IRS Announces 2014 Tax Brackets, Standard Deduction Amounts And More

Kelly Phillips Erb for Forbes writes: The Internal Revenue Service has announced the annual inflation adjustments for a number of provisions for the year 2014, including tax rate schedules, tax tables and cost-of-living adjustments for certain tax items.

These are the applicable numbers for the tax year 2014. That means the year starting (gulp) in just a few months. They are NOT the numbers and rates that you’ll use to prepare your 2013 tax returns in 2014 (the season is starting late this year).  These numbers and rates are those you’ll use to prepare your 2014 tax returns in 2015. Got it? Good. Onto the highlights:

Tax Brackets. The big news is, of course, the new tax brackets. Here’s what’s on tap for 2014:

Single Taxpayers:

Married Filing Jointly and Surviving Spouses:

Head Of Household:

Married Filing Separately:

(See how they compare to the 2013 brackets here.)

Standard Deductions. The standard deduction rises to $6,200 for single taxpayers and married taxpayers filing separately. The standard deduction is $12,400 for married couples filing jointly and $9,100 for heads of household. Here’s how those rates compare to 2013:

Itemized Deductions. The limitation for itemized deductions – the Pease limitations, named after former Rep. Don Pease (D-OH) – claimed on individual returns for tax year 2014 will begin with incomes of $254,200 or more ($305,050 for married couples filing jointly). The Pease limitations were slated to be reduced beginning in 2006 and eliminated in 2010; as with the other tax cuts, the elimination was extended through the end of 2012. The limitations were brought back in 2013 at the original thresholds, indexed for inflation. The result of those changes is basically an increase in the top marginal tax rates.

Personal Exemptions. The personal exemption amount is $3,950 in 2014, up from $3,900 in 2013. Phase-outs for personal exemption amounts (sometimes called “PEP”) begin with adjusted gross incomes (AGI) of $254,200 for individuals and $305,050 for married couples filing jointly; the personal exemptions phase out completely at $376,700 for individual taxpayers ($427,550 for married couples filing jointly.)

Alternative Minimum Tax (AMT) Exemptions. The AMT exemption amount for tax year 2014 is $52,800 for individuals and $82,100 for married couples filing jointly. That compares to $51,900 and $80,800, respectively for 2013. In years past, the AMT was subject to a last minute scramble by Congress to “patch” the exemption but as part of the American Taxpayer Relief Act of 2012 (ATRA), the AMT is permanently adjusted for inflation – that’s why you see it in this list.

Earned Income Tax Credit (EITC). For 2014, the maximum EITC amount available is $3,304 for taxpayers filing jointly with one child; $5,460 for two children; $6,143 for three or more children and $496 for no children.

Child Tax Credit. For taxable years beginning in 2014, the value used to determine the amount of credit that may be refundable is $3,000 (the credit amount has not changed).

Kiddie Tax. For 2014, the threshold for the kiddie tax – meaning the amount a child can take home without paying any federal income tax – remains at $1,000.

Adoption Credit. For taxable years beginning in 2014, the credit allowed for an adoption of a child with special needs is $13,190; the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $13,190. Phase outs do apply beginning with MAGI in excess of $197,880.

Hope Scholarship Credit. In 2014, the Hope Scholarship Credit cannot exceed $2,500. The amount you can claim is equal to 100% of qualified tuition and related expenses not in excess of $2,000 plus 25% of those expenses in excess of $2,000 but not to exceed $4,000.

Flexible Spending Accounts. The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending accounts (FSA) remains at $2,500 for 2014.

Individual Retirement Account Contributions. The $5,500 limit on IRA contributions remains the same in 2014.

Federal Estate Tax Exemption. The exclusion amount for estates of decedents who die in 2014 is $5,340,000, up from a total of $5,250,000 in 2013.

Federal Gift Tax Exclusion. The annual exclusion for gifts remains at $14,000 for 2014.

All together, the IRS posted more than 40 updates. You can read more about them at Revenue Procedure 2013-35 (downloads as a pdf).

And kudos to the folks at CCH, part of Wolters Kluwer and a leading global provider of tax, accounting and audit information, software and services – they were spot on with their predictions.

