Contributing to a retirement plan is one of the best tax shelters available to you during your working years.? Recently, the IRS announced that most of the retirement savings limits will NOT increase for 2014.
RETIREMENT PLAN LIMITS FOR 2014:
Maximum Contribution for 2014
?401(k) or 403(b)?Deferrals
?$17,500 in 2014
?Roth and Traditional IRAs
?$5,500 per person
|?Self-employed Retirement ? Plans
SEP or Keogh – $52,000/yr
Solo 401(k) – $52,000/yr
SIMPLE – $24,000/yr
?$14,000 per donor (up to $70,000 in one year)
If you?ll be 50 or older by December 31, 2014, you can contribute an extra $5,500 into your 401(k), Solo 401(k), or 403(b) plan, an extra $2,500 into your SIMPLE, and an extra $1,000 into your IRA.
by Richard S. Schwartz CPA. CVA
Will the re-elected President and the new Congress let all these tax rules expires? We’ll have to wait and see.? Here is a recap list of all the changes that will be made to the Tax Code if Congress and the President aren’t able to pass a Tax Act soon:
Personal Income Tax Rates:
- 10% tax rate increases to 15% tax rate
- 15% tax rate remains at 15% tax rate (but a portion increases to 28% tax rate for people filing as Married Filing Jointly)
- 25% tax rate increases to 28% tax rate
- 28% tax rate increases to 31% tax rate
- 33% tax rate increases to 36% tax rate
- 35% tax rate increases to 39.6% tax rate
Tax Rates on Capital Gains and Qualified Dividends:
- 0% long-term capital gains tax rate for taxpayers in the 10% and 15% tax brackets will increase to 15%.
- 15% long-term capital gains tax rate for all other taxpayers will increase to 20%.
- Qualified dividend tax rate at 15% will no longer?exist. Dividends will be taxed at your marginal tax rate.
- 3% phase-out on itemized deductions for income that exceeds certain thresholds is re-instated.
- Phase-out of personal exemptions once income exceeds certain thresholds is re-instated
New Medicare Taxes:
- 0.9% Medicare tax (referred to as the Health Insurance or HI tax) imposed on wages and SE income that exceeds $200,000 for single filers and $250,000 for MFJ filers. (Payable by employees only. Employers?are not required to match that tax.)
- A 3.8% Medicare surtax on net unearned/net investment income if MAGI exceeds $200,000 for single filers and $250,000 for MFJ?filers. Net investment income includes interest, dividends, annuities,? royalties, rents, passive income, capital gains. The surtax is the lesser?of:
1. Net Investment income, or
2. The excess of MAGI over the threshold amount
Social Security Tax:
- Social Security taxes withheld from an employee’s salary revert