Federal Legislative Update 2014:
With only a few exceptions, the Act extends through 2014, only the extender provisions that had expired after 2013.
In total, 55 provisions were extended and only five were allowed to expire. The key provisions are:
Individual Provisions 2014
- State and local sales tax deduction
- $250 teachers’ deduction for classroom supplies
- Debt discharge on principal residence
- IRA-to-Charity exclusion
- Increased excludable employer-provided mass transit and parking benefits
- Liberalized rules for qualified conservation contributions
- Above-line deduction for qualified tuition expenses.
Individual Provisions 2014
- Enhanced IRC section 179 with a limit of $500,000
- Fifty percent bonus depreciation(includes $8,000 boost to first-year depreciation on qualifying vehicles)
- Fifteen-year depreciation on qualified leasehold and retail improvements and restaurant property
- Seven-year depreciation for motor sport race track facilities
- Five-year period for built-in gains tax- Exclusion of 100 percent of gain on sale of small business stock
- Expensing election for costs of film and television production
- Classification of certain race horses as three-year property
- Accelerated depreciation for business property on an Indian reservation
- Research Tax Credit- Work Opportunity Tax Credit
- Enhanced charitable deduction for contribution of food inventory.
Energy Provisions 2014
- Nonbusiness energy property credit
- New energy efficient home credit
- Energy efficient commercial buildings deduction
- Alternate fuels and mixtures excise tax credit.
Five Provisions Not Extended 2014
- Health coverage tax credit for displaced workers and retirees
- Plug-in credit for two and three wheeled vehicles
- Energy efficient appliance credit
- New York Liberty Zone tax-exempt bond financing
- Partial expensing of refinery equipment.
California Conformity 2014
The only provision California conforms to is the IRA-Charity provision. Thus, California treatment will be the same as federal.
2014 Alimony In The Spotlight
Alimony payments are deductible by the paying spouse. The receiving spouse must report alimony as income on his or her tax return.
Unfortunately, in a recent Treasury Department audit of tax returns, 47 percent of those that claimed to pay alimony did not have a matching tax return from someone that added the payment back as income. This mismatch of alimony payments and claimed income is now one of the areas in the spotlight of the IRS.
You May Now Need To File Income Tax Return 2014
With the new tax laws beginning in 2014, a number of taxpayers who were not traditionally required to file a tax return may now need to do so. Here are three new situations in 2014 that may require you to file a tax return.
You Have No Medical Insurance 2014
Beginning in 2014, if you are not in a qualified health insurance plan you will need to file a tax return to pay the tax penalty. As part of Obama-care, there is now a minimum penalty of $95.00 per individual ($285.00 per family) if you do not have health insurance. The maximum penalty is 1.0 percent of your income.
You Qualify For The New Health Insurance Premium Credit 2014
If you signed up for health insurance through the new health insurance exchange, you may be eligible for a reduction of your insurance premium through a tax credit. You may have already applied the credit to reduce your monthly insurance bill. In either case, if this credit applies to you, you must file a tax return.
Alimony or Child Support 2014
Given the increased attention in this area by the IRS, if you pay or receive alimony or child support you will want to ensure your tax return is filed to avoid an automatic mismatch with your ex-spouse’s tax return.
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SHORT SALES NOT SUBJECT TO STATE OR FEDERAL INCOME TAX FOR CANCELLATION OF DEBT
Short sales in California are generally not subject to state or federal income tax for cancellation of debt. The Franchise Tax Board (FTB) issued a letter December 4, 2013 stating that, as nonrecourse obligations, short sales in California are not subject to state income tax for cancellation of debt. The FTB's position conforms with the federal treatment of short sales stated in an IRS letter dated September 19, 2013 sent to senator Barbara Boxer’s office. These letters will provide welcome relief for short sale sellers given that the tax break for a qualified principal residence under the federal Mortgage Forgiveness Debt Relief Act of 2007 will expire at the end of this year (2013), and similar protection under California law already expired in 2012. The FTB letter includes transactions that closed in 2012 but, as always, sellers should consult with their own tax professionals.
According to the recent FTB letter, “a California taxpayer would not have cancellation of indebtedness where the taxpayer was involved in a short sale pursuant to CCP section 580e.” Section 580e of the California Code of Civil Procedure (CCP) generally protects borrowers from owing a deficiency after a short sale of a residential property with one-to-four units, including both first and junior trust deeds. Exceptions include fraud, waste, cross-collateralized loans, and borrowers that are corporations, LLCs, or limited partnerships.
As with the IRS letter, the FTB letter states that even if no cancellation of debt income is owed, a taxpayer may nevertheless have capital gains to the extent that the outstanding debt exceeds the tax basis for the property. A principal residence, however, is generally excluded from capital gains tax up to $250,000 for single taxpayers and $500,000 for married couples filing joint returns (under 26 U.S.C. § 121).