Saying `I Do' To Tax Planning / the IRS cares about your wedding date almost as much as you do.

Kelly Phillips Erb for Forbes writes: Thinking of getting married? Choosing a wedding date is a big deal. You need to consider the time of year, the availability of your venue, how long it might take you to find the perfect dress – and what the tax consequences might be. Yes, the tax consequences. It turns out that the Internal Revenue Service cares about your wedding date almost as much as you do.

In order to figure out whether the time of your wedding makes good tax sense, you must understand a few basics about filing status. There are five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) with Dependent Child. When figuring yours, the most important concept is this: for filing purposes, our marital status is determined as of the last day of the tax year. It doesn’t matter if you get married on March 1 or December 31 – you’re married for the whole tax year so far as the IRS is concerned.

With that in mind, here are a few reasons you might want to postpone, or move forward, your wedding date (or not say “I do” at all).

You might want to postpone your wedding date if:

You’re very sick or expecting an expensive medical procedure. The threshold for claiming medical expenses is now 10% of adjusted gross income (AGI) as compared to 7.5% of AGI in 2012. That means that, in addition to the requirement that you itemize your deductions, your qualifying medical expenses must exceed 10% of your AGI before you can claim the first dollar: the higher the AGI, the higher the threshold. Getting married means that your combined incomes will boost your AGI and as a result, the threshold for medical expenses will also increase. If you’re expecting high medical bills, the best situation from a tax perspective is to have a low AGI – which might be best accomplished with one income (in the alternative, you can get married and file separate returns assuming you have enough itemized deductions to split).

Your former spouse died during the year. If your spouse died during the year, you are considered married to your former spouse for the whole year for filing status purposes. However, if you remarry before the end of the tax year, you will file as married with your new spouse; your deceased spouse’s filing status will be married filing separately for that year. Depending on your former spouse’s financial circumstances – and assuming you’re the primary beneficiary of his or her estate – postponing your new wedding until next year may result in a lower tax bill.

You’re expecting to pay a great deal of unreimbursed employee business expenses, job search costs, or tax planning and preparation fees. Like medical expenses, these expenses are also subject to a floor before they can be allowed. Miscellaneous itemized deductions can only be claimed to the extent that they exceed 2% of your AGI. As before, the best situation from a tax perspective is to have a low AGI – which might be best accomplished with one income (in the alternative, you can get married and file separate returns assuming you have enough itemized deductions to split).

You’re expecting a one time financial windfall. If you’re about to cash out stock options or get a large bonus, it might pay to wait to get married if your spouse is working and earning a nice income. While filing as married filing jointly can work to your advantageous if one spouse makes more than the other or doesn’t work at all, it can result in a negative tax result if you both make good money. Since our income tax system is progressive, adding wages at the top means that those dollars are taxed at the highest tax rate. If you can push off your wedding date and get married after a temporary boost in income, you could potentially save thousands of dollars in tax.

You’re expecting a lot of deductions. The limitation for itemized deductions, sometimes called the Pease limitations, begins with incomes of $254,200 or more ($305,050 for married couples filing jointly). If you expect to have a lot of deductions in a particular year, you may lose out if your combined incomes push you over those limit. The limitations are essentially the same as an increase in the top marginal tax rates.

You might want to move your wedding date forward if:

You’re expecting. No, I’m not being old-fashioned. You are allowed one exemption for each person you can claim as a dependent.
If your child meets the rules to be a qualifying child of more than one person – because you’re not married – only one person can actually treat the child as a qualifying child. Depending on your finances and living arrangements, filing as single (or head of household) may not be as beneficial as claiming the child together as married filing jointly.

You’re terminally ill. For purposes of the federal estate tax (as well as most state estate and inheritance taxes), property that is included in the gross estate and passes to your surviving spouse is eligible for the marital deduction. That means that property is not subject to death taxes: property which passes to non-spouses can be taxed as high as 40%. It may be morbid but it’s generally tax advantageous to die while married.

You’re thinking about quitting your job. Filing as married filing jointly makes the most financial sense when one spouse makes more than the other – or if one spouse doesn’t work. You get the benefit of a “double” exemption as married filing jointly and tax brackets are wider – meaning that you can make more money and pay at a lower tax rate that if you were each filing as single. In other words, combining unequal incomes could bring higher wages into a lower tax bracket.

