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Summary of 2014 Tax deductions, credits, incentives and new changes

This post deals with 2014 tax deductions, changes and exemptions for planning purposes, which means most of the changes described here will be effective for the 2014 tax year, for which you will file the return on April 15, 2015. For 2013 tax changes check this post – 2013 tax changes, deductions and exemptions.

Tis’ the time to think about taxes! Not just about filing last year’s return but plan for reducing this year’s (2014) tax liability. A lot of measures to reduce tax liability have to be done throughout the year. So as always, I summarize and review the tax year changes at the beginning of the year so that I can identify areas to work on throughout the year to cut my tax liabilities.

Here is a list of 2014 tax deductions, exemptions and changes that will affect all tax payers.

(Standard Disclaimer: I am not a tax professional and I am not qualified to give tax advice. This post is based on what I understand. Please consult a tax professional if you have any questions.)

2014 Tax Guide

FICA (Payroll) Taxes

FICA tax has two parts – Social Security & Medicare. The only change in this area is the taxable limit for Social Security has increased to $117,000.

Tax Limit Rate
Social Security (Employee) $117,000 6.2%
Social Security (Employer) $117,000 6.2%
Medicare (Employee) No limit 1.45%
Medicare (Employee) No limit 1.45%
Medicare Surtax, Paid by employee for people earning over $200,000. There is no employer match for this. No limit on wages over $200,000 0.9%

 

2014 Individual Income Tax Rates

Tax brackets for 2014: The top tax bracket increased from 35% (2012) to 39.6% in 2013.

Tax rate Single filers Married filing jointly Married filing separately Head of household
10% Up to $9,075 Up to $18,150 Up to $9,075 Up to $12,950
15% $9,075-$36,900 $18,150-$73,800 $9,075-$36,900 $12,950 – $49,400
25% $36,900-$89,350 $73,800-$148,850 $36,900 – $74,425 $49,400-$127,550
28% $89,350-$186,350 $143,850-$226,850 $74,425-$113,425 $127,550 – $206,600
33% $186,350-$405,100 $226,850-$405,100 $113,425-$202,550 $206,600-$405,100
35% $405,100-$406,750 $405,100-$457,600 $202,550-$228,800 $405,100-$432,200
39.6% $406,750 or more $457,600 or more $228,800 or more $432,200 or more

 

2014 retirement (traditional IRA, Roth IRA, 401k, 403b, 457b) contribution limits

Individual retirement plans and 401k contribution limits for 2014:

Retirement Plan Contribution Limit Catch up contribution (Above 50 yrs.)
Traditional IRA $5,500 $1,000
ROTH IRA $5,500 $1,000
401(k)/Roth 401(k) $17,500 $5,500
403(b) $17,500 $5,500
457(b) $17,500 $5,500
SIMPLE 401(k)/Roth SIMPLE 401(k) $12,000 $2,500
SIMPLE IRA 12,000 $2,500
Solo 401k (“Employee part”) $17,500 $5,500
408(k) $17,500 $5,500
501(c) $17,500 NA

 

2014 Traditional IRA AGI Deduction Limits (If Covered by a Retirement Plan at Work)

Filing Status Full Deduction Phase Out No Deduction
Single, head of household $60,000 $60,000 to less than $70,000 $70,000 or more
Qualified Widow(er) $96,000 $96,000 to less than $116,000 $116,000 or more
Married filing jointly $96,000 $96,000 to less than $116,000 $116,000 or more
Married filing separately Less than $10,000 $10,000 or more

 

2014 Traditional IRA AGI Deduction Limits (If NOT Covered by a Retirement Plan at Work) 

Filing Status Full Deduction Phase-Out (reduced amount) No Deduction
Single, head of household or qualifying widow(er) No limit
Married filing jointly  or separately with a spouse who is not covered by a plan at work No limit
Married filing jointly with a spouse who is covered by a plan at work $181,000 $181,000 to less than $191,000 $191,000 or more
Married filing separately with a spouse who is covered by a plan at work Less than $10,000 $10,000 or more

 

2014 ROTH IRA Income Limits 

Filing Status Full Deduction Phase-Out (reduced amount) No Deduction
Single, head of household & Married filing separately (If you did not live with your spouse at any time during the year) $114,000 $114,000 to less than $129,000 $129,000 or more
Married filing jointly, Qualified widow(er) $181,000 or less $181,000 to less than $191,000 $191,000 or more

 

2014 Investment tax (Capital Gains and Dividends)

Capital gains and qualified dividend rates:  In 2013, a new 20% rate was introduced for high earners earning more than $400,000 ($450,000 if married). Last year’s tax changes also included the new Medicare surtax for high income earners. For short term gains, the tax rate is same as ordinary income tax rate. As of this writing (January 25, 2014) the investment tax rates have stayed the same as 2013 rates. This could change anytime. If it does, I will update it here.

Tax rate

Single

Married

Head of Household

0% Up to $36,250 Up to $72,850 Up to $48,600
15% $36,250 to $400k $72,850 to $450k $48,600 to $425k
20% Over $400k Over $450k Over $425k

Net investment income tax: To help fund Medicare, everyone earning over $200,000 (or if married filing jointly, over $250,000) will pay an additional 3.8% on net investment income. This is in addition to the capital gains and dividend tax. Net investment income include gains on sale of stock, mutual funds & bonds, capital gains distribution from mutual funds and gains from sale of investment real estate.

