Every year, the IRS updates tax codes to reflect changes in the cost of living. Recently, the IRS announced tax law changes for 2014. Many of these relatively minor changes could affect you in the coming tax year.
Remember, these 2014 tax changes affect the tax year 2014, so you won’t see these changes reflected in the taxes you file in 2014. Instead, you’ll see them next year, when you file your 2014 taxes in January-April of 2015.
Here are some of the 2014 tax changes you should know about:
Tax Rate Tables
Each year, the IRS updates tax rate tables based on cost of living adjustments. 2014 is no different. You can find out more about this year’s tax rate changes in this article on the new federal income tax rates.
Earned Income Credit
The Earned Income Credit is a refundable tax credit for lower-income working Americans. Refundable simply means that if your tax liability is $0 and you still have Earned Income Credit (EIC or EITC) left over, the IRS will cut you a check.
The EIC is generally available to individuals with earned income from working for someone else or running a business or farm. To qualify, you must have a valid Social Security number, must be a U.S. citizen or resident alien all year (or a nonresident alien filing a joint tax return with a citizen or resident alien), and you cannot be a dependent child to another person.
You also have to be between 25 and 65 years old or have a qualifying dependent child to qualify for the tax credit.
The EITC is based on your earned income. The credit amount is larger if you have more children, and it phases out as you earn more money. Here are the earned income credit limits and amounts for 2014:
|No Children||One Child||Two Children||Three+ Children|
|Earned Income Amount||$6,480||$9,720||$13,650||$13,650|
|Maximum Credit Amount||$496||$3,305||$5,460||$6,143|
|Threshold Phaseout Amount (Single, Head of Household, or Surviving Spouse)||$8,110||$17,830||$17,830||$17,830|
|Completed Phaseout Amount (Single, Head of Household, or Surviving Spouse)||$14,590||$38,511||$43,756||$46,997|
|Threshold Phaseout Amount (Married Filing Jointly)||$13,540||$23,260||$23,260||$23,260|
|Completed Phaseout Amount (Married Filing Jointly)||$20,020||$43,941||$49,186||$52,427|
The table is a little confusing, so let’s talk about it in more detail.
First, the “earned income amount” is the minimum amount of income you need to earn to qualify for the credit. The “threshold phaseout amount” is the point at which your credit will start being reduced, and the “completed phaseout amount” is the point at which you no longer qualify for the credit.
So if you’re a married couple filing jointly and you have two children, you can get the credit if you earn at least $13,650 during 2014. You’ll qualify for the full credit of $5,460 if your earnings are between $13,650 and $23,260. If your earnings are between $23,260 and $49,186, you’ll get a partial credit, but if you earn more than $49,186, you won’t qualify for any EITC.
Two more things to note about this credit: If you’re married filing separately, you can’t qualify at all. And if you have investment income of more than $3,350, you also won’t qualify.
Alternative Minimum Tax
If you’re a relatively high earner, you may need to pay the alternative minimum tax. In 2014, the exemption amounts for the AMT are:
- Joint Returns or Surviving Spouses: $82,100
- Single or Head of Household: $52,800
- Married Individuals Filing Separately: $41,050
- Estates and Trusts: $23,500
In 2014, the standard individual deductions are:
- Married Filing Jointly and Surviving Spouses: $12,400
- Heads of Household: $9,100
- Single: $6,200
- Married Filing Separately: $6,200
Aged or Blind Deduction
In 2014, the additional standard deduction for aged and blind individuals is $1,200. For aged or blind individuals who aren’t married or a surviving spouse, that deduction amount increases to $1,500.
Limit on Itemized Deductions
If you’re planning to itemize your taxes, note that there’s an overall limit on itemized deductions. Each type of itemized deduction typically has its own limit, but this is a sum total limitation for all itemized deductions.
Note that these limits are quite high, and most of us don’t have to worry about them because the overall deduction limit is more than what we’ll earn in 2014. But here are the updated overall limitations for 2014:
- Married Filing Jointly or Surviving Spouse: $305,050
- Head of Household: $279,650
- Single: $254,200
- Married Filing Separately: $152,525
Like the standard deduction, the personal exemption generally goes up a bit each year. In 2014, the personal exemption amount is $3,950. This exemption phases out beginning at a certain income and is disallowed for earners above the income threshold. See the chart below for phaseout amounts:
|Filing Status||Beginning of Phaseout (AGI)||Completed Phaseout (AGI)|
|Married Filing Jointly and Surviving Spouses||$305,050||$427,550|
|Heads of Household||$279,650||$402,150|
|Married Filing Separately||$152,525||$213,775|
Long-Term Care Premiums
Recently, the government started to offer tax benefits on long-term care insurance because of the wave of baby boomers who might drain Medicaid if they have no long-term care insurance. In some situations, you can take a deduction for your long-term care premiums as a medical expense.
Long-term care premiums can be listed on Schedule A under medical expenses, though getting this deduction at a younger age is difficult because medical expenses have to exceed 10% of your adjusted gross income to become deductible. Still, if you have a lot of medical expenses in a year, which is more likely as you age, you could write off your premiums.
(Until 2017, those age 65 and older can still deduct expenses that exceed 7.5% of their AGI. After 2017, the 10% rule will apply to everyone.)
If you’re self-employed, you can write off your long-term care premiums as part of your health insurance deduction. And if your business is set up as a C corporation, the tax write-offs will be even better.
Talk to your tax professional if you think you can write off your long-term care premiums. Here are the premium limitations for 2014:
- Age 40 or under (by the close of the tax year): $370
- Ages 41-50: $700
- Ages 51-60: $1,400
- Ages 61-70: $3,720
- Age 71+: $4,660
Giving a lot of money without incurring serious tax consequences can be tricky. But as long as you stick to the gift tax limitations for the year, you’ll be OK.
In 2014, you can give up to $14,000 to any individual and avoid gift taxes. If you’d like to give a larger amount to, say, your son and daughter-in-law for the purposes of buying a home, saving for school, or pretty much anything else, you could give $14,000 to each of them, for a total of $28,000 of tax-free gift money.
And you and your spouse could give even more without triggering the gift tax. Just make one gift from each of you to each of them. So your spouse could give your son $14,000 and your daughter-in-law $14,000. Then you could do the same. You’d give a total of $56,000 without triggering the gift tax.
Also, if you’re married to a spouse who isn’t a U.S. citizen, you can give up to $145,000 without triggering gift taxes in 2014.