad news is that this bill only addresses these provisions for 2014 and we will be in the same situation in 2015. This was not a fix. Attempts to reform the tax laws are being blocked by political interests. With each “extenders” passage, the real problem is passed off to the future and the cost to future tax payers. The conclusion of the post has not changed: Congress and the President are not doing their job. We need leadership that will do the right and difficult job. RICK
Here is a summary of the more well known and utilized tax provisions that expired December 31, 2013:
- Section 179 Deduction on equipment purchases – Reduced from $500,000 to only $25,000 for 2014.
- 50% Bonus Depreciation on new equipment purchases – Expired.
- Sales Tax Itemized Deduction – Expired.
- PMI (Private Mortgage Insurance) Premium Itemized Deduction – Expired.
- Out-of-Pocket Expense Deduction for Educators – Expired.
- College Education Tuition & Fees Deduction – Expired.
This is just a sample. We will be watching the status of these extender provisions back in Washington and will update this tax planning information once we learn of any changes.
2014 Tax Rates:
Individuals Federal Income Tax Rates have not changed.
Individuals Dividend and Capital Gains Tax Rates have not changed.
3.8% surtax (associated with ObamaCare) on net investment income which began in 2013 is still in place (discussed below).
Affordable HealthCare Act Impact on 2014:
In addition to the new 3.8% NII surtax and the additional 0.9% Medicare discussed below in the 2013 recap, there are other provisions of ObamaCare that you should know about.
Employers with 50 employees or more will be required to either provide health insurance to their employees, or participate in a “Employer Shared Responsibility Payment” program. Although the ObamaCare Act scheduled this to begin January 1, 2014, this part of the Act has been delayed to January 1, 2015.
Individuals were required to have health insurance beginning in January, 2014. Under ObamaCare, states have developed marketplaces to assist and enroll individuals and families in obtaining coverage. You may qualify for a tax credit or cost-sharing subsidy if you get insurance through a state marketplace site.
2014 Penalty: If you do not have health insurance, the penalty with be the greater of $95 per adult and one-half this amount for dependents under age 18 or 1% of household income for 2014 and 2015. This increases to the greater of $695 or 2.5% of household income for 2016.
New Taxes and Tax Rate Changes effective for 2013 (Re-visited): Since these changes took effect just one year ago, people are still trying to understand them and we felt it would be good to revisit the changes that were new in 2013 and that still apply to 2014.
Ordinary Earned Income top rate increased from 2012’s 35.0% to 39.6% for 2013 and 2014 (for taxable income of $400k+ for single taxpayers and $450k+ for married filing joint taxpayers). This is a 4.6% increase.
There is also a 3.8% surtax (associated with ObamaCare) on net investment income (“Net Investment Income Tax” or “NIIT”) and certain passive income items (for taxable income of $200k+ for single taxpayers and $250k+ for married filing joint taxpayers).
Net Investment & Passive Income top rate increased from 2012’s 35.0% to 43.4% for 2013 and 2014 (the top 39.6% rate referred to above plus the 3.8% surtax).
Long-Term Capital Gains (including Qualified Dividends) top rate increased from 2012’s 15.0% to 23.8% for 2013 and 1014 (regular tax increase of 5.0% plus the 3.8% surtax).
There is an additional 0.9% Medicare tax (also associated with ObamaCare) on wages and self-employment income (for wages/SE-income of $200k+ for single taxpayers and $250k+ for married filing joint taxpayers).
Quick Links to Specific 2014 Year End Tax Planning Strategies & Checklists:
– Tax Planning & Strategies Overview
√ What’s New for 2014 <– you are on this page.
– Year-End Tax Planning Checklist for Individuals
– Year-End Tax Planning Checklist for Businesses
– Checklist for Year-End Payroll & 1099 Reporting
Circular 230 Disclosure: This is to advise you that, unless expressly stated, nothing in this communication (including any attachment or other accompanying materials) was intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding any federal tax penalties, or for promoting, marketing, or recommending a partnership or other entity, investment plan or arrangement to anyone.