Important Personal Income Tax Information for Your 2014 Return
by Margot Carmichael Lester, Staples® Contributing Writer
DISCLAIMER: This information is only provided for general informational purposes, and should not be considered as offering individualized tax advice. Tax laws are complex; please consult your tax advisor on specific issues related to your tax situation.
Every year there are changes and updates to the tax code that impact our tax returns. Heres a brief look at three that could apply to your 2014 personal income tax filing.
1. The Affordable Care Act: If you obtain coverage in the Health Insurance Marketplace, your annual income will be tightly coupled with your monthly premium costs, explains Brian Ashcraft, director of operations for Liberty Tax Service, based in Virginia Beach, VA. Changes in your income or family size could cause an increase or decrease in your monthly premiums. This reconciliation will take place on your tax return. If youre uninsured, you must have a coverage exemption to avoid a penalty when you file your taxes. Penalties for 2014 are $95 per adult or 1 percent of annual taxable household income, whichever is greater. Penalties will increase next year, so its important to understand your coverage options. A tax professional can help you understand what the Affordable Care Act means for you this year and going forward.
2. Estate and Gift Taxes: The former 5 percent surtax has been eliminated, according to Jayson Mullin, co-owner of Houston-based Top Tax Defenders. In its place is a permanent maximum rate of 40 percent. While the annual gift exclusion for 2014 remains at the 2013 level of $14,000, the lifetime estate and gift tax exemption is up to $5.34 million [from $5.25 million] for 2014, he says.
3. Tax Breaks: You may have heard about the tax extender package being debated in Washington, which will extend certain expired and expiring tax breaks. Some of the deductions and credits included in this package are the option to deduct state and local sales taxes, a deduction for higher education tuition and related fees, a $250 deduction for teachers school expenses, and a $500 credit for energy-efficient home improvements. If the provisions are not extended, you may end up paying more in taxes this year, Ashcraft warns. If Congress does not act soon, the IRS may have to delay the start of the filing season, which means taxpayers may have to wait longer for their refunds.
Preparing Your Return
All this means that preparing your personal income tax return may be more complicated this year.
It makes sense to get a tax professional to review a return anytime you are a Schedule C filer or if you have retirement distributions, rental property, sale of a home, etc., Mullin says. Basically, any time you have an item to report that is more complex than W-2 income, interest or dividends, you should have a tax professional review the return. This is true even if you use tax preparation software. Many accountants provide a review for free or for a small fee.
Its also important to make sure youre using the right tax status. Ashcraft says many people get this wrong, a costly mistake that affects credits and deductions, and could mean you wont get the refund you deserve. If you get too much of a refund, you could risk the IRS taking it back later with penalties and interest, he says. If you have questions about filing status, contact a tax professional. He or she can advise you on the correct status and help you file an amended return if you used the wrong status for the past year.
Of course, you may just want to hand the whole thing over to a professional.
Individuals choose to use a professional tax service for three basic reasons: fear of the IRS, complexity of the return, and convenience, Ashcraft says. A tax professional can work on your behalf with the IRS, provide tax knowledge to help guide your individual situation, and take care of your taxes while you take care of other things.