Tax Updates and Changes for 2014
With the late tax law changes in 2014, please prepare for the extension into 2014 of the following tax laws. That way, you will have the documentation necessary to take advantage of this late breaking legislation.
• State sales tax itemized deduction option Keep receipts of any large purchases. The sales tax provision allows for you to take either a general sales tax deduction or a state income tax deduction as an itemized deduction.
• Direct contribution from retirement accounts for qualified seniors-Qualified seniors (at least 70 1/2) who donate funds directly from their retirement plan can exclude the plan withdrawal from income. The exclusion may not exceed $100,000 per taxpayer.
• Itemized deduction for mortgage insurance premium costs Keep your insurance documentation for a potential itemized deduction.
• Changes in small business depreciation Effective late December, there is are-introduction of 1st year bonus depreciation and re-expanded. Section 179 expense limits. Please plan accordingly.
• You have no medical insurance. Beginning in2014, if you are not in a qualified health insurance plan you will need to file a tax return to pay the tax penalty. As part of the Affordable Care Act, there is now a minimum penalty of $95 per individual ($285 per family) if you do not have health insurance. The maximum penalty is 1% of your income.
• You qualify for the new Health Insurance Premium Credit. If you signed up for health insurance through the new health insurance exchange, you may be eligible for a reduction of your insurance premium through a tax credit. You may have already applied the credit to reduce your monthly insurance bill. In either case, if this credit applies to you, you must file a tax return.
Alimony in the Spotlight
Alimony is deductible by the person making the payments. The receiving ex-spouse must report alimony as income on his or her tax return. Unfortunately, in: a recent Treasury Department audit of tax returns, 47% of those that claimed to pay alimony did not have a matching tax return from someone that added the payment back as income. This mismatch of alimony payments and claimed income is now one of the areas in the spotlight of the IRS. To protect yourself all divorce papers should be kept indefinitely. This includes retaining copies of separate maintenance agreements or other written documents that spell out the basis for alimony and or child support payments. In addition, double-check the Social Security Number or Tax ID of your ex-spouse for accuracy. Errors in entry will, in all likelihood, begin to see penalties assessed
• Alimony or child support. Many ex-spouses are claiming an alimony deduction while their former spouse is saying it is child support. This mismatch will now create an audit unless you fix the problem with your ex-spouse or file appropriately to avoid the audit mismatch.
If other late law changes impact you, rest assured those changes will be applied to your tax return as they become known.
Peter Rudolph, CPA