Taxpayers can ring in 2014 knowing that they don't have to wait on Congress to finalize tax laws affecting their 2013 returns. The American Taxpayer Relief Act of 2012 that was finally enacted on Jan. 2, 2013, made many tax laws permanent and extended other provisions through 2013. But the tax-related celebrations are likely to be short-lived. Here are 10 tax traps you need to watch out for in 2014.
The federal government shut down for 16 days last October, but taxpayers are still paying for it. The IRS says Jan. 31, 2014, is the earliest it will be ready to process individual tax returns. That date might even be pushed back to Feb. 4 in order for the agency to complete system updates and tests, which were interrupted by the shutdown. The IRS promises to make an official announcement of the filing season start date as soon as it knows for sure. You can go ahead and submit your return electronically as soon as you're ready; your e-filer will hold it until the IRS is ready to accept returns. If, however, you file a paper return, the IRS encourages you to wait until Jan. 28 (or later) to mail it.
Every year or so, some temporary tax provisions are renewed by Congress. In recent years, however, lawmakers have let the laws expire and then renewed them retroactively, most recently in the American Taxpayer Relief Act of 2012, also known as the "fiscal cliff" tax bill. Expect a replay in 2014. Fifty-five tax provisions expire on Dec. 31, 2013. This doesn't affect your 2013 tax return, but tax planning for 2014 will be a different story. Consideration of extenders has been complicated by possible overall tax reform and budget considerations. Uncle Sam could bring in billions by letting some or all of the extenders fade away. That would mean, however, that individual taxpayers would lose such popular tax breaks as the itemized deduction for state and local sales taxes, the above-the-line deductions for tuition and fees and educators' out-of-pocket classroom expenses. The consensus is that Congress will
take up the extenders in 2014, but whether that will be before or after the Nov. 5 midterm election is unclear. The longer lawmakers wait, the harder it will be to plan and implement your 2014 tax strategy.
The American Taxpayer Relief Act of 2012 was not kind to wealthier taxpayers, and they will find out the extent of the damage when they file their 2013 returns.
In addition to paying a top ordinary tax rate of 39.6 percent if, as a single filer, your taxable income is more than $400,000 ($450,000 for married couples filing jointly), you could face added taxes. The most dreaded is the new net investment income tax of 3.8 percent, also known as the Medicare surtax because the money goes toward that health coverage program for older Americans. The tax applies to either your modified adjusted gross income or net investment income, whichever is lower, if you earn more than $200,000 as a single taxpayer or $250,000 as a married joint return filer. The net investment income tax will not only take a bite out of taxpayers' bank accounts, but also cause headaches for high-income earners and their tax professionals working through the tax regulations. Topping it off, single taxpayers who make more than $250,000 and jointly filing couples making more than $300,000 will see their personal exemptions and itemized deduction total reduced.
The Affordable Care Act will continue to roll out in 2014, meaning that uninsured individuals have some choices to make that could have tax implications. Enrollment for health insurance under Obamacare, as the health reform act is popularly known, goes through March 31, 2014. If you don't buy an insurance plan, you could face a penalty. The charge for 2014 is either 1 percent of your yearly household income or $95 per uninsured adult and $47.50 per child, up to $285 for a family. You pay whichever amount is higher. If you get insurance for part of the year, your penalty will be prorated. You'll pay the penalty when you file your 2014 tax return in 2015.Source: abcnews.go.com