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Ten Tax Changes That May Impact Your 2014 Tax Return

January 14, 2015

Tax season is here, and there are many tax changes that were implemented in 2014 and more to be introduced in 2015. From Obamacare to tax hikes and changes to standard deductions, there's a lot to keep track of. To help you get organized for this tax season and beyond, review this summary of some of the most significant tax issues and changes.

Obamacare Penalties Kick In
The Obamacare individual mandate goes "live" this tax season. The mandate requires that consumers purchase health insurance or face a penalty of $95 or 1% of their annual income, whichever is greater. The penalty is $47.50 per child, up to $285 for a family.

Changes to FSAs
2014 was a big year for health care-related tax changes. If you take advantage of a Flexible Spending Account (FSA) to help pay for future medical expenses with pretax dollars, you should note that in 2014 Congress made a change so that if you carry over funds (up to the $500 maximum carry over limit) into 2015, you will be disallowed from participating in an HSA in 2015.

Flexible Spending Account Limits
The annual limit on employee contributions to flexible spending accounts is now $2,550 for qualified health care expenses. That's up $50 from 2014, so make sure you opt in for this new maximum amount if you take advantage of a health care FSA.

Only One Annual IRA Rollover is Allowed
Up until now, individuals could use tax-free rollovers for each of their IRA's. Starting in 2015, only one tax-free IRA rollover will be allowed for a period of one year for any number of IRA accounts. This includes SEP, SIMPLE IRA's, Roth, and Traditional IRAs.

Income Tax Rate Changes
The American Taxpayer Relief Act of 2012, or ATRA, added a seventh federal income tax bracket (39.6%) in 2013, while the remaining six rates were unchanged. In 2014, taxable incomes above the following thresholds now fall into the 39.6% bracket: Married Filing Separately ($228,800), Unmarried Individuals ($406,750), Head of Household ($432,200), and Married Filing Joint Returns ($457,600).

Unified Credits, Gift Tax and Estate Tax

Additionally, ATRA increased the estate and gift tax rate from 35 to 40%. The gift tax and estate tax exclusion continue to be indexed for inflation and increase to $14,000 and $5.34 million respectively in 2014.

Standard Deduction Increases

The standard deduction—that is, the basic tax break extended to all Americans rises this year to $6,300 for single filers and $12,600 for married taxpayers filing jointly in 2015. That's up $100 and $200, respectively, from 2014 figures.

Tax Bracket Adjustments
For the new tax year starting in January, income tax thresholds have again been adjusted up for inflation. The highest tax rate of 39.6%, for instance, will now apply to single filers who make over $413,200 and married couples making $464,850. Both figures are up about 1.6% from tax year 2014. For more information on specific income tax brackets by filing status, check out the latest IRS revenue procedure document.

AMT Changes
The so-called "alternative minimum tax" is quite a headache for many middle-class Americans. Since certain breaks can significantly reduce your tax bill, the IRS created the AMT to set a limit on those benefits and ensure a minimum tax burden on you. The Alternative Minimum Tax exemption amount for tax year 2015 is $53,600 for individuals or $83,400 for joint filers. That's up slightly, about 1.5% from 2014.

Social Security and Medicare
As was the case in the past, all wages earned in a given year are taxed at the 1.45% rate for Medicare. On your 2014 tax return, wages paid in excess of $200,000 for Unmarried filers and in excess of $250,000 for Married filers will be subject to an extra 0.9% tax. The Social Security tax rate remains at 6.20%, while the wage limit, or Social Security maximum, increases from $113,700 to $117,000. The Cost of Living Adjustment (COLA) was 1.5% in 2014, raising the SSI limit to $2,642 per month.

With so many tax changes instituted last year and more coming this year, it is likely that you will notice the impact of several of them..Please be sure to contact us with any questions. We look forward to helping you.

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