“The times they are a-changin’, ” the poet wrote, and that definitely rings true for many higher-income taxpayers in 2014.
“High net-worth individuals will be hit hard by changes to the tax law,” says Sheri Schultz, a CPA with Fiske & Company in Plantation. “Wealthy taxpayers without proper tax planning will feel a pinch in their pocketbook.”
Here are some of the changes taxpayers can expect for 2014 (i.e., for returns that will be filed in 2015):
Popular tax breaks, including itemized deductions for state and local sales taxes and an above-the-line deduction of up to $4,000 for tuition and fees, expired in 2013. Credits for the installation of certain energy-efficient home improvements also expired on Dec. 31, 2013.
Tax changes adopted in 2013, which continue this year, added a top marginal tax rate of 39.6 percent for higher-income taxpayers. This rate kicks in at $400,000 for single filers or $450,000 for married couples filing jointly. Similarly, singles earning over $200,000 and married couples earning over $250,000 will be subject to an additional 0.9 percent Medicare tax on wages.
Business owners will mourn the reduction in the Section 179 deduction, which allows an immediate deduction for qualifying business equipment (rather than depreciating it). The allowance goes down to $25,000 in 2014 — from a hefty $500,000 last year.
Uninsured? Under the Affordable Care Act, you may be subject to a penalty of 1 percent of your taxable income or a flat rate of $95 per uninsured adult and $47.50 per child (up to $285 per family), whichever is higher.
Still, the news is not all bad; there are some beneficial changes for taxpayers in 2014. Among them:
The standard deduction — chosen by nearly two-thirds of all filers — increases to $12,400 for married couples filing jointly, up from $12,200 in 2013. It goes up to $6,200 for singles.
The personal exemption will also increase, to $3,950, although it begins to phase out for adjusted gross incomes of $254,200 (singles) or $305,050 (married couples filing jointly).
The estate tax exemption increases to $5.34 million, from $5.25 million in 2013.
As always, consult your tax professional for specific tax advice and for strategies to minimize the effect of these new changes.
—Robyn A. Friedman