Popular Incentives for 2014
Tax Returns

In late December, Congress finally took action, passing the tax extender bill, the Tax Increase Prevention Act of 2014 (H.R. 5771), which was signed into law by President Obama.

The good news is the tax provisions are retroactive to January 1, 2014, allowing taxpayers to claim popular incentives on their 2014 tax returns filed in 2015.
The bad news is that they expired on December 31, 2014.

Here is a summary of some of the tax provisions most likely to affect taxpayers when filing their 2014 tax returns:
Individual Extenders

Qualified Tuition
and Expenses


The deduction for qualified tuition and fees is an above-the-line tax deduction, which means that you don't have to itemize your deductions to claim the expense. Taxpayers with income of up to $130,000 (joint) or $65,000 (single) can claim a deduction for up to $4,000 in expenses. Taxpayers with income over $130,000 but under $160,000 (joint) and over $65,000 but under $80,000 (single) can take a deduction up to $2,000; however, taxpayers with income over those amounts are not eligible for the deduction.

Teachers' Classroom Expense Deduction
Primary and secondary school education professionals may be able to take an above-the-line deduction of up to $250 for out-of-pocket unreimbursed school supplies. An above-the-line deduction means that it can be taken before calculating adjusted gross income. Expenses above the $250 may be deducted as an itemized deduction, subject to the overall 2% adjusted gross income floor.

Charitable Distributions from IRAs
Taxpayers age 70 1/2 or older will continue to be allowed to donate up to $100,000 in distributions from their IRA to charity. Some people do not want to take the mandatory minimum distributions (which are counted as income) upon reaching this age and instead can contribute it to charity.

State and Local Sales
Tax Deduction

Taxpayers can deduct either state and local income taxes or sales taxes paid during the year. The sales tax deduction works best for people who live in a state with no income tax or whose sales tax deduction is larger than their state income tax deduction.  

Mortgage Insurance Premium Deduction
Mortgage insurance premiums ("PMI") are paid by homeowners with less than 20 percent equity in their homes. These premiums were deductible in tax years 2012, 2013, and once again in 2014 (subject to an adjusted gross income phase-out).  

Mortgage Debt Exclusion of Discharge of Principal Residence Indebtedness
Typically, forgiven debt is considered taxable income in the eyes of the IRS; however, this tax provision, which was extended through 2014, allows homeowners whose principal residence has been foreclosed on or subjected to short sale to exclude up to $2 million of cancelled mortgage debt.

Transit Parity for Mass Transit Fringe Benefits
This tax extender allows commuters who used mass transit in 2014 to exclude from income (up to $250 per month), transit benefits paid by their employers such as monthly rail or subway passes, making it on par with parking benefits (also up to $250 pre-tax).

Energy Efficient Improvements
If you made your home more energy efficient in 2014, you may be able to take advantage of this tax credit on your 2014 tax return. The credit is 10 percent of the cost of building materials for items such as insulation, new water heaters, or a wood pellet stove.**

**Note: This tax credit is cumulative, so if you've taken the credit in any tax year since 2006, you will not be able to take the full $500 tax credit this year. If, for example, you took a credit of $300 in 2012, the maximum credit you could take this year is $200.

In addition to the tax extenders, Congress attached to the extender bill the Achieving a Better Life Experience ("ABLE") Act that allows people who were disabled before the age of 26 (including family and friends) to contribute up to a combined total of $14,000 a year to an ABLE account (tax-favored savings account). Accumulated earnings are tax free. Also, money held in the account would not disqualify the disabled person from receiving federal assistance benefits such as Medicaid and Supplemental Security Income, provided it is not used to pay for housing, transportation, education and wellness.

Business Extenders

 
Bonus Depreciation
The Tax Increase Prevention Act extended 50% Bonus depreciation through 2014. Bonus depreciation allows taxpayers to claim an additional first-year depreciation deduction for qualified property. Qualified property must have a recovery period of 20 years or less and placed in service before January 1, 2015.

Code Sec. 179 Expensing 
Code Sec. 179 allows taxpayers to immediately deduct, rather than gradually depreciate, the cost of qualified assets, subject to certain limitations. The tax extenders package set the Code Sec. 179 dollar limit to $500,000 for 2014 with a $2 million overall investment limit. In 2015 it returns to the $25,000/$200,000 level.   

Qualified Leasehold/Retail Improvements, Restaurant Property 
Qualified leasehold improvements, qualified retail improvements and qualified restaurant property may be treated as Code Section 179 property, but with a lower dollar cap. The extenders package extends this treatment through 2014. The provisions extend the inclusion of qualified leasehold improvement property, restaurant property and retail improvement property in the 15-year MACRS class as opposed to the traditional 39-year recovery period.  

Call Us!
We can help you implement these tax extenders while preparing your year-end tax returns - give us a call at 508.871.7178.


Partners Smith, Sullivan and Brown
Questions?
Call us at 508.871.7178
or email: [email protected] 
or go to: www.ssbcpa.com   
 




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