With the New Year came some new changes and expiration of some tax provisions. Here are a few changes you should to be aware of for 2013-2014.
PERSONAL EXEMPTION/ DEDUCTION
For the 2013 tax year, the personal exemption is $3,900. The standard deduction is $12,200 for married taxpayers filing jointly, $6,100 for singles and $8,950 for heads of household.
For the 2014 tax year, the personal exemption is $3,950. The standard deduction is $12,400 for married taxpayers filing jointly, $6,200 for singles and $9,100 for heads of household.
EDUCATION
Credits and deductions extended to 2013 include the American Opportunity Credit of up to $2,500 per student for tuition and fees and deductions for student loan interest and tuition-related expenses.
School teachers will still be able to deduct up to $250 in out-of-pocket expenses for books or other supplies.
AFFORDABLE CARE ACT
The affordable care act will continue to make adjustments in 2014. This means uninsured Americans will have to make some decisions or face some tax penalties. The penalty for not purchasing a health insurance plan is either 1 percent of your yearly household income or $95 per an uninsured adult and 47.50 per child, up to $285 for a family. You pay whichever amount is higher and the penalty will take place when you file your 2014 tax return in 2015.
MEDICAL EXPENSES
Taxpayers will still be able to deduct their medical expenses, but it will be more difficult for many to qualify. The threshold for deducting medical expenses is now 10 percent of adjusted gross income, up from 7.5 percent. There is an exemption for people over 65 in which they will be grandfathered into the old rate until 2017.
HOME OFFICE DEDUCTION
Taxpayers who work at home will now have a simplified option for taking a home office deduction. Starting with 2013 returns, if you’re eligible for the deduction, you can take a standard deduction of $5 per square foot, up to 300 square feet. The maximum deduction using this method is $1,500. Home office must be used regularly and exclusively for business.
For business use of your car you can do your actual costs or the IRS mileage rates. The standard mileage rate for business use of a car in 2013 is 56.5 cents a mile, up from 55.5 cents.
ENERGY EFFICIENCY
For 2013, if you made energy efficiency improvements to your home, such as installing new windows or a qualifying furnace or heat pump, you might be able to take an energy credit of 10 percent of the cost up to a lifetime maximum of $500. The IRS says only $200 can be used for windows.
There are additional credits for solar through 2016, which includes up to 30% of the cost of alternative energy equipment such as solar hot water heaters, solar electric equipment, and wind turbines.
SAME-SEX MARRIED COUPLE
For 2014, married same-sex couples now have same filing responsibilities as heterosexual couples. IRS instructed same sex married couples to file jointly or as a married couple filing separately even if the state they live in does not recognize their marriage.
HIGHER-INCOME TAXPAYERS
Legislation passed at the beginning of 2013 extended tax cuts for most people but added a marginal tax rate of 39.6 percent for those with higher incomes. These amounts of income include $400,000 for single filers, $450,000 for married couples and $425,000 for heads of the household.
There is also a higher capital gains and dividends tax for higher-income tax payers which may be up to 20 percent for some. For each of these new taxes there is an income threshold. For example, an additional .9 percent Medicare tax kicks in on earnings over $250,000.
One of the biggest changes for high income tax payers is the new net investment income tax of 3.8 percent. This is also known as the Medicare surtax because the money goes toward health coverage program for older Americans. This tax applies to either your modified adjusted gross income or your net investment income, whichever is lower.
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