It’s that time of the year again … tax time! Here are six important points you need to know for filing your 2014 tax return.
For the tax year 2014, you must now declare on your tax return that you had the required minimum health care coverage or were exempt from coverage. If you or anyone else in your family does not meet either of these conditions, you will pay a fine of 1% of your annual household income, or $96 per adult and $47 per child, whichever is higher.
The good news is that you may get a premium tax credit, which is paid on an advance basis and applied directly to monthly health insurance premiums. If you receive this credit, you may need to reconcile it on your tax return with your household income. So that your credit is not significantly off the mark, you should report life changes—for example, a birth, marriage, divorce or change in income—to your health care exchange so that it can adjust your credit.
The IRS increased the value of several tax benefits for the 2014 tax year, including the following:
- Personal/dependent exemptions: $3,950
- Standard deduction: $12,400 married filing jointly, $9,100 head of household, $6,200 single
- Maximum earned income tax credit: $6,143
- Foreign earned income deduction: $99,200
- Lifetime learning credit phase-out: $108,000 married filing jointly, $54,000 single or head of household
- Health savings account deductible amount: $6,550 family, $3,300 individual
The tax brackets are also wider, which means you can make a bit more without being bumped into a higher tax rate. However, the 3.8% Affordable Care Act tax still applies to your investment income if you make $200,000 single or $250,000 married filing jointly.
The good news is that the IRS now accepts married-filing-jointly returns from same-sex married couples, even if their home states don’t recognize their marriages. However, those who live in states that have not yet recognized these marriages may have to file individual state returns. If this applies to you, check with your state tax office before you file your returns.
Flexible spending account carryovers
As of Oct. 31, 2013, companies can allow employees to carry over $500 in unused FSA funds to the next benefit year. That means no more need for the year-end stocking up of toothpaste and contact lenses. Most companies did not implement the change until 2014, which means that 2015 may be the first year most recognize a carryover. Check with your employer to see if this carryover applies to your plan.
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Virtual currency does not have legal-tender status in the United States, so the IRS treats it as property rather than as money. However, did you get paid in bitcoins this year? If you did, you will have to report it on your taxes. The IRS has declared that wages paid in virtual currency are taxable income, which means they are subject to federal withholding, as well as Social Security, Medicare and unemployment taxes. If you just buy (or mine) and sell bitcoins, you will report gain and loss transactions as you would any other capital asset.
Last but not least, here are some unusual deductions that have recently been allowed when filing your return:
- Pet moving: Included in your deductible moving expenses when job-related.
- Clarinet lessons and weight loss programs: Deductible as medical expenses when recommended by a doctor to treat overbite or hypertension. Other similar programs to treat disease are also deductible, but not gym memberships or dance or swim lessons.
- Programs to stop smoking: Also a deductible expense, no doctor’s note needed.
- Gambling losses: Your gambling winnings are taxable as income, so you may as well deduct your losses against them.
- Uniforms: Your work attire can be deductible as long as it is worn as a condition of employment and is not a suitable substitute for every day clothing.
- Wigs and cosmetic surgery: These are deductible as medical expenses if medically necessary to fix a deformity (or fix mental health) related to a disease or medical condition.
One Final Recommendation
As always, we recommend that you consult with a tax professional for any complicated issues you come across. Happy filing!