Changes to the federal tax code for 2014 generally seem to have favored tax cuts for all but the wealthiest Americans, while also limiting the amount of allowable deductions for those who are better off. Read on for the main 2014 tax changes you need to know about:
Everyone:
Income tax bracket
The caps for each income tax bracket have been raised for 2014. This means that if your income hasn’t increased much, then you may fall into a lower tax bracket than when you filed in 2013 (less tax to pay).
Itemized deductions
The amount of personal exemption (non-taxable income) has increased by $50, from $3,900 in 2013 to $3,950 in 2014.
Standard deductions
If you are not itemizing deductions, the standard deduction has increased to the amounts below for 2014:
• Single or Married Filing Separately: $6,200
• Head of Household: $9,100
• Married Filing Jointly: $12,400
• Qualifying Widow/Widower: $12,400
In addition, if you are aged 65 years or older, or are legally blind, you can increase your standard deduction by $1,550 if you file as single or as a head of household, and by $1,200 if you are married filing jointly, separately, or a qualifying widow.
Medical expense deductions
In 2014, it is more difficult to claim deductions for medical expenses (including health insurance premiums). In addition to itemizing each expense, qualifying expenses must amount to more than 10 percent of your Adjusted Gross Income (AGI); i.e., if your qualifying medical expenses amount to less than this, you won’t get the deductions. It also means that the more you earn, the higher your allowable deduction will be for medical expenses.
Wealthier Americans: more tax, less deductions
There is some debate about what constitutes “wealthier Americans,” so these changes apply at different income levels (and above). Read carefully.
Income tax bracket
For the very rich, if you earn $406,751 or more ($457,601 or more for married couples filing jointly), then you are in the top tax bracket with a 39.6% tax on income (after deductions).
Itemized deductions
If your individual income is $254,200 or more (or $305,050 for married couples filing jointly) there will be a limit on what you can deduct. In addition, the personal exemption phaseout means you won’t be able to claim the same exemptions for you and your dependents as in earlier years.
Alternative minimum tax
Also affecting high earners, the Alternative Minimum Tax (AMT) ensures taxpayers pay at least a minimum amount of tax. In 2014, if you earn more than the following amounts, or have claimed specific deductions (see the IRS website), you will need to complete form 6251.
• $52,800 for single taxpayers
• $82,100 for married taxpayers filing jointly
• $41,050 for married taxpayers filing separately
If you owe more in income tax through this method than the standard calculation, then you must pay the difference as an additional tax. There are no exemptions for children or yourselves. In addition, under the AMT, a medical expense deduction can only be claimed if it exceeds an additional 2.5 percent of your adjusted gross income.
Lower incomes: encouraging savings
Retirement savings
If you have made eligible contributions to a qualified retirement savings account and have a lower income, the saver’s credit gives you a tax credit for a percentage of your contribution (the less you earn, the greater this percentage). In 2014, this tax credit applies if you earn up to $30,000 (single filers or married filing separately), $60,000 (married couples filing jointly) or $45,000 (heads of households).
Small businesses:bad news—good news
Big purchases
If you own a business, you may need to start spreading out the expense of a big purchase over time. Changes to section 179 of the Tax Code mean that business owners can only deduct expenses of up to $25,000 for qualifying equipment in 2014.
Home office
The good news is that if you own a small business or are self-employed, you can claim a simplified tax deduction for a home office in 2014. It’s also relatively easy to calculate the deduction, which is based on a flat rate of $5/square foot of home office space up to a maximum of 300 square feet. The traditional method can be used if your home office is bigger than that or if your expenses are large.
This article was written by Phyllis Stent, who believes that business tax accountants can save you a lot of money.
You May Also Like:
Does cutting mortgage rates help borrowers? – Know moreHow to check If You Are Paying Too Much Income TaxGet a side job to pay your debtAttention Entrepreneurs! Small Changes Equal Big SavingsTop 10 Frequently Asked Questions Answered About Personal Loans
