One of the things that makes doing your taxes so frustrating is the fact that every year, without fail, there seems to be a mountain of changes to the tax code. Some of these changes may help, such as when new deductions are introduced, others can work against you, and still others are just plain confusing.
A qualified tax preparer is your best defense against unexpected and difficult to understand changes.
This year, some of the changes your tax preparer can help you deal with include:
• The alternative minimum tax exemption has increased. Not everyone must pay alternative minimum taxes. If your adjusted gross income as a single filer in 2014 was more than $52,800 or $82,100 for joint filers, then you should fill out form 6251 in order to determine whether you’re exposed to this tax.
• The personal exemption for single filers with an adjusted gross income of less than $376,700 ($427,550 for joint filers) was increased to $3,950 for the 2014 tax year.
• Individuals with a health insurance plan purchased through an affordable care act (ACA) exchange may have additional forms to complete in order to determine what their subsidy should have been. Those who received more subsidy than they were entitled to through the advanced tax credit may find their tax refund reduced. Those who did not receive as much subsidy as they were entitled to may receive a higher refund.
• The estate tax exclusion for 2014 was $5.34 million. One way to help ensure that your family will avoid paying estate taxes, even if your estate value exceeds the 2015 exclusion of $5.43 million, is to take out a life insurance policy that covers the expense. Alternatively, if the value of your life insurance policy is enough to push your assets over the limit, make sure the beneficiary you’ve chosen is not the estate and that you are not listed as the owner.
• The standard deduction for individuals who do not itemize has increased to $6,200 for single filers and $12,400 for joint filers.
• Those who are self-employed have the option of claiming a simplified deduction for their home office space. This has simplified the calculation for home office deduction and may encourage many to take the deduction even if they haven’t before.
• Certain tax deductions for energy-efficient home improvements expired at the end of 2013, including those for insulation, window, and door installation.
• While this is not exactly a tax change, it’s certainly a welcome policy adjustment: Employers may now allow for a rollover of up to $500 of unused flexible spending account funds. In prior years, any unused balance was lost.
• Some individuals without qualifying healthcare coverage may face a penalty for the 2014 tax year. The penalty starts at $95 or, if greater, 1 percent of their 2014 income. Some taxpayers, such as those with a lower income, may qualify for an exemption.
• Canceled debt is often taxable, like any gain would be. In prior years, forgiven mortgage debt was exempted from taxation as long as the mortgage had been on a principal residence. As of 2014, that exemption is no longer applicable.
While you’re doing your taxes this year, it is a good idea to also complete an insurance policy review. Doing so can help ensure that you’re paying the best rates and that your coverage is still sufficient and your deductibles and limits are reasonable. Tying your policy review to tax season gives you a great way to remember when you need to complete the review the next year. Be sure to contact your advisor to help you with your taxes, as well as your retirement planning.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or products may be appropriate for you, consult with your financial advisor.
The Retirement Pros