Selected New Tax Laws Starting in 2014

While the start of 2014 doesn’t bring with it the enormous tax changes that the start of 2013 brought, there are still many important changes that will impact your taxes.  Here is an overview of some of those changes.  I do not address the dozens of tax laws that expired at the end of 2013.

Personal Taxes

·       Individuals must pay a tax penalty if they do not maintain minimum essential health insurance coverage for each month during 2014.  There is an exception for one short-term gap in coverage of three months or less.  Also, the Federal government apparently gave a hardship waiver from the penalty to all individuals who received a notice saying that their current health insurance plan was being cancelled.  To receive the waiver, it appears that the affected individuals must buy a “catastrophic” health insurance policy.

·       Certain low- or moderate-income families buying health insurance through a government exchange may qualify for a refundable tax credit.  Most people eligible for the credit will use it during the year to help pay the cost of monthly premiums.  Since the credit is based upon estimated 2014 household income, a reconciliation of the credit will be part of the 2014 tax return.

·       The provision for direct charitable gifting of up to $100,000 of IRA assets for those age 70 ½ or older expired at the end of 2013.  This important tax break enabled taxpayers to meet their required minimum distributions (RMD) and exclude the charitable IRA distribution from adjusted gross income.  Congress has historically retroactively reinstated this provision several times in the past.  You may wish to wait towards the end of 2014 before taking your RMD to see whether this provision may be reinstated for 2014.

Business Taxes

·       Recently published final regulations concerning the acquisition, production, and improvement of tangible property go into effect for tax years beginning on or after January 1, 2014.  Some of the provisions may require a change in tax accounting methods including the required filing of Form 3115 to report the change.

·       The amount that taxpayers can expense under Section 179 drops to $25,000 from $500,000 for tax years that began in 2013.  The expensing limit is reduced dollar for dollar as total eligible Section 179 property purchases during the year exceeds $200,000 (down from $2 million in 2013).  A trap exists for fiscal year pass-through entities whose tax years begin in 2013 and end in 2014.  If the entity claims an expensing amount above $25,000 per owner, the excess will be permanently lost because the owners receiving the expensing allocation must follow the 2014 limits.  They can’t deduct more than $25,000 and any excess allocation  is permanently lost.

·       Corporations that issue or are included in audited financial statements, that have total assets of $10 million or more (down from $50 million in 2013), and that have made a contingency reserve for possible additional taxes (or did not record a reserve because they intend to litigate the issue if challenged), must include Schedule UTP with their 2014 income tax returns.  UTP means “uncertain tax positions.”  The government is requiring these corporations to self-report their uncertain tax positions, giving the IRS notice of issues that can be audited.