Two words you generally do not want to hear in the same sentence are “taxes” and “surprise”. As the year-end approaches, it is time to consider the effects of the new tax laws so that they don’t creep up on you, either when filling out your taxes for 2014 or while considering tax ramifications for fiscal 2015.
- Flexible Spending Accounts (FSAs) – FSAs are generally use-it-or-lose-it plans that require you to expend all the funds within a plan’s year or forfeit any funds remaining. The law was changed in 2013 to allow plans to permit a $500 rollover into the next year.
Starting at the end of 2014, if you execute a rollover of $500 into your FSA into the next year, you will not be able to participate in a Health Savings Account (HSA) during that entire year. Certain specific FSA plans are excluded from this rule. Check with your plan administrator if you are unsure whether your plan is affected.
- Bitcoin – This virtual currency is now considered taxable at its fair market value, but determining fair market value is not at all straightforward – much like Bitcoin itself. There is a distinction between investing in Bitcoins and receiving them as a payment. Check with your tax advisor to see how to handle Bitcoins in your specific case.
- Inflation Adjustments – Several of the important tax benchmarks have been adjusted for inflation. Among the changes: the standard deduction increased to $6,300 ($12,600 for married filing jointly), the maximum Earned Income Credit rose to $6,242 (filing jointly with 3 or more qualifying children), the threshold for the top 39.6% tax bracket rose to $406,750 ($457,600 for married filing jointly) and the Alternative Minimum Tax exemption increased to $53,600 ($83,400 for married filing jointly).
A complete list of inflation adjustments may be found on the IRS webpage at http://www.irs.gov/uac/Newsroom/In-2015,-Various-Tax-Benefits-Increase-Due-to-Inflation-Adjustments.
- Individual Shared Responsibility Payment – Did you refuse to play ball with the Affordable Care Act (ACA) and leave yourself without insurance coverage for nine months or more in 2014? Then you are subject to a penalty of 1% of your income (or $95 if that is higher) thanks to the so-called individual mandate.
- Advanced Premium Credit Adjustments – This is not a new law, but another artifact of the ACA that is surfacing for the first time. If you received estimated tax credits to subsidize your insurance purchase on the exchanges, you may have to pay more in taxes if your income exceeded your estimate. On the positive side, if your income was below the estimate, you may receive a larger tax credit.
- Foster Care Definition – If you are caring for a family member at home and are receiving payments for providing care from the state or a Medicaid provider, those payments possibly may be excluded from your taxable income. Check with your tax advisor to see if this applies to your situation.
Aside from the above changes, there is always an opportunity for fresh surprises between today and the tax-filing deadline of April 15th.
For example, On December 16th, Congress passed an extension of expired tax provisions from the 2012 American Taxpayer Relief Act, such as deductions for educator expenses, mortgage interest premiums, and tuition and fees. If the President signs this, you may have a host of older tax exemptions that become retroactively applicable to your 2014 taxes.
Between the tax extensions and challenges to the ACA, it is wise to check the news (and with your tax advisor) for any late-breaking changes that could affect your tax filings.
Here’s to a smooth tax season, with increased benefits and no nasty surprises for all.