After getting your 2013 tax returns finalized it is a good time to start thinking about 2014 tax issues. Beginning in 2014, while not many new tax provisions were enacted, many others have disappeared, maybe temporarily, maybe permanently. Congress did not extend over 50 tax provisions that expired at the end of 2013. This post serves as an outline of the major tax law changes you should be aware of to minimize taxes. Please note that some of the changes below could be altered again by Congress this year.
New for 2014
• Tangible Property Regulations: Final capitalization regulations issued on tangible property, generally applicable to tax years beginning on or after January 1, 2014.
• Cafeteria Plans: Reimbursement for the premiums for coverage under any qualified health plan offered through a state exchange may be made through a cafeteria plan if the employer is a qualified employer.
• Health Insurance — Individuals: All non-exempt U.S. citizens and legal residents are required to maintain minimum essential health insurance coverage, or pay a penalty tax on their individual income tax return. Healthcare exchange open enrollment for 2014 ends for the individual market on March 31.
• HRAs and Market Reforms: Market reform rules that prevent group health plans from establishing a lifetime or annual limit on the dollar amount of benefits for individual participants in the plan.
• Premium Assistance Credit for Low-Income Individuals: Low-income individuals and families may qualify for a premium assistance credit to help subsidize the purchase of health insurance.
• Premium Assistance Cost-Sharing Subsidy for Individuals with High-Deductible Plans: Individuals with household income between 100% and 400% of the federal poverty level (FPL) may qualify for a cost-sharing subsidy to reduce the maximum annual deductible and out-of-pocket expense limits for high-deductible health plans.
• User Fees: The IRS increased user fees for installment agreements to $120 and offers in compromise to $186.
• FATCA Reporting: Time to report under FATCA postponed from January 1, 2014, to July 1, 2014.
• FBAR Reporting: Electronic filing of Form TD F 90-22.1 required through the Bank Secrecy Act e-filing system. For certain individuals with signature authority over but no financial interest in one or more foreign financial accounts deadline to file extended from June 30, 2014, to June 30, 2015.
Expired in 2013
• Research credit: The tax credit for research and experimentation expenses.
• Charitable contributions from IRA accounts: The ability to distribute up to $100,000 tax free to charity from an IRA maintained for an individual whose has reached age 701/2.
• Discharge of indebtedness on principal residence excluded from gross income of individuals: The exclusion from taxable income of debt forgiven in a foreclosure proceeding or write-down of principal on a mortgage.
• Premiums for mortgage insurance deductible as interest that is qualified residence interest: Itemized deduction for the cost of mortgage insurance on a qualified personal residence.
• Deduction for state sales taxes: The election to deduct as an itemized deduction state and local sales taxes instead of state and local income taxes.
• Educator expense deduction: The $250 above the line deduction for qualifying educators for expenses paid for books and supplies used in the classroom.
• Increased first-year asset expensing: For 2013, the amount eligible for asset expensing is $500,000. Beginning in 2014, the amount is reduced to $25,000.
• Tuition expenses: The above-the-line deduction for qualified tuition and related expenses.
• 50% bonus depreciation: The additional first-year depreciation for 50% of basis of qualified property.
• Nonbusiness energy property credit: A 10% credit (up to $500, less if any credit was taken in a previous year) is available if you make certain energy efficient improvements to your home. Such improvements include high-efficiency heating and air conditioning systems, water heaters, windows (limited to $200), skylights, doors, insulation and roofs. The improvements must be made to an existing principal residence. A manufacturer's certificate must accompany the qualifying property.
• Alternative fuel vehicle refueling property (non-hydrogen refueling property): The 30% credit for the cost of any qualified alternative fuel vehicle refueling property.
• Credit for two- or three-wheeled plug-in electric vehicles: A credit, the lesser of $2,500 or 10% of the cost of the qualified 2- or 3- wheeled plug-in electric vehicle.
• Credit for health insurance costs of eligible individuals: A credit of 72.5% of the amount paid by the taxpayer for coverage of the taxpayer and qualifying family members under qualified health insurance for eligible coverage months beginning before January 1, 2014.
• Credit for production of Indian coal: Credit for the 8-year period that began on January 1, 2006.
• Indian employment tax credit: A 20% credit of the excess of wages plus health insurance costs over a base year amount; expired for taxable years beginning after December 31, 2013.
• New markets tax credit: No national limitation set for any year after 2013.
• Credit for construction of new energy efficient homes: A $1,000 or $2,000 credit to the builder for the construction of a qualified home purchased by a homeowner for the use as a principal residence.
• Credit for energy efficient appliances: Credit for manufacturing certain appliances at determined energy efficiencies.
• Employer wage credit for activated military reservists: A credit of 20% of the differential wage payment (such differential not to exceed $20,000).
• Work opportunity tax credit: Employment credit for hiring workers from certain targeted groups.
• Parity for exclusion from income for employer-provided mass transit and parking benefits: Keeping dollar amounts applicable to commuter highway vehicles or transit passes and qualified parking benefits the same.
• 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements: Property must be placed in service before January 1, 2014, to qualify for 15-year recovery period; otherwise 39-year recovery period applies.
• Seven-year recovery period for motorsports entertainment complexes: Property must be placed in service before January 1, 2014, to qualify for 7-year recovery period; otherwise 39-year recovery period applies.
• Election to accelerate AMT credits in lieu of additional first-year depreciation: Only adjusted basis attributable to manufacture, construction, or production before January 1, 2014, is taken into account.
• Special rules for contributions of capital gain real property made for conservation purposes: 50%, rather than 30%, contribution base limitation applied.
• Enhanced charitable deduction for contributions of food inventory: Enhanced deduction for food inventory not limited to C corporations.
• Special expensing rules for certain film and television productions: Election to expense, rather than capitalize, certain expenses relating to film and television production.
• Exceptions under subpart F for active financing income: The exceptions from current inclusion under the subpart F rules for certain income derived in the active conduct of a banking, financing or similar business, in the conduct of an insurance business, or as a securities dealer.
• Special rules for qualified small business stock: 100% exclusion of the gain from the sale of qualifying small business stock that is acquired before January 1, 2014, and held for more than five years. For stock acquired after December 31, 2013, and held for more than five years, a 50% exclusion rule applies.
• Basis adjustment to stock of S corporations making charitable contributions of property: An S corporation shareholder's IRC § 1367(a)(2)(B) basis reduction resulting from the corporation's charitable contribution of property equaled the shareholder's pro rata share of the adjusted basis of the contributed property.
• Reduction in S corporation recognition period for built-in gains: For purposes of computing the built-in gains tax, 5-year “recognition period” applied; after 2013, 10-year period applies
• Empowerment zone tax incentives: The designation of certain economically depressed census tracts as Empowerment Zones, within which businesses and individual residents are eligible for special tax incentives.
• American Samoa economic development credit: The possessions tax credit for companies with activity in American Samoa, if they earn IRC § 199 “qualified activities income” in American Samoa during years they will claim the credit
• New York Liberty Zone: tax-exempt bond financing: The time for issuing qualified New York Liberty Zone bonds expired after December 31, 2013.
While there are other minor changes that have taken place from 2013 to 2014, the above list represents tax changes that most likely will impact your 2014 taxes.
If you would like to discuss any of these changes or your specific tax situation, click here to contact Paul.