Econintersect: Surprises may await income tax filers one year from now. There are 55 tax law provisions that expired at the end of 2013 and a few new tax provisions effective for 2014. Some of these are itemized in the following.
- Those who don't have health insurance must pay a tax of $95 per uninsured adult, $47.50 per child (up to $285 per household) or 1% of income, whichever is greater.
- Optional deduction of sales tax is no more. In 2013 taxpayers could chose to deduct either state and local income taxes paid or sales taxes. This means that residents of states with no income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming) will now have no state and local tax deduction.
- The use of mass transit for commutation will have a reduced deduction limit of $130 per month, down from $245 in 2013.
- There is no more home mortgage debt forgiveness. From 2007 through 2013 up to $2 million of defaulted home debt (foreclosure, mortgage restructure, etc.) was excluded from taxable income. In 2014 such amounts are again taxable as ordinary income. For example, someone in the 28% bracket who has a foreclosure on a $200,000 mortgage 01 January 2014 or later will owe $56,000 to the IRS. Defaulted debt is considered forgiven debt and is taxed as if income has been received.
- There are no deductions for education expenses in 2014. In 2013 up to $4,000 of higher education expenses and up to $250 out-of-pocket purchases of school supplies by teachers were deductible.
- Older individuals can no longer direct up to $100,000 of IRA distributions tax-free to a charity. This was the case through 2013.
- Residential energy credits up to $500 for home improvements by home owners and $2,000 credit to contractors building an energy efficient home are no longer available in 2014.
- Because of the October 2013 government shutdown the IRS will not be processing paper tax returns until 31 January or later. E-filers have been able to submit electronic returns as of 17 January but these are being held by private sector software providers until the IRS is ready to process them.
- For high income taxpayers a new Medicare tax surcharge takes effect in 2014. For individuals with taxable income above $200,000 ($250,000 for married filing jointly) there is a new 3.8% tax surcharge on net investment income or modified adjusted gross income, whichever is lower.
- Single taxpayers making more than $250,000 ($300,000 married filing jointly) will be subjected to reduction of personal exemptions and itemized deduction, scaled as income increases.
- While same sex married couples may file married filing jointly for federal taxes they will be required to file individually for state taxes if their state laws require that.
For tax benefits that have sunset, Congress can still reinstate them retroactively. This kind of action has taken place in the past. And this is an election year so incumbents may take action again and claim reelection credits from their constituencies. In the meantime, caveat adsiduus (taxpayer beware).
- Seven Sneaky Taxes for 2014 (Bruce Kennedy, 24/7 Wall St, 10 January 2014)
- 10 new tax traps to watch out for in 2014 (Kay Bell, Bankrate.com, MSN Money, January 2014)
- Seven Ways Americans Pay Taxes (Alexander E. M. Hess, 24/7 Wall St, 03 January 2014)