Individual Income Taxes – Updates to Form 1040
Although 2014 will not present the same extraordinary degree of change in the tax climate that we saw in the landmark year of 2013, significant changes have aken place that will effect taxpayers filing their 2014 returns during the 2015 busy season.
The new reporting requirements in 2014 under the Patient Protection and Affordable Care Act (PPACA) represent the biggest changes for individuals.
Taxpayers who purchased health insurance through a Health Insurance Marketplace will be receiving Form 1095A – Health Insurance Marketplace Statement from their insurance provider. Form 1095A has a similar purpose as Form 1099, except that instead of receiving important tax information from your financial institution, you are receiving it from your health insurance provider. After you have received Form 1095A, you will forward it to your CPA, where the form will aid in the preparation of your 2014 individual tax return. The information on Form 1095A will be used to calculate the Premium Tax Credit on Form 8962. Generally, this credit will be available to taxpayers in low income tax brackets, as the credit is calculated based upon household income as a percentage of the Federal Poverty Level.
2014 individual tax returns will have a checkbox that asks whether you had qualified full-year medical coverage. If not, you are subject to the Health Care Penalty. For 2014, the Health Care Penalty is equal to 1 percent of your household income or a maximum of $95 per person. Note that the penalty increases to 2% of household income or $325 per person in 2015, and 2.5% and $695 per person in 2016.
The standard mileage rate is 23.5 cents-per-mile.
If an individual is an active participant in certain plans for any part of any plan year ending with or within the individual’s tax year, it can cause a reduction in the dollar limit on IRA deductions. If the taxpayer’s adjusted gross income (AGI) is less than an applicable dollar amount, there is no reduction in the limit. The limit is reduced proportionately if the taxpayer’s AGI exceeds the applicable dollar amount by less than $10,000 ($20,000 for joint filers). If the taxpayer’s AGI exceeds the applicable dollar amount by more than $10,000 ($20,000 for joint filers), the taxpayer is not allowed any deduction for IRA contributions. For 2014, the AGI amounts adjusted for inflation for the active participation limitation on the IRA contribution deduction are:
- $96,000 for an active participant who is married and filing jointly.
- $60,000 for all other taxpayers.
- $181,000 for a taxpayer who is not an active participant but whose spouse is an active participant.
For 2014, the standard mileage rate for the use of a vehicle for business purposes is 56 cents-per-mile.
After December 31, 2013, bonus depreciation expired and the current Sec 179 Dollar Limit is $25,000, while the investment limit is $200,000. However, it is possible that action will be taken by Congress to expand the enhanced Code Sec 179 expensing when they reconvene in early January 2015.
Tangible Property Regulations (Repair & Capitalization)
2014 is the first year that taxpayers are required to follow the updated Tangible Property Regulations introduced in 2011 and 2012 and issued as final in September 2013. For 2012 and 2013, taxpayers had the option of either following their continued policies under the older regulations or adopting the new 2013 regulations. The new regulations provide updated guidance on what property can be expensed as repairs and what is required to be capitalized. Some of the main new Tangible Property Regulations issues that taxpayers should be aware of are:
- De minimis expensing rule requires taxpayers to use the following amounts for each of their reporting requirements:
- Audited Financial Statements (AFS) - $5,000
- Written election but no AFS - $500
- No written election and no AFS - $200
- For buildings, determining the Unit of Property (UOP) via the components that make up the building (e.g., HVAC system, plumbing system, electrical system, escalators, elevators, etc.)
- An updated definition for materials and supplies stating that they are either components acquired to maintain, repair or improve a UOP, or is expected to be used within the next 12 months, or costs $200 or less, or has an economic useful life of 12 months or less.
The Foreign Account Tax Compliance Act (FATCA), enacted in 2010, takes full effect in 2014, when Foreign Financial Institutions are required to report foreign financial account information of U.S. Citizens to the U.S. Treasury. While individuals have been required to report their foreign bank account holdings in prior years, the U.S. Treasury will now be matching information reported by the Foreign Financial Institution with the information reported by the U.S. taxpayer.
This time there is uncertainty on more than 50 temporary federal tax provisions for individuals and businesses that expired on December 31, 2013 and have yet to be extended. Congress’ vote on whether or not to extend these tax breaks might not be decided until Congress regroups after January 1, 2015. Although Congress’ trend in recent years has been to extend expiring provisions at the last minute, there is the possibility that these tax provisions will not be extended. It is recommended that you follow up with your CPA to discuss yearend planning and be prepared for potential tax law changes.