You’re the victim of a flood, theft or other casualty. As with medical expenses, you must itemize your deductions in order to claim the casualty theft loss. Depending on your financial picture, it might be easier to meet the threshold for itemizing ($12,200 for 2013 and $12,400 for 2014) by combining expenses for deductions.

You’re selling your home. When you sell your primary residence, you can exclude up to $250,000 in gain – or $500,000 for married taxpayers. To qualify, you must have owned your home for at least two out of the past five years and the home must have served as your primary residence for two of the past five years. For purposes of the exclusion, only one spouse has to own the house for two of the past five years but both must have lived in the house for at least two years. If you’re planning on selling, and you were living together even if you weren’t married – you can meet the residency test and claim the entire $500,000 once you are married. The result? Thousands of dollars of tax savings.

You might not want to say “I do” if:

You receive Social Security. If your only source of income is Social Security benefits, your benefits are generally not taxable. If you receive other income, your benefits may be taxable if your modified adjusted gross income (MAGI) is more than the base amount for your filing status. The base amount for taxpayers who file as married filing jointly is $32,000 compared to $25,000 for taxpayers who file as single. Depending on the level of other income, getting married can result in making your Social Security benefits taxable.

You have concerns about your potential spouse’s tax returns. When you file a joint return, each taxpayer accepts equal responsibility for any tax due, as well as any related interest or penalties. If you’re worried about what might end up on that return, you can opt to file as Married Filing Separately. But once you’re married, no matter how much you try to keep your tax records and finances separate, you are necessarily affected by the consequences. For example, if your spouse is subject to huge penalties – even if you are not legally responsible for those penalties – those obligations affect how you spend your household money.

Decisions about family and marriage are huge and important. And I’m not suggesting that you should choose your wedding day for tax reasons – there’s enough to think about without relying on that as an absolute. But financial considerations should be a part of the bigger picture. Talking about money and taxes is part of being married. Why not start now and make it part of getting married?

Which Tax Breaks Expire in 2013? / Before December 31, take advantage of deductions over capital equipment, improvements, R&D expenses, energy efficiencies, capital gains, and tax-friendly investments.

Gene Marks for Inc. writes: If you could have dinner with anyone in the world, who would it be? Most people I ask say the Pope, Warren Buffett, Oprah, President Obama, or Howard Stern. (That’s my wife.)

Choose the right dinner companion: your accountant.

If you’re a business owner, the only person you should be having dinner with is your accountant. There are big issues to address with him or her right now, and big decisions to make well before the end of the year. Because there’s a slew of tax breaks that are expiring.

Pay attention to deductions on capital equipment.

The biggest ones for business owners concern depreciation. The Section 179 rule allows many small business owners to deduct up to $500,000 of capital equipment immediately on purchase, instead of depreciating over a bunch of years. This is an enormous incentive to invest. Not only that, but the rule allows you to take the deduction even if you’ve financed the equipment. (And with interest rates so low, why not finance?)

I have many clients who used this rule to save themselves a bundle on taxes over the years. I have other clients who are in the business of selling capital equipment, and who dangled this rule in front of their prospective customers to help them close more deals.

Watch for deductions over improvements.

There’s also Section 178(k), which allows a business owner to take a 50 percent deduction in year one for certain deductions.

Don’t forget the most excellent Section 168(e) where you can take a 15-year straight-line depreciation for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements--that goes back to 39 years after the end of the year. Tax deductions may not be the most thrilling think to think about during the holiday season, but it’s a lot of money you could be saving.

Write off your R&D expenses before the opportunity disappears.

The research and development credit also expires this year. It’s a complex calculation that will probably require the help of an outside firm or a sharp CPA.

If done correctly, it can save you a bundle. The rule generally allows you to use 20 percent of your R&D expenses, above a base, as a credit against the taxes you owe. And like any credit, you can carry it forward or back, depending on your profitability. It has been a huge help to firms in the pharmaceutical and high-tech industries, so follow their lead.

