A Quick Primer for the 2014 Tax Season

 Tax season has arrived, and with it a number of changes that can have a significant impact on both individual and business clients.  While we don’t have the ability to summarize all of the changes, here is a quick primer to some significant tax preparation factors: 

Key Tax dates for 2014 

• January 15, 2014      4th Quarter 2013 Estimated Tax Payment Due
• April 15, 2014            Individual Tax Returns Due for Tax Year 2013
                                    Individual Tax Return Extension Form Due for Tax Year 2013
                                    1st Quarter 2013 Estimated Tax Payment Due
                                    Last Day to make a 2013 IRA Contribution

• June 15, 2014             2nd Quarter 2013 Estimated Tax Payment Due
• September 16, 2014  3rd Quarter 2014 Estimated Tax Payment Due
• October 15, 2014       Extended Individual Tax Returns Due
                                      Last Chance to Recharacterize 2013 Roth IRA Conversion

• January 15, 2015       4th Quarter 2014 Estimated Tax Payment Due 

Standard Mileage Rates 

The standard IRS mileage rates for 2013 were: 

• 56.5 cents per mile for business miles driven.
• 24 cents per mile driven for medical or moving purposes.
• 14 cents per mile driven in service of charitable organizations.
• For automobiles a taxpayer uses for business purposes, the portion of the business standard mileage rate treated as depreciation is 21 cents per mile for 2009, 23 cents per mile for 2010, 22 cents per mile for 2011, 23 cents per mile for 2012, and 23 cents per mile for 2013. See section 4.04 of Rev. Proc. 2010-51. 

Beginning Jan. 1, 2014, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) became: 

• 56 cents per mile for business miles driven
• 23.5 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations
• For automobiles a taxpayer uses for business purposes, the portion of the business standard mileage rate treated as depreciation is 23 cents per mile for 2010, 22 cents per mile for 2011, 23 cents per mile for 2012, 23 cents per mile for 2013, and 22 cents per mile for 2014. See section 4.04 of Rev. Proc. 2010-51.  

Health Care Costs 

Before 2013, an individual could claim as an itemized deduction all medical expenses that were above 7.5% of AGI for regular tax purposes.   In 2014, individuals may itemize as a deduction only the health care costs that exceed 10%of AGI.  Taxpayers age 65 and older can still use the 7.5% rate through 2016.   

New Home Office Options 

The IRS has provided a new means to calculate the home office deduction.  Basically, the individual may calculate the deduction by multiplying the square footage of the home office times $5, to a maximum of $1,500.  

New Taxes 

Under the health care act, starting in 2013, taxpayers must pay an additional 0.9% Medicare tax on FICA wages and self-employment income exceeding $200,000 per year ($250,000 for joint filers and $125,000 for married filing separately). 

Employers are obligated to withhold the additional tax beginning in the pay period when wages exceed $200,000 for the calendar year — without regard to an employee’s filing status or income from other sources. Employers may withhold the tax even if the employee was not liable for it — or it might not withhold the tax even though the employee was liable for it.  

New income tax brackets for 2014 

Due to inflation and other factors, the income tax brackets generally change each year.  For 2014, the new IRS income tax brackets are as follows: 

Tax bracket: 10%
Single filers: $0 to $9,075
Married filing jointly: $0 to $18,150
Head of household: $0 to $12,950 

Tax bracket: 15%
Single filers: $9,076 to $36,900
Married filing jointly: $18,151 to $73,800
Head of household: $12,951 to $49,400 

Tax bracket: 25%
Single filers: $36,901 to $89,350
Married filing jointly: $73,801 to $148,850
Head of household: $49,401 to $127,550 

Tax bracket: 28%
Single filers: $89,351 to $186,350
Married filing jointly: $148,851 to $226,850
Head of household: $127,551 to $206,600 

Tax bracket: 33%
Single filers: $186,351 to $405,100
Married filing jointly: $226,851 to $405,100
Head of household: $206,601 to $405,100 

Tax bracket: 35%
Single filers: $405,101 to $406,750
Married filing jointly: $405,101 to $457,600
Head of household: $405,101 to $432,200 

Tax bracket: 39.6%
Single filers: $406,751+
Married filing jointly: $457,601+
Head of household: $432,201+ 

2014 standard deduction and personal exemption amounts 

The standard deduction has increased from $6,100 to $6,200 for single filers in 2014. For married couples who file jointly, it goes up from $12,200 to $12,400. It’s now $9,100 for head of household filers.

As for the 2014 personal exemption, the amount has gone up by $50 from $3,900 to $3,950. 

Expiration of tax credits & tax deductions 

A package of 57 tax breaks expired when the clock hit midnight on Jan. 1, 2014. Congress did not renew them for this year. Among these tax breaks are: 

• Sales tax deduction for taxpayers in certain states
• Tax deductions for teacher classroom expenses
• Higher education tuition tax deductions of up to $4,000
• Tax breaks that allow companies to write off research-and-development (R&D) costs
• Tax credits for businesses to hire veterans
• Tax credits for purchasing energy-efficient items for homes and businesses
• Tax credits for purchasing certain electric vehicles
• The Transit parity tax break 

Other changes 

• New limits will be placed on certain IRA charitable contributions.
• Companies may be able to claim larger tax deductions for repairing and replacing tangible property.
• Legally married same-sex couples can now file their taxes as married filing jointly thanks to a Supreme Court ruling on DOMA in 2013.
• New healthcare law fines could impact those with no health insurance or those with plans that don’t meet certain government guidelines as more aspects of the Affordable Care Act are implemented.

Sources:  Various