At long last, Congress granted a reprieve for most of the expired tax provisions that had remained in limbo this year, but the late-breaking tax relief is only temporary.
The new legislation – the Tax Increase Prevention Act of 2014 – restores these tax breaks retroactive to January 1, 2014. However the provisions expire again on December 31, 2014, so Congress will likely take up these measures again after the holidays. The president is expected to sign the approved bill into law.
The tax extenders cover a wide range of tax breaks both large and small for individuals and businesses. Here are ten of the most popular items for your clients.
1.State and local tax deductions: In lieu of deducting state and local income taxes, a taxpayer may elect to deduct states sales taxes. Deductions are based on actual receipts or a state-by-state table (plus sales tax paid for certain big-ticket items).
2.Section 179 deductions: A business can currently deduct, or “expense,” up to $500,000 of qualified assets placed in service in 2014, subject to a phaseout threshold of $2 million. Prior to the latest extension, the maximum allowance was just $25,000 with a $200,000 phaseout threshold.
3.Bonus depreciation: A separate provision allows a business to claim 50% “bonus depreciation” for qualified assets placed in service in 2014. Note that bonus depreciation may be combined with the Section 179 deduction in some cases.
4.Charitable IRA rollover: If you’re over age 70½, you can roll over up to $100,000 of IRA proceeds to a charity without paying tax on the distribution. This technique is often used to satisfy the rules for required minimum distributions (RMDs).
5.Research credits: This popular tax credit, which has been extended numerous times in the past, provides a tax credit equal to 20% of qualified expenses exceeding a base amount. Alternatively, a business can elect to use a simplified 14% credit.
6.Tuition-and-fees deduction: Taxpayers may deduct tuition and fees paid to a college in lieu of claiming one of the higher education tax credits. However, the maximum deduction of $4,000 is phased out based on modified adjusted gross income (MAGI).
7.Hiring credits: The Work Opportunity Tax Credit (WOTC) is available to employers hiring workers from one of several disadvantaged groups. Generally, the maximum credit is $2,400 per worker, although it can be high as $9,600 for certain veterans.
8.Mortgage loan forgiveness: This provision authorizes a tax exclusion for mortgage loan forgiveness on debts up to $2 million. The exclusion is available only on debt forgiveness for a principal residence.
9.Home energy credits: The residential energy credit has existed in various forms for years. For 2014, a maximum $500 credit may be claimed for 10% of qualified energy-saving expenditures like new heating and air conditioning systems.
10.Teacher classroom expenses: Teachers and certain other educators are able to deduct up to $250 of their out-of-pocket classroom expenses. This deduction is claimed above-the-line.
More than half of taxpayers hire a professional when it’s time to file a tax return. Even if you don’t prepare your own Form 1040, you’re still legally responsible for what is on it.
A tax return preparer is trusted with your most personal information. They know about your marriage, your income, your children and your Social Security numbers – all of the sensitive details of your financial life. If you pay someone to prepare your federal income tax return, the IRS urges you to choose that person wisely. To do that, take some time to understand a few essentials.
Most tax return preparers provide outstanding service. However, each year, some taxpayers are hurt financially because they choose the wrong tax return preparer. Well-intentioned taxpayers can be misled by preparers who don’t understand taxes or who mislead people into taking credits or deductions they aren’t entitled to in order to increase their fee. Every year, these types of tax preparers face everything from penalties to even jail time for defrauding their clients.
Here are a few tips to keep in mind when choosing a tax preparer:
IRS FS-2014-11, December 2014
With the complications associated with the Affordable Care Act (Obamacare) it is very important for you to get assistance with filing your tax return this season. Please give us a call with any questions concerning your return preparation. We have PROFESSIONALS on staff that know the answers!
Minimizing your taxes requires a year round effort. The following events will have an impact on your tax liability. In most cases, proper tax planning can minimize any negative tax consequences. Whenever a situation on this list occurs, call your EA.
Tax Season 2014 has come and gone and now it’s time to think about tax planning for tax year 2014. Items which could impact your 2014 taxes include certain life events and expired tax provisions.
Certain Life Events
Have you recently had a birth, adoption or death in your family? Have you gotten married, divorced, retired, or changed jobs this year? If any of these life events occur in 2014, we need to discuss the potential impact on your 2014 taxes. For example:
Other Steps to Consider Before the End of the Year
You should thoroughly review your situation before year end to determine the best tax strategies for 2014 and the impact on 2015 as well. Accelerating income/deferring deductions into 2014 or deferring income/accelerating deductions to 2015 are just a couple of approaches that could benefit you.
