Tax Season Opens January 31 as Tax Preparers Ponder a Roster of Challenging Issues Not Confronted before
By Rafique S.M. Ahmed
The Internal Revenue Service has announced to open the 2014 tax filing season on Friday, January 31 instead of January 21 as previously announced and is encouraging taxpayers to e-file returns to receive their refunds much faster. Needless to say, taxpayers will not receive any tax refund checks in the month of January for obvious reasons just like last year.
The 2014 tax season seems to bring in a roster of very challenging issues not confronted before and is forcing all tax preparers throughout the country to be up to speed in understanding the new laws fairly quickly. In addition to the delayed start of the tax season, thanks to October's 16-day government shutdown, there is also a great deal of anxiety and confusion among both taxpayers and also tax preparers arising from the implications of the Affordable Care Act, continuity of certain expiring provisions, the re-introduction of personal exemption phase-outs, Pease limitations on itemized deductions for high-income earners and the Supreme Court decision on the Defense of Marriage Act. Taxpayers will also miss 55 tax breaks which expired at the end of 2013.
Several provisions of the American Taxpayer Relief Act of 2012 were enacted in 2013 raising the highest individual income tax rate to 39.5 percent in 2013 in addition to an increase in dividend and long-term capital gains tax rates from 15 percent to 20 percent for the same income level. The IRS has also imposed a tax equal to 3.8 percent of the lesser of an individual's net investment income or the excess (if any) of the taxpayer's modified adjusted gross income over stated threshold amounts of $250,000 for married taxpayers filing jointly and surviving spouses, $125,000 for married taxpayers filing separately, and $200,000 for other taxpayers.
Electronic-filing is showing substantial improvement every year. More than 122 million e-filed returns in total were processed by the IRS during 2013 up from 119.6 million in 2012. More than 45.2 million taxpayers prepared and e-filed their own returns on home computers compared to 43.2 million a year earlier. E-filed returns prepared by tax professionals increased slightly totaling more than 77 million returns.
The following are the other significant changes in the tax landscape of 2013 which may affect your tax returns:
- The personal exemption was reduced by 2% for every $2,500 by which the AGI exceeds $300,000 for Married Filing Jointly, $275,000 for Head of Household, $250,000 for Single and $150,000 for Married Filing Separately.
- The deductible for medical expenses was increased to 10% of AGI. However, there is a temporary exemption from January 1, 2013 to December 31, 2016 for taxpayers age 65 and older and their spouses who can still claim deductions when the expenses reach 7.5% of their AGI.
- Additional Medicare Tax of 0.9% went into effect in 2013 and applies to an individual's wages, RRTA compensation and self-employment income that exceeds $250,000 for Married Filing Jointly and $200,000 for all other taxpayers. Employers will be held responsible for withholding the additional Medicare Tax on wages paid in excess of the new threshold in a calendar year.
- Effective January 1, 2013, the Adoption Credit amount that can be excluded from an employee's gross income for adopting a child with special needs is $12,970.
- The 2% reduction in self-employment tax has expired. The rate is back to 15.3% instead of 13.3%.
- AMT exemptions are indexed for inflation.
- Bonus depreciation is still good for 2013, but expires January 1, 2014.
- The Pease Limitations were enacted in 2013 reducing itemized deductions by the lesser of 3% of the amount by which the AGI exceeds the threshold amount based on filing status or 80% of the itemized deductions. Joint filers with adjusted gross income greater than $300,000 and single taxpayers with AGI exceeding $250,000 may see a decrease in their deductions.
- The IRS is allowing employers to offer employees a chance to carry over to the next year up to $500 of unspent health-related dollars in their flexible spending accounts.
- Foreign earned income exclusion increased to $97,600.
- The annual limit for Social Security (FICA) wages for 2013 is $112,500. The FICA tax on this amount was re-instated at 6.2% for 2013.
- Standard mileage rate for business use of vehicle is increased to 56.5 cents per mile. The rate for use of vehicle to get medical care or move is increased to 24 cents per mile while for charitable use, the rate remains unchanged at 14 cents per mile.
( Rafique S. M. Ahmed is a professional Tax Accountant and has been providing accounting and tax services in California for more than thirty-five years. He is also an Authorized IRS Electronic Filing Provider, and is located at 1109 Via Verde, San Dimas, California 91773. He can be reached at (909) 599-1412 or 599-1414.)
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