Tax Changes for 2014

Tax Brackets

For 2014, the 10%, 15%, 25%, 28%, 33% and 35% brackets for ordinary income reflect an inflation adjustment.

There is a top bracket of 39.6% that applies if taxable income exceeds:

  • $406,750 for single taxpayers
  • $432,200 for heads of households
  • $457,600 for married taxpayers filing jointly and qualifying widows and widowers
  • $228,800 for married taxpayers filing separate returns.

Individual Health Care Mandate

Starting in 2014, you can get hit with penalty if don't have minimum essential health coverage through either an employer plan, government program, or other plan. If you are exempted from this requirement, then you won't have to pay a penalty.

There is a new premiums tax credit designed to help people of modest means pay premiums for coverage obtained from a government exchange (Marketplace).

Premium Tax Credit

If, like most Market applicants, you received an advance of the premium tax credit that went to your insurance company to be applied against your monthly premiums, you will have to reconcile what was already applied toward your coverage with what you were actually entitled to receive. You report the difference on your tax return.

If you did not receive an advance of the premium tax credit but were eligible for it, you can claim the credit on your tax return. You need to complete Form 8962, Premium Tax Credit (PTC).

If your allowable credit on Form 8962 exceeds the advance payments, the excess, called the "Net Premium Tax Credit", can be claimed as a refundable credit on Form 1040, line 69. If your advance payments were more than the amount you were entitled to receive, you must pay back the excess, but there are limits on the repayment.

The term "refundable credit" (as opposed to nonrefundable credit) means, if the credit exceeds your tax liability, you get paid the excess amount, whereas, with a nonrefundable credit, you don't get paid the excess amount.

Qualified Dividends and Long-Term Capital Gains

Qualified dividends and long-term capital gains may escape tax under the 0% rate, or be subject to capital gain rates of 15% or 20% depending on filing status, taxable income, and how much of the taxable income consists of qualified dividends and eligible long-term capital gains.

The 20% capital gain rate and the 39.6% ordinary income rate have the same taxable income thresholds, depending on filing status:

  • $406,750 for single taxpayers
  • $432,200 for heads of households
  • $457,600 for married taxpayers filing jointly and qualifying widows and widowers
  • $228,800 for married taxpayers filing separate return

The 0%, 15%, and 20% rates do not apply to long-term capital gains subject to the 28% rate (collectibles and taxed portion of small business stock) or the 25% rate for unrecaptured real estate depreciation.

First-year expensing (Section 179) and Bonus Depreciation for Passenger Cars, Trucks, Vans, SUV's

H.R. 5771: Tax Increase Prevention Act of 2014 (aka Tax Extenders Act) retroactively reinstated the Section 179 deduction limit to $500,000 ($535,000 for enterprise zone property). The 50% Bonus Depreciation (referred to as the special depreciation allowance) was also reinstated for tax year 2014.

The Section 179 expensing limit is reduced by each dollar that the cost of Section 179 property placed in service during 2014 exceeds $2 million.

Certain qualified real property that is elected to be treated as section 179 property is limited to $250,000 of the maximum section 179 deduction of $500,000 for 2014.

Note: Before the reinstatement, the 2014, first-year expensing limit was set at only $25,000.

Bonus Depreciation:

For 2014, the bonus depreciation rate is 50% of the adjusted basis of eligible property. The property must be new and placed in service in 2014. Used property does not qualify for bonus depreciation.

Bonus depreciation may be claimed in addition to the Section 179 (first-year expensing) deduction.

Steps for deducting bonus depreciation:

  1. First, compute your Section 179 deduction
  2. Next, you compute your bonus depreciation.
  3. Last, figure your regular depreciation under the Modified Accelerated Cost Recovery System (MACRS).

Passenger Cars:

For new cars weight-rated by the manufacturer at 6,000 or less (without passengers or cargo), used over 50% for business, and placed in service in 2014, the depreciation ceiling is $3,160 (reduced for personal use).

