The IRS announced adjustments for over 40 tax provisions today to account for annual inflation. These changes will take apply to tax year 2014 returns. Review some of the most notable changes outlined below:
Income Tax Rates
The tax rate of 39.6% applies to singles who earn more than $406,750 (or $457,600 for married couples filing jointly). This is an increase from $400,000 (and $450,000) in 2013.
Standard Deduction
The standard deduction will increase to $6,200 for singles (or married couple filing separately) and $12,400 for married couples filing a joint return, up from $6,100 and $12,200 for the tax year 2013. The standard deduction for heads of household will rise from $8,950 to $9,100.
Itemized Deductions
The limitation for itemized deductions will begin with incomes of $254,200 for singles or $305,050 for married couples filing jointly.
Personal Exemption
The personal exemption will rise from $3,900 to $3950 in 2014. That said, the personal exemption is subject to a phase-out that starts with adjusted gross incomes of $254,200 ($305,050 for married couples filing jointly). It will completely phase out at $376,700 ($427,550 for married couples filing jointly).
Alternative Minimum Tax
In the year 2014, the Alternative Minimum Tax Exemption amount will increase to $52,800 ($82,100 for married couples filing jointly). These are an increase from the previous amounts of $51,900 and $80,800, respectively.
Earned Income Credit
Taxpayers filing jointly who have 3 or more qualifying children will have a maximum Earned Income Credit of $6,143, an increase from $6,044 in tax year 2013.
Estate Exclusion
The basic exclusion amount for decedents who die in 2014 will increase from the previous level of $5,250,000 to $5,340,000.
Gift Exclusion
The annual gift exclusion will stay the same in 2014, at $14,000.
Employee Contributions to Employer Sponsored Healthcare
The annual limit of employee contributions to employer sponsored healthcare flexible spending arrangements will stay the same at $2,500.
Foreign Earned Income Exclusion
The foreign earned income exclusion will increase from $97,600 in 2013 to $99,200 in 2014.
Small Employer Health Insurance Credit
The small employer health insurance credit will apply to employers who have an excess of 10 full-time employees, with the employer’s annual wages exceeding $25,400 in tax year 2014 (an increase from $25,000 in 2013).
More details on these inflation adjustments and a full list of all the adjustments are available in Revenue Procedure 2013-35.
If you have any questions, please do not hesitate to contact Joel Lewinson today as it’s important to account for these adjustments in your tax planning for 2014.
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