Just like Section 179 comes up for chopping each year, and survives, so does this particular credit. But who knows. Things are kind of crazy in Washington, D.C. right now.

Energy credits are something to consider, too.

I’m considering buying a hybrid vehicle because an "energy" credit is available for individuals. Not only that, but I know of some clients who are speeding up their internal capital improvement projects and including energy efficient materials so that they can take advantage of the energy credits available for businesses, too. These credits all expire on December 31.

Investors and venture capitalists: look for stock-related capital gains savings. 

As an investor, you should be aware that certain incentives are coming to an end this year. For example, time is running out to take advantage of Section 1202(a)(4), where if you purchase the stock of a small business (C-Corporation) and then sell it after five years, you won’t pay any capital gains.

And if you know of any S-Corporation business owners who are looking to get the hell out of the rat race, you can entice them to sell you their company and they’ll get a special break on some of the gains.

Here’s what to ask your CPA over drinks-and-dinner.

I know you’d rather stick a fork in your eye than endure a two-hour dinner with your CPA. I get that. So here are a few topics to bring up over cocktails, which should keep him or her talking throughout.

Ask if you should defer or accelerate your income into this year. A lot of smart business owners accelerated income into 2012 before the 2013 Obamacare tax increases hit, and saved themselves a bundle. With all the spending and debt ceiling nonsense going on in Washington, D.C. nowadays, more tax increases could certainly be on the way in 2014 as result of the negotiations.

Ask about tax-friendly investments, such as municipal bonds--which are always popular in a high tax environment.

Ask about 529 plans, where you can put away money for your kids’ college education (not that it’s expensive or anything) and it’ll grow tax-free. I have three kids who started college this fall and our 529 plans were clutch.

Look at your estate taxes again. You can give away $14,000 to each of your kids (maximum $28,000) tax-free this year. The rule will stay the same for 2014. (Mom, are you reading this?) Next year, the exclusion on estate taxes rises from $5,250,000 to $5,340,000, so if you’re about to snuff it, take a few more aspirin and tough it out to 2014, if only for the sake of your loved ones who are itching to grab your millions.

But whatever you decide, don’t take my word for it. Listen to your accountant now. Book that reservation now, and bring a big bottle of Pepto-Bismol. You’re going to need it.

IRA Contribution Limits for 2014 / Find Out How Much You Can Put in Your IRA in 2014

Melissa Phipps for About writes: **Note: These numbers are projections based on data from the 401k Help Center. Because of the government shutdown in October, the IRS delayed announcing 2014 numbers. This article will be updated with actual numbers will be posted once they have been released by the IRS.**

Every year or two, the maximum amount you can put into an individual retirement account, or contribution limit, increases with inflation. You can find past contribution limits here: 

2012 IRA Contribution Limits
2013 IRA Contribution Limits

2014 IRA Contribution Limits  /   In 2014, the maximum contributions limit is $5,500. If you are age 50 1/2 or older you can add another $1,000 for a maximum contribution of $6,500 in 2014. That is, if your employer offers a catch-up contribution to encourage participants older than age 50 to save more in their pre-retirement years.

2014 Deductible IRA Contribution Limits

One of the benefits of contributing to an IRA is the potential to decrease your taxable income. For some individuals, IRA contributions are fully or partially income tax deductible. Typically, those who qualify do not have a 401(k) or retirement savings plan through work. You must also meet certain income limitations. In 2014, your deduction amount phases out if your income is between $59,000 and $69,000. If you are married and file jointly, you could likely take a deduction if your income is less than $95,000, and you will be ineligible if your income exceeds $115,000. If your spouse is covered at work but you are not, the phase out income amounts range from $178,000 and $188,000.

Note: You can make contributions to an IRA for a given tax year up until the time you file your income taxes for that year. That means you can make a 2014 contribution up until April 15, 2015. This makes the IRA a great tax planning tool.

