In 2010, when Congress passed the Affordable Care Act (commonly called Obamacare), the effects seemed far away to many of us. Now that 2014 is here, there will be several direct effects upon every American, with the requirement that all Americans of all ages obtain qualified health insurance for the entire year. The requirement to obtain health insurance applies to you individually as well as to anyone you claim as a dependent on your return.
Several new forms will be issued to taxpayers this year, primarily Form 1095-A, B and C. These forms provide the necessary information to report your health insurance coverage, calculate any credit and calculate any penalty that may apply.
Because much of the reporting for 2014 will be voluntary you may not receive any Forms 1095 but in order to complete your tax return you will need the following.
If you received an advance payment of the Health Care credit by purchasing insurance through the Exchange please be aware that if you received a greater credit than allowed you will be forced to repay the excess with this year’s return.
Annual Gift Tax Exclusion: The most commonly used method for tax-free giving is the annual gift tax exclusion,
which for 2014 allows a person to give up to $14,000 to each donee without reducing the giver's estate and
lifetime gift tax exclusion amount.
Retirement Plan Contributions:
Traditional IRAs: $5,500 ($6,500 over 50 years of age) subject to income limitations.
Roth IRA: $5,500 ($6,500 over 50 years of age) subject to income limitations.
401(k) Contribution: $17,500 ($23,000 over 50 years of age).
SIMPLE Plan Contribution: $12,000 ($14,500 over 50 years of age).
Capitalization v. Expensing for Materials and Supplies and Repairs: Effective for taxable years beginning on or
after January 1, 2014, the IRS finalized regulations that determine when taxpayers should capitalize or deduct as
a current expense repairs on tangible property, plus the deductibility of materials and supplies. A deduction for
materials and supplies is allowed under a de minimis rule that includes property that has an acquisition or
production cost of $200 or less. Also, another de minimis safe harbor states that for repairs to be deductible,
among other requirements, the unit of property must cost less than $5,000 per invoice or item substantiated by
the invoice for taxpayers with applicable financial statements and $500 per invoice for taxpayers without
applicable financial statements.
Child Tax Credit: A tax credit of $1,000 per qualifying child under the age of 17 is available on this year's return.
Education Credits: The maximum credit for 2014 is $2,500 (100% on the first $2,000, plus 25% of the next
$2,000) for qualified tuition and fees paid on behalf of a student (i.e., the taxpayer, the taxpayer's spouse, or a
dependent) who is enrolled on at least a half-time basis. The credit is available for the first four years of the
student's post-secondary education. For 2014, the credit is phased out at modified AGI levels between $160,000
and $180,000 for joint filers and between $80,000 and $90,000 for other taxpayers.
The Lifetime Learning credit maximum in 2014 is $2,000 (20% of qualified tuition and fees up to $10,000). A
student need not be enrolled on at least a half-time basis so long as he or she is taking post-secondary classes to
acquire or improve job skills. As with the Hope (American Opportunity Tax Credit in 2014) credit, eligible
students include the taxpayer, the taxpayer's spouse, or a dependent. For 2014, the Lifetime Learning credit is phased out at modified AGI levels between $108,000 and $128,000 for joint filers, and between $54,000 and
$64,000 for single taxpayers.
Residential Energy Efficient Property Credit: Until 2016, tax incentives are available to taxpayers who install
certain energy efficient property, such as photovoltaic panels, solar water heating property, fuel cell property,
small wind energy property and geothermal heat pumps. The property purchased cannot be used to heat
swimming pools or hot tubs.
Capital Gains Rates
• Capital gains on property held one year or less are taxed at an individual's ordinary income tax rate.
• Capital gains on property held for more than one year are taxed at a maximum rate of 20% (0% if an individual
is in the 10% or 15% marginal tax bracket; 15% for individuals in the 25%, 28%, 33% and 35% brackets).
Investment Income Tax: Continuing from enactment in 2013, a 3.8% tax is levied on certain unearned income.
The tax is levied on the lesser of net investment income or the amount by which modified AGI exceeds certain
dollar amounts ($250,000 for joint returns and $200,000 for individuals). Investment income is: (1) gross income
from interest, dividends, annuities, royalties, and rents (other than from a trade or business); (2) other gross
income from any business to which the tax applies; and (3) net gain attributable to property other than property
attributable to an active trade or business. Investment income does not include distributions from a qualified
retirement plan or amounts subject to self-employment tax. This rule applies mostly to passive businesses and
the trading in financial instruments or commodities. With this additional tax, the maximum net capital gains
rate is 23.8% in 2014. Because distributions from qualified retirement plans are not subject to the tax, taxpayers
may want to invest in retirement accounts, if possible, rather than taxable accounts.
Tax Return Related Identity Theft
Fraudulently filed tax returns are becoming an issue for both the Internal Revenue Service and taxpayers. An
identity thief uses a legitimate taxpayer’s identity to fraudulently file a tax return and claim a refund. This link
provides information on how to protect yourself, what to look for, and what to do if you become a victim:
www.irs.gov/uac/Taxpayer -Guide-to-Identity -Theft.
Chris has been working in the industry for over a decade and has a passion for ensuring her clients have the best service in the area of taxation, accounting and bookkeeping.