This month, I’m going to take a look at some of the tax changes in play for 2014. While I won’t cover them all, I will touch on a few that might affect you.
Foreclosure or short-sale debt is again treated as taxable income. Forgiven debt had always been included as income on your tax return. In response to the housing crisis, Congress gave taxpayers a temporary reprieve, but that ended in 2013. Once again, a short sale or foreclosure will be accompanied by a 1099, and the canceled debt will be treated as taxable income.
The alternative minimum tax (AMT) is no longer a headache for most Americans. The American Taxpayer Relief Act of 2012 (ATRA) exempted millions of middle-class Americans from the alternative minimum tax. For most, the annual threat of AMT is now a thing of the past. Good riddance.
There’s a new simplified option for home office deduction. Instead of calculating actual expenses, which can be a burdensome process, home business owners can use a standard deduction of $5 per square foot, with a maximum deduction of $1,500. No more tracking utilities. Even better, you won’t have to recapture the depreciation (pay more taxes) when you sell the home.
Be aware of inflation adjustments. Here are some of the adjustments you’ll see to account for 2013’s reported inflation rate of 1.5 percent:
Standard deduction – $6,200 ($12,400 married filing jointly), up from $6,100 ($12,200 married filing jointly)
Personal exemption – $3,950, up from $3,900
Social Security tax cap – $117,000, up from $113,700. Not surprisingly, this increase in the amount of income
subject to the 6.2 percent Social Security tax was twice the inflation rate.
Top income level for 15 percent tax bracket – This increased from $36,250 to $36,900 (single) and from $72,500 to $73,800 (married filing jointly). This could be an important number for those planning IRA distributions or Roth conversions and aiming to remain in an advantageous tax bracket.
Retirement plan limits – Contribution limits and catch-up contributions remain unchanged in 2014. IRA limits are $5,500 ($6,500 for those 50 and older) and employer plans are capped at $17,500 ($23,000 for those 50 and older).
As the 2013 filing deadline approaches, consider these changes as you look forward to next year’s tax season.
J.J. Montanaro is a certified financial planner for USAA, The American Legion’s preferred provider of financial services. Submit questions for him online. www.legion.org/focusonfinances
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