2014 Contribution Limits for Other Types of IRAs

Roth IRA contribution limits are the same as traditional IRA limits: $5,500 or $6,500 if you are age 50 1/2 or older. Bear in mind, although the contribution limits are the same, Roth IRAs work differently. The money you put into a Roth is not tax deductible, Roths get after-tax dollars. But once in a Roth, the money is generally not taxed again when you withdraw the money at retirement. You can even take contributions out without penalty before retirement, although there are some restrictions on that too. If you are not getting a tax deduction on your IRA contributions, a Roth IRA could be a better idea for the long term. They are particularly attractive if you tax rate is currently low and you expect it to rise significantly by retirement age. That's the jackpot you are hoping for with a Roth IRA: you pay today's low taxes on tomorrow's potential millions.

2014 Self-Employed IRA Contribution Limits

Individuals who own their own business or work as a contractor have their own IRA choices: SIMPLE IRAs have risen to $12,000 in 2014, with catch-up contributions of $2,500.

Contribution limits for SEP IRAs work differently. You can contribute up to 25% of gross income up to $260,000, for a maximum contribution of $52,000 in 2014.

If you have a Individual 401(k) or Solo 401(k), your limits are the same as those for a regular 401(k): $17,500 in 2014, with an additional $5,500 catch-up contribution. That's a total maximum of $23,000.

Whatever type of IRA you have, your goal should be to contribute either up to the limit, or to get as close as you can. With a limit of $5,500, this should be a fairly easy goal. Can you do it in 2014?

IRS Announces 2014 Pension Plan Limitations; Taxpayers May Contribute up to $17,500 to their 401(k) plans in 2014

The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2014.  Some pension limitations such as those governing 401(k) plans and IRAs will remain unchanged because the increase in the Consumer Price Index did not meet the statutory thresholds for their adjustment.  However, other pension plan limitations will increase for 2014.  Highlights include the following:

• The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $17,500.
• The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $5,500.
• The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500.  The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
• The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $60,000 and $70,000, up from $59,000 and $69,000 in 2013.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $96,000 to $116,000, up from $95,000 to $115,000.  For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $181,000 and $191,000, up from $178,000 and $188,000.  For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
• The AGI phase-out range for taxpayers making contributions to a Roth IRA is $181,000 to $191,000 for married couples filing jointly, up from $178,000 to $188,000 in 2013.  For singles and heads of household, the income phase-out range is $114,000 to $129,000, up from $112,000 to $127,000.  For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
• The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $60,000 for married couples filing jointly, up from $59,000 in 2013; $45,000 for heads of household, up from $44,250; and $30,000 for married individuals filing separately and for singles, up from $29,500.

Below are details on both the unchanged and adjusted limitations.

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans.  Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases.  Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415.  Under Section 415(d), the adjustments are to be made pursuant to adjustment procedures which are similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act.

Effective January 1, 2014, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $205,000 to $210,000.  For a participant who separated from service before January 1, 2014, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2013, by 1.0155.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2014 from $51,000 to $52,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A).  After taking into account the applicable rounding rules, the amounts for 2014 are as follows:

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) remains unchanged at $17,500.

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $255,000 to $260,000.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $165,000 to $170,000.

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5 year distribution period is increased from $1,035,000 to $1,050,000, while the dollar amount used to determine the lengthening of the 5 year distribution period is increased from $205,000 to $210,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $115,000.

The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $5,500.  The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $2,500.

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $380,000 to $385,000.

The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $550.

The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $12,000.

The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $17,500.

The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes is increased from $100,000 to $105,000.  The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $205,000 to $210,000.

The Code also provides that several pension-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3).  After taking the applicable rounding rules into account, the amounts for 2014 are as follows:

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $35,500 to $36,000; the limitation under Section 25B(b)(1)(B) is increased from $38,500 to $39,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $59,000 to $60,000.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from $26,625 to $27,000; the limitation under Section 25B(b)(1)(B) is increased from $28,875 to $29,250; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $44,250 to $45,000.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from $17,750 to $18,000; the limitation under Section 25B(b)(1)(B) is increased from $19,250 to $19,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $29,500 to $30,000.

The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at $5,500.

The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) is increased from $95,000 to $96,000.  The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $59,000 to $60,000.  The applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return  is not subject to an annual cost-of-living adjustment and remains $0.  The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $178,000 to $181,000.

The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $178,000 to $181,000.  The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $112,000 to $114,000.  The applicable dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.