Alternate minimum tax: The AMT thresholds for the year 2014 are $82,100 for married taxpayers filing jointly; $52,800 for individual taxpayers; and $41,050 for married taxpayers filing separately.

2014 tax deductions & exemption

Standard Deduction for 2014: The individual standard deduction has been raised to $6,200 from $6,100.

  • $6,200 for unmarried taxpayers or married taxpayers filing separately (up from $6,100 in 2013)
  • $12,400 for married taxpayers filing jointly (up from $12,200 in 2013)
  • $9,100 for taxpayers filing as head of household (up from $8,950 in 2013).

Itemized deductions (“Pease” limitation): The phase out limitation for itemized deductions was brought back in 2013 and it is here to stay. For the tax year 2014, the limitations are –

Filing Status Phase out AGI
Married filing jointly $305,050
Married filing separately $152,525
Single $254,200
Head of household $279,650

Personal Exemption for 2014: The personal exemption amount will be $3,950 ($50 increase from the 2013 amount of $3,900). Phase out levels are as follows –

Filing Status Phase out AGI
Married filing jointly $305,050
Married filing separately $152,525
Single $254,200
Head of household $279,650

 

Deduction of state and local sales tax: This deduction was retroactively enacted for 2012 and extended for 2013, but as of this writing (January 25, 2014) this deduction won’t be available for tax year 2014.

Deduction of private mortgage insurance premiums: This is another deduction that expired in 2013. Any/All of these could be retroactively enacted at any time, if that happens, I will update the post.

For a comprehensive list of deductions that are easy to miss, check out this post – Tax deduction checklist - easy to overlook tax deductions.

2014 Estate & Gift Tax limits

Estate tax: The top estate tax rate on the largest estate is 40%. Estates valued up to $5,340,000 ($10,680,000 for couples) will be excluded from estate tax (this amount will be adjusted annually for inflation).

Portability of unused exemption: Unused exemption of a deceased spouse will transfer over to the surviving spouse. This means in 2014 a married couple can pass on $10,680,000 to their heirs free of estate taxes.

Gift tax limit: The annual exclusion for gifts will remain at $14,000 per person ($28,000 per couple) for 2014.

2014 Education tax incentives

Educator expense deduction: In 2013, elementary and Secondary school teachers were able to take up to $250 above the line deductions for professional expenses incurred, like books, office supplies, computer, etc. This deduction if it is not extended will disappear in 2014.

Coverdell education savings accounts (ESAs): The annual contribution limit is $2,000 and the money can be used to pay for elementary, secondary school expenses as well as higher education. The contribution limits phases out with modified adjusted gross income between $190,000 and $220,000 (between $95,000 and $110,000 if filing a single return).

Employer provided education assistance exclusion extended: Up to $5,250 provided by the employer as part of the education assistance program is exempt from income and employment taxes.

American opportunity tax credit (AOTC): (formerly Hope credit) Up to $2,500 per student per year. The amount of the credit is 100% of the first $2,000 and 25% of the second $2,000 of qualified tuition and related expenses including course material. This credit is available until 2017 and is 40% refundable, which means you can receive up to $1,000 even if you owe no taxes.

2014 family tax credits

Adoption credit: The maximum credit for 2014 is $13,190. The credit phases out with modified adjusted gross income between $197,880 and $237,880.

Child care credit: The child care credit is available until 2017. The limit for this credit remains at $1,000. More information: Publication 972 (pdf).

Child & Dependent Care Tax Credit was permanently extended in 2013. Working parents will continue to receive 35% of the child care expenses up to $3,000 per child or $6,000 per family.

Earned income tax credit (EITC): The 2014 limits are as follows – $6,143 with three or more qualifying children; $5,460 with two qualifying children; $3,304 with one qualifying child and $496 with no qualifying children.

Kiddie tax: For 2014, the threshold for kiddie tax (amount a child can take home without paying federal tax) remains at $1,000.

2014 Health related accounts contribution limits

The FSA (Flexible spending account) and the HSA (Health Savings Account) have gone through several changes in the last few years. Here are the contribution limits as they stand now –

Health Savings Account contribution limits

High deductible health plan Limit (under age 55) Catch up limit (over 55) Plan should have a minimum deductible of Annual out of pocket limit for the plan
Individual $3,300 $4,300 $1,250 $6,350
Family $6,550 $7,550 $2,500 $12,700

Flexible Spending Account limits on employee contributions remains at $2,500.

2014 Energy credits and tax incentives

At the time of this writing, this credit has expired.

Other noteworthy 2014 tax deductions, news or credits

As you can see above, there are several deductions and credits that are expiring for 2014 unless congress does something to extend them. Here are some of the popular tax breaks that expires in 2013

  • Lot of energy credits and incentives
  • Mass transit benefits
  • Mortgage debt forgiveness
  • Donations through your IRA
  • Deduction of state and local sales tax
  • Mortgage insurance premiums
  • Educator expense deduction
  • Education tax deduction

As usual, this turned into a long post, but I like the convenience of having everything in one place. Let me know if you see any errors or ambiguities.

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