Enrolled Agents Licensed to Represent
Taxpayers Before the IRS

A Review of 2014

In 2014 these changes could be costly for you-

There are many tax provisions that lawmakers on Capitol Hill have allowed to expire at the end of 2013 -- a move that may impact your 2014 personal tax filings. These changes were often due to congressional inaction which affected “extenders” – tax breaks or deductions that Congress extended at one- or two-year intervals, rather than attempt to permanently budget them. The loss of these “extenders”, plus the effects of new legislation, means that in 2014 taxpayers will have to deal with a number of costly tax changes.

Here is a sampling of some of the items in question:

IRA distributions to charity

Before 2014, older individuals who wanted to direct up to $100,000 of their IRA distributions to their favorite charities could do so tax free. This tax break worked well for people in upper-middle-class income brackets who rather than taking a distribution from their IRA and then donating the cash to a charity and claiming an itemized deduction, could make a direct distribution.

Residential energy credits

Taxpayers can no longer get a $500 tax credit for making home improvements to save energy at a primary place of residence -- nor can contractors get a $2,000 credit per energy-efficient home they build.

Education deductions

A deduction of up to $4,000 toward higher education expenses expired in 2014, as did a deduction of up to $250 for teachers who made out-of-pocket purchases towards school supplies. These provisions have been allowed to expire in the past, and then retroactively reinstated.

Home mortgage debt forgiveness

The Mortgage Relief Act of 2007 allowed taxpayers to exclude relief of mortgage debt through foreclosure, as well as any debt reduced by mortgage restructuring for up to $2 million. That provision expired Dec. 31, 2013 and any cancellation of debt is now taxable.

Mass transit vs. car commuters

In 2014, commuters using mass transit can only exclude $130 per month in fringe benefits compared to the previous $245.If your employer allowed you to exclude payments on your company parking, that benefit has gone up $5 this year, to $250.

Optional deduction for state sales taxes

As of Jan. 1, 2014 individuals can no longer deduct their itemized state or local sales taxes. In 2013, a taxpayer had the option to deduct as an itemized deduction the higher of his state income tax or the amount equal to sales tax paid or calculated . Taxpayers in states with high income taxes -- such as New York, Connecticut and many of the New England states -- could deduct their state income taxes. Taxpayers living in the seven states with no income tax -- Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming -- could deduct their sales tax. But the sales tax deduction has now ended-certainly to the detriment of taxpayers in states with no income taxes.

Affordable Care Act requirement

In 2014, under the Affordable Care Act a penalty for people and families who don't purchase health insurance will come into effect. Single persons who don't purchase health insurance will now have to pay a tax equal to one percent of their income, or $95 -- whichever amount is greater. Families will pay the higher of one percent of income or $95 per uninsured person ($47.50 for children under 18) to a maximum of $285.


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