Tax Rate Brackets 2013
The 10%, 15%, 25%, 28%, 33%, and 35% brackets for 2013 ordinary income reflect an inflation adjustment, and there is a new top bracket of 39.6% that applies if taxable income exceeds $400,000 for single taxpayers, $4254,000 for heads of households, $450,000 for married persons filing jointly and qualifying widows/widowers, and $225 for married taxpayers filing separate returns.
Additional Medicare Taxes 2013
Starting in 2013, higher-income taxpayers may be subject to one or both of the new additional Medicare taxes that are intended to help pay for health care reform.
Phaseout Of Personal Exemptions 2013
For the first time since 2009, personal exemptions and itemized deductions are subject to a phaseout. Each $3,900 personal exemption for 2013 is subject to a phaseout if adjusted gross income(AGI) exceeds $300,000 if married filing jointly or qualifying widow/widower, $275,000 if head of household, $250,000 if single, and $150,000 if married filing separately.
Legal Same-Sex Marriages Recognized For Federal Tax Purposes 2013
The IRS implemented the Supreme Court decision that invalidated the federal definition of marriage in the 1996 Defense of Marriage Act by ruling that it would recognize legal marriages of same-sex couples. So long as a same-sex couple is legally married in a jurisdiction that recognizes the marriage, the IRS will recognize the marriage for all federal income tax purposes, even if the couple lives in a jurisdiction that does not recognize same-sex marriages. The IRS ruling does not apply to state-recognized registered domestic partnership, civil unions, or similar relationships.
Standard Deductions 2013
The standard deduction for 2013 is $12,200 for married persons filing jointly and qualifying widows/widowers, $8,950 for heads of household or $6,100 for single taxpayers or married persons filing separately. The additional standard deductions
for being 65 or older or blind is $1,500 if single or head of household ($3,000 if 65 and blind) If married filing jointly, the additional standard deduction is $1,200 if one spouse is 65 or older or blind, $2,400 if both spouses are at least 65 ( or one is 65 and blind).
Deduction Floor For Medical Expenses 2013
Starting in 2013, the floor for deducting medical expenses as an itemized deduction increases to 10% of adjusted gross income (AGI) if you and your spouse are under age 65 at the end of the year. If either you and your spouse is age 65 or older, expenses exceeding 7.5% of AGI may be claimed , as under pre-2013 rules.
Simplified Method For Home Office Deduction 2013
The IRS has provided a optional safe harbor method for figuring a home office deduction on Schedule C. For 2013, $5 per square foot may be deducted for up to 300 square feet, a maximum deduction of $1,500.
IRA and Roth IRA 2013
For 2013, the contribution limit for traditional IRAs and Roth IRAs is $5,500, or $6,500 for those age 50 or older.
IRS Mileage Allowance 2013
The IRS standard business mileage rate for 2013 is 56.5 cents a mile. The rate for medical expenses and moving expenses deductions is 24 cents a mile. For charitable volunteers , the mileage rate is 14 cents a mile.
Vehicle Depreciation Limit 2013
If a new car is placed in service in 2013 and used over 50% for business, bonus depreciation allows an $11, 160 first-year depreciation limit. The limit is $3,600 if bonus depreciation is not allowed. For a light truck or van, the limit is $11,360 if bonus depreciation applies and $3,360 without the bonus. The limits are reduced for personal use.
Foreign Earned Income and Housing Exclusions 2013
The maximum foreign earned income exclusion for 2013 is $97,600. The limit on housing expenses that may be taken into account in figuring the housing exclusion is generally $29,280, but the limit is increased by the IRS for high cost localities.
Report of Foreign Bank and Financial Accounts (FBAR) 2013
After June 30, 2013, FBARs must be electronically filed to the Treasury Department on FinCEN Form 114.
Annual Exclusion For Gifts 2013
For 2013 gift tax purposes, the per-donee exclusion for gifts of present interests is $14,000.
Gift Tax and Estate Tax exemption 2013
For 2013 gift tax and estate tax purposes, the basic exemption amount is $5,250,000. The top tax rate has increased to 40%.
California San Diego Tax Preparation
For tax preparation in San Diego, California, you can count on Didi, Enrolled Agent at Didi's 1040 & More. As Enrolled Agent we assists taxpayers and small businesses with taxes in San Diego, California and the surrounding communities. Whether you are an individual or a local business in or around San Diego, California, Didi as Enrolled Agent has years of valuable experience as an IRS registered tax preparer. Contact Didis' 1040 & More, tax filing specialist in San Diego, California, for help with your taxes.
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