The dollar amount under Section 430(c)(7)(D)(i)(II) used to determine excess employee compensation with respect to a single-employer defined benefit pension plan for which the special election under Section 430(c)(2)(D) has been made is increased from $1,066,000 to $1,084,000.

In 2014, Various Tax Benefits Increase Due to Inflation Adjustments

For tax year 2014, the Internal Revenue Service announced today annual inflation adjustments for more than 40 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2013-35provides details about these annual adjustments.

The tax items for tax year 2014 of greatest interest to most taxpayers include the following dollar amounts.

• The tax rate of 39.6 percent affects singles whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return), up from $400,000 and $450,000, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.
• The standard deduction rises to $6,200 for singles and married persons filing separate returns and $12,400 for married couples filing jointly, up from $6,100 and $12,200, respectively, for tax year 2013. The standard deduction for heads of household rises to $9,100, up from $8,950.
• The limitation for itemized deductions claimed on tax year 2014 returns of individuals begins with incomes of $254,200 or more ($305,050 for married couples filing jointly).
• The personal exemption rises to $3,950, up from the 2013 exemption of $3,900. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 ($305,050 for married couples filing jointly). It phases out completely at $376,700 ($427,550 for married couples filing jointly.)
• The Alternative Minimum Tax exemption amount for tax year 2014 is $52,800 ($82,100, for married couples filing jointly). The 2013 exemption amount was $51,900 ($80,800 for married couples filing jointly).
• The maximum Earned Income Credit amount is $6,143 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,044 for tax year 2013. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.
• Estates of decedents who die during 2014 have a basic exclusion amount of $5,340,000, up from a total of $5,250,000 for estates of decedents who died in 2013.
• The annual exclusion for gifts remains at $14,000 for 2014.
• The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) remains unchanged at $2,500.
• The foreign earned income exclusion rises to $99,200 for tax year 2014, up from $97,600, for 2013.
• The small employer health insurance credit provides that the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,400 for tax year 2014, up from $25,000 for 2013.

Details on these inflation adjustments and others not listed in this release can be found in Revenue Procedure 2013-35, which will be published in Internal Revenue Bulletin 2013-47 on Nov. 18, 2013.

Put the Cost of Moving on Uncle Sam / Tax Deduction Moving Expenses w/the IRS

SHIRLEY PULAWSKI for mybanktracker writes: No one enjoys the process of moving, but we all have to do it at one time or another. Did you know that if you’re moving, or have already moved within one year of starting a new job, you may be able to claim moving expenses on your tax return. Even if you didn’t have a job lined up before moving, or you didn’t start a job right away after moving, you may be able to claim moving expenses. Take a look and see if you qualify for the sometimes overlooked tax deductible moving expenses and get your paperwork together now for faster and easier filing next year.

Not everyone will qualify for this type of tax deduction, but the Internal Revenue Service has two basic rules. One is what it calls the “distance test,” which is a requirement that the new home is located at least 50 miles further than your prior work location was from your old home. If you did not have a workplace, or if you worked from home before the move, then the new job must be at least 50 miles from your old home. While this may sound a little confusing, IRS form 3903 has a simple worksheet that will help you figure this out.

The second IRS requirement is the “time test,” which states that you must have had 39 weeks of full-time employment in the 12 months following the move. This is where things can get a little complicated, as a move late in the year wouldn’t leave enough time to have passed to meet the requirement before the tax year is over, and the deduction can’t be taken the following year.

However, the IRS will allow you to take the deduction if you expect to work at least 39 weeks at full-time status following the move. If the year passes and you don’t meet the requirement, you can amend your tax return by filing Form 1040X, Amended U.S. Individual Income Tax Return. More simply, you could also report the amount deducted as income on the next year’s tax return as “other” income.

There are some exceptions to the time test requirement, in the case that:

• Your employer transfers you at their request.
• You are laid off from the job for any reasons other than willful misconduct.
• The job ends because you become disabled.
• You meet certain requirements for retirees or survivors living outside the United States (see the IRS website for details if you’re living abroad).
• You are in the armed forces and a permanent change of station is behind the move.
• The form is being filed for someone who has passed away.

Qualified expenses include three key areas of moving-related costs, but do not include any for which your employer has reimbursed you.