However, a bonus depreciation allowance of $8,000 brings the maximum annual depreciation limit to $11,160 for passenger cars.

Light trucks, Vans, and SUVs:

For light trucks, vans, and SUVs weight-rated 6,000 pounds or less when fully loaded, the annual depreciation ceiling is $3,460. These vehicles are also allowed an additional deduction of $8,000 for bonus depreciation, bringing the maximum annual depreciation limit for these vehicles to $11,460.

Heavy Trucks, Vans, and SUVs

Trucks, vans, and SUVs weight-rated over 6,000 pounds are not subject to annual depreciation ceilings. However, first-year expensing for trucks, vans, and SUVs weighing over 6,000 pounds but not over 14,000 pounds is limited to $25,000 rather than the general expensing limit of $500,000 for 2014.

Standard Deduction

Your standard deduction depends on your filing status.

  • Married Filing Joint Return: $12,400
  • Qualifying Widow or Widower: $12,400
  • Head of Household: $9,100
  • Single: $6,200
  • Married Filing Separately: $6,200
  • Dependents - minimum deduction: $1,000

Additional Standard Deduction:

Additional deduction is added to the regular standard deduction for taxpayers age 65 (born before January 2, 1950) or older, or blind:

  • Married-per-spouse, filing jointly or separately:
    • $1,200 ($2,400 for age and blindness)
  • Qualifying Widow/Widower:
    • $1,200 ($2,400 for age and blindness)
  • Single or Head of Household:
    • $1,550 ($3,100 for age and blindness)

The additional standard deduction is simply added to the regular standard deduction.

If you turned 65 on January 1, you are considered 65 as of December 31, of the prior year for income tax filing purposes.

Personal Exemptions

For 2014, each allowable exemption is $3,950.

Phaseout of Exemptions for 2014:

If your 2014 filing status is - Phaseout applies if AGI exceeds - Exemptions Phased Out Completely if AGI exceeds -
Married filing jointly or Qualifying Widow/widower $305,050 $427,550
Head of household 279,650 402,150
Single 254,200 376,700
Married filing separately 152,525 213,775

Adoption Expenses

For 2014, the limit on the adoption credit as well as the exclusion for employer-paid adoption assistance is $13,190. The benefit phaseout range is modified adjusted gross income between $197,880 to $237,880.

Alternative Minimum tax (AMT) Exemption and Tax Brackets

The AMT exemptions, exemption phaseout thresholds, and the dividing line between the 26% and 28% AMT brackets are adjusted for inflation. The 2014 AMT exemptions (prior to any phaseout) are:

  • $82,100 for married couples filing jointly
  • $82, 100 Qualifying widows and widowers
  • $52,800 for single persons
  • $52,800 for heads of households
  • $41,050 for married persons filing separately

Saver's Credit

The adjusted gross income (AGI) brackets for the 10%, 20%, and 50% credits are increased for 2014.

No credit is allowed when AGI reaches:

  • $30,000 for single taxpayers
  • $45,000 for heads of households
  • $60,000 for married persons filing jointly

Annual Gift Tax Exclusion and Gift Tax and Estate Tax Exemption

  • For 2014 the annual gift tax exclusion is $14,000 per donee for gifts of cash or present interests.
  • The basic exemption amount for 2014 gift tax and estate tax purposesis is $5,340,000.
  • The top tax rate is 40%.

Deduction Limits for Long-Term Care Premiums

The maximum amount of age-based long-term care premiums that can be included as deductible medical expenses for 2014 (subject to the 7.5% or 10% AGI floor) is:

  • $370 if you are age 40 or younger at the end of 2014
  • .$700 for those age 41 through 50
  • $1,400 for those age 51 through 60
  • $3,720 for those age 61 through 70
  • $4,660 for those over age 70

Foreign Earned Income and Housing Exclusions

For 2014, the foreign earned income exclusion is $99,200. The limit on hosing expenses that may be taken into account in figuring the housing exclusion is generally $29,760, but the limit is increased by the IRS for high cost localities.

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