If you have any foreign assets, be aware that there are reporting and filing requirements for those assets. Noncompliance carries stiff penalties.
Please call me at your convenience to set up an appointment to estimate your tax liability for the year and discuss any questions you may have.
A deduction is an expenditure that will reduce your taxable income. There are two kinds of deductions: adjustments to income and itemized deductions. The adjustments to income are the better of the two, as they reduce adjusted gross income, or “AGI.” Itemized deductions reduce your taxable income.
First, we will look at some adjustments to income.
Educator expenses apply to K – 12th grade educators, and are limited to $250 of documented supplies per qualified taxpayer. Expenses exceeding $250 can be taken as a miscellaneous itemized deduction.
A health savings account is an account set up exclusively for paying the qualified medical expenses of the account beneficiary or the beneficiary’s spouse or dependents.
Moving expenses include qualified out-of-pocket expenses or an employer reimbursement that was included in your W-2 form. If you received a non-taxable reimbursement, you cannot deduct the expenses.
Self-employment tax. If you are a sole-proprietor, active partner or have miscellaneous income subject to self-employment tax, you can deduct half of the self-employment tax.
Self-employed pension plans. You can deduct all qualified contributions to self-employed SEP, SIMPLE, and qualified plans.
Self-employed health insurance deduction. For this deduction you must be a sole proprietor or an active partner with net business income or a more than 2% shareholder of an S-corporation. The deduction is limited to net profit. Qualified long-term care insurance premiums, subject to age limitations, are also deductible.
Penalty on early withdrawal of savings is deductible and you will find this fee on your form 1099-INT. These penalties are typically incurred when you cash in a CD prematurely.
Alimony paid is deductible, but you must include the Social Security number of the recipient.
IRA deduction. Report only deductible traditional IRA contributions. Roth IRA contributions are not deductible.
Student loan interest. Up to $2,500 of the interest paid on a qualified student loan is deductible. There are income limitations. You will receive Form 1098-E from the entity to which you paid the student loan interest.
Tuition and fees deduction. Up to $4,000 of higher education tuition and fees can be deducted by taxpayers with an AGI under $80,000 if single, or $160,000 if married filing jointly.
Medical expenses in excess of 10% of AGI are deductible as itemized deductions. If you or your spouse is age 65 or older by year end, you may deduct medical expenses in excess of 7.5% of AGI. Medical expenses are deductible in the year paid.
Taxes. State and local income taxes as well as real estate taxes for all property owned are deductible in the year paid. Most income taxes paid to a foreign country or US possession are either deductible as an itemized deduction or can be taken as a credit against tax.
Mortgage interest paid is deductible, with limitations. Mortgage interest is deductible on up to two homes with a combined secured acquisition debt of $1.1 million (home equity debt is generally limited to $100,000). Points on the purchase or a refinance to make major improvements are deductible, but they may need to be amortized over the life of the loan.
Charitable contributions must have written substantiation. If less than $250 is given at one time, the bank draft is sufficient. If the gift is $250 or greater, a written acknowledgement of receipt from the charity is required. In most situations, the charitable deduction is limited to 50% of AGI. Non-cash contributions are limited to the fair market value of the items contributed, if they are used items.
Casualty and theft losses are subject to a $100 deduction and a reduction of 10% of AGI per casualty loss. A casualty is damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual.
Miscellaneous deductions are subject to a reduction of 2% of AGI. They include expenses for generating and protecting income, job-related expenses, and unreimbursed employee business expenses.
Other miscellaneous deductions are deductions that are not subject to the 2% of AGI reduction. Some examples are gambling losses up to the amount of gambling winnings, and special job-related expenses of the disabled.
Be sure to let your tax advisor know if you feel you could be eligible for any of these deductions.
As an enrolled agent (EA), your tax professional must take many hours of continuing education each year to stay up-to-date on the constant changes to the tax code. He or she had to pass a stringent three-part exam, or have relevant experience as a former IRS employee in order to qualify for the EA license. It’s reassuring to know that your tax advisor is an EA: licensed by the US Department of the Treasury, with unlimited rights of representation before the IRS.