Deductible expenses include:

Travel costs
Transportation and housing or lodging expenses for yourself and household members while moving from the old place to the new home can be eligible. The cost of meals during the travel is not part of the deal, however, but the rental of a vehicle may be included. Keep receipts for tolls, gas purchases, and hotel charges to apply to the deduction.

Packing materials and shipping
Hold onto the receipts from any moving and storage companies you use, and even for any boxes you purchase, because the costs associated with packing, crating, and transporting your personal property and household goods can be deducted. You may also be able to include the cost of storing and insuring these items while in transit, and even costs associated with transporting family pets can be deducted.

Utility fees
You can deduct the costs of connecting or disconnecting utilities if you’re charged any associated fees. Late fees and reimbursable deposits don’t count toward the deduction.

Other fees won’t be covered, such as any part of the purchase price of the new home, or any costs of related to buying or selling either home, or homeowner’s association fees. Renters can’t deduct any charges related to breaking or entering into a lease, nor can anyone deducted other money lost, such as unused gym membership dues or other subscription services.

Of course, none of this information is a good substitute for sitting down and talking to a qualified tax professional, and all of the information and links to the any of the forms you may need can be found at IRS.gov and in Publication 521, Moving Expenses.

Are Loan Origination Fees for Reverse Mortgages Tax Deductible?

Amber Keefer for Demand Media writes: The American Association of Retired Persons reports that from 1990 to 2010 lenders issued more than 660,000 reverse mortgages to homeowners age 62 and older. Similar to a home equity loan or home equity line of credit, a reverse mortgage offers a way for you to borrow cash based on the equity in your home. It differs significantly from a regular mortgage loan, because you don’t have to pay back the loan until you sell the home, move out of the home permanently, or die.

Mortgage Fees and Interest

Loan origination fees on a mortgage -- called "points" -- are usually a percentage of the loan amount, paid over and above the loan amount up-front, which the Internal Revenue Service considers a form of prepaid interest and allows deductions for under certain rules. A reverse mortgage doesn't require you to pay a loan origination fee up-front. Instead, the lender adds the costs to the loan balance. The same goes for the interest that accrues over the life of the loan, which is added to the principal loan balance each month. Consequently, any form of mortgage interest you pay, whether called a fee or interest, is not tax deductible until the time the reverse mortgage loan is paid off, points out Golden Years Mortgage Solutions, based in California.

Write-Off Limited

Once you or your heirs pay the loan in full and can take the home mortgage interest deduction, the write-off is usually limited. While a reverse mortgage loan qualifies as home equity debt, the IRS sets a limit on how much mortgage interest you can deduct. The date and amount of the loan, and the way you use the proceeds, are all factors that determine the limit. IRS Publication 936 discusses in detail the limits that may apply to the deductibility of your reverse mortgage interest expense.

Tax Considerations

An important tax consideration that may increase your tax liability when you take out a reverse mortgage is the loss of the mortgage interest deduction you claim on your taxes each year, notes an article published in a 2006 issue of the “Journal of Accountancy.” If your existing mortgage is paid in full and you can no longer take the home mortgage interest deduction, it won't matter. But if you still owe a balance on your current mortgage and refinance with a reverse mortgage, you lose claiming the interest as an annual itemized deduction.

Cost of Origination Fees

To help make reverse mortgages more affordable, many lenders are reducing the amount of the origination fees they charge or doing away with them completely, points out Barbara Stucki, vice president of home equity initiatives at the National Council on Aging, in a Bankrate article. While an origination fee is a percentage of the loan amount, some banks charge a higher interest rate on the loan in exchange for charging a lower or no origination fee. Origination fees for reverse mortgages insured by the Federal Housing Administration are capped at $6,000.

Tax Liability

Like deductions for which you qualify, nontaxable income lowers the amount of taxes you owe. This is good news when you take out a reverse mortgage. The IRS considers a reverse mortgage a loan advance and not income. Therefore, the lump sum payment or monthly advances you receive are not taxable. If you are looking for additional ways to save money on your taxes, since you still own your home, you can claim the real estate taxes you pay if you itemize deductions on Form 1040, Schedule A.