1. Standard deduction.
a. regular: $6,100 single and married filing separate; $8,950 head of household; $12,200 married filing joint and qualifying widow(er) [can use married joint tax rates for two years after year of spouse’s death but-must have dependent child living with you]. Taxpayer on their own return if claimed as a dependent by another taxpayer: greater of $1,000 or $350 plus earned income.
b. Additional (age 65 or over or blind): $1,500 single, married filing separate, and head of household; $1,200 married filing joint and qualifying widow(er).
2. Personal (taxpayer and spouse) and dependency exemptions: $3,900 each but amount for exemptions decreases as AGI exceeds $150,000
3. Higher tax rates
a. top regular tax bracket now 39.6% for “taxable” income over: single-$400,000; married filing separate-$225,000 ; head of household-$425,000; married filing joint-$450,000..
b. 23.8% (was 15% in 2012).top rate on net long-term capital gains (securities held more than 1 year), and “qualified” dividends (long-term capital gain from mutual funds).
c. Additional .9% Medicare tax on wages and self-employment net income over: $200,000 for single, head of household and qualifying widow(er)]; $250 000 for married filing joint; $125 000 for married filing separate.
d. additional 3.8% surtax on net investment income (gross income less related expenses from interest, dividends, net capital gains, royalties, rental income). Applies to taxpayers with “Modified Adjusted Gross Income” [Adjusted Gross Income plus excluded foreign earned income] of : $200 000 for single and head of household; $250,000 for married filing joint and “qualifying” widow(er); $125 000 for married filing separate returns.
4. Medical expenses threshold: 10% of AGI but still 7 ½ % if age 65 and over.
5. Mileage rates: 56 ½ cents for business, 24 cents for medical and moving, 14 cents for charitable work (same as 2012).
6. New standard deduction for home office expenses. Can be used in lieu of actual-$5 per square foot (but maximum of 300 square feet). Home office expenses cannot exceed income from self employment before home office deduction. Actual home office expenses reported on form 8829. Standard deduction reported on Schedule C with expenses
7. Per diem (in lieu of actual expenses) (a) combined meals and lodging $170/day ($251/day “high cost” areas-as specified by IRS). (b) Meals only $52/day; $65/day high cost areas. (c) $5 for incidental costs (fees and tips for porters and hotel staff).
8. Contributions of cash or property of $250 or more. The charity is required to state on their acknowledgment that “no cash, property, or services were given by this charity in exchange for this donation”. If this statement is NOT on the charity’s acknowledgment and your return is audited, the IRS will DISALLOW the contribution. Their authority is stated in the regulations and was upheld in a Tax Court case two years ago . This has always been true but I wanted to point it out so you are aware of the requirement. If the statement is not on the acknowledgment, contact charity and tell them they are required by the IRS to state this and request another receipt with those words .
9. Minimum Distribution for IRA, 401k, 403b and other tax deferred retirement plans (minimum distribution is the fair value of account at end of prior tax year divided by remaining life based on IRS mortality tables). Must be taken at age 70 ½ by April 15 of following year or face a substantial penalty on required distribution not taken. In lieu of taking the distribution and being taxed on it, taxpayers can make a charitable donation of all or part of the required distribution. Result is that the amount given to charity is NOT TAXABLE, but there is no contribution deduction. The donation must be a DIRECT TRANSFER FROM THE ACCOUNT CUSTODIAN to the charity. If taxpayer receives distribution and then donates it to charity, it is taxable and you get a charity deduction if you itemize your deductions.
10. Same sex married couples. May now file a joint federal return EVEN IF the state in which they reside does not recognize same sex marriages. The IRS will now allow such couples to file an amended return for 2010-2012 to change to married filing joint (amended return must be filed within three years from the due date, including extensions, of the original return being amended). They can also use the unlimited martial deduction for estate returns. For state returns, they will have to file SINGLE if the state in which they reside does NOT RECOGNIZE same sex marriages.
11. Penalty for not having health insurance coverage:
(a) Individuals: 2014 -greater of $95 or 1% of AGI ($47.50 per family member under age 18). 2015-greater of $325 or 2 ½% of AGI. Starting in 2014, you will be required to check a box on your tax return, under penalty of perjury, to indicate whether you are covered. If you don’t have coverage, the IRS will take the penalty it out of your refund. If no refund, IRS can NOT do anything to collect it-the law forbids the IRS from placing a lien on taxpayer’s property to collect it.
(b) Business: starting in 2015. LESSER of (1) $3,000 x number of full time employees (anyone working over 30 hours per week) not covered or (2) $2,000 per employee working over 30 hours per week who receive a subsidy to purchase it on an exchange. President Obama recently extended until 2016 the mandatory coverage deadline for businesses with 50-99 employees. Penalty paid is a NON deductible expense.
12. Other important but frequently overlooked items
(a) points on REFINANCED mortgage. not deductible in year mortgage is originated . Must be deducted annually over life of mortgage
(b) Parent pays child’s student loan interest and education expenses
(1) parent claims child as dependent-taken on PARENT’S return
(2) does not claim child as dependent-taken on CHILD’S return
In other words, a child cannot claim these on their own return if the parents claim them as a dependent.
(c) Mandatory Federal withholding tax on withdrawal from tax deferred retirement account, EXCEPT IRA. Regardless of age ,IRS requires 20% FEDERAL (state w/h is optional) tax from amount received , even if it is rolled over (except direct trustee to trustee).
(d) Additional 10% tax on early withdrawals from IRA, 401K, 403B, IRA and other tax deferred retirement plans BEFORE age 59 ½
(1) Most Common EXCEPTIONS when tax does NOT apply
A. Rollover within 60 days but you can’t get a refund of the tax withheld until you file your tax return.
B. Medical expenses that exceed 10% threshold.
C. Complete disability
D. Series of PERIODIC EQUAL PAYMENTS over life expectancy
E. Separation from service if age 55 and over age (50 for local public service employees) when you retire or leave company. [but is N A to IRA]
F. Received as a beneficiary of deceased plan participant
G. IRA withdrawal due to hardship and amount used to purchase house or pay education expenses
(e) Retirement SAVERS credit. Is a % of first $2,000 contribution to retirement plan, traditional or Roth IRA (% is based on AGI for filing status). N/A if (1) < age 17 (2) claimed as dependent by ANOTHER TP (3) full time student five or more months
(f) Sect 529 college savings account. Income not taxable. Withdrawals used for education\ expenses are NOT taxable. Contributions not deductible on federal but up to $10,000 on NY
(g) Unused year-end amounts, up to $500, in MEDICAL FLEXIBLE SPENDING ACCOUNT can now be CARRIED OVER to following year, if employer permits
(h) Donate appreciated securities instead of cash. You get a charitable deduction for FMV at date of gift. Contact your broker and he can make the transfer directly. If you sell the securities and donate the cash, you have to pay tax on the gain.
(i) deduction FOR AGI for IRA contribution for non-working spouse (max. $5,500 if under age 50; $6,500 if age 50 and over)
(j) gambling losses-amount of deduction can’t exceed winnings. Losses are taken on Sch. A as a miscellaneous deduction. Income is reported as “other income” on page one of form 1040. If you use the standard deduction, gambling losses can NOT be deducted.