After the Filing Deadline: Important Tax Changes for 2014 (Part II)

In Part I of this series, we covered some of the important tax breaks that expired at the end of 2013. Now we will look at some of the important additions to the tax code in 2014. Unfortunately, not all of these additions are positive.  Get Refund

Individual Health Insurance Mandate

The tax law change that impacts almost all Americans is the requirement under the Affordable Care Act for every American (with a few exceptions) to purchase health insurance. Individuals who fail to purchase “minimal essential coverage” under the law will be required to pay a fine to the IRS. The fine will start at $95 per adult in 2014, going up to $695 per adult in 2016. If you decide not to comply, the IRS will deduct the fine you owe from your tax refund.

When signing up for a healthcare plan on a federal or state exchange, many taxpayers will qualify for a subsidy based on their projected level of income for the particular tax year. There are two options for those that qualify:

  1. Claim the Advanced Tax Credit, allowing for the government to pay the subsidy directly to the health insurer.
  2. Pay the full premium and claim a credit when you file your income taxes the following year.

While most taxpayers will opt for the Advanced Tax Credit, it should be noted that the amount paid to the insurer by the government may not be 100% accurate, mainly because your actual income may differ from your projected income at the time you signed up for the insurance.

There is also a lesser-known tax law change under the ACA that affects the amount individuals are allowed to deduct for qualifying healthcare expenses. Through 2013, taxpayers were allowed to deduct any amount beyond 7.5% of their adjusted gross income (AGI). This threshold has been raised to 10% for taxpayers under age 65. Those age 65 and above will retain the 7.5% threshold until 2017.

Other Tax Law Changes for 2014

There are several other changes for the current tax year. Here are a couple of highlights:

  • Flexible Spending Account Carryover: Those familiar with healthcare flexible spending accounts (FSAs) understand the primary drawback to these vehicles; the inability to carry over unused expenses to the following year. This has changed in 2014. Taxpayers are now able to carry over as much as $500 from their FSA through the first quarter of the following year.
  • Simplified Home Office Deduction: Self-employed taxpayers who work out of a home office will appreciate the ability to simplify this deduction. Under the new provision, entrepreneurs are able to skip the detailed expense recording and simply deduct $5 for every square foot of home office space up to 300 square feet maximum. This will make small business accounting a little easier.

As with every tax year, there are numerous other changes affecting various groups of taxpayers. To find out how the changes in 2014 affect your personal situation, speak with a tax professional to map out the best strategy to keep your tax burden low in 2014 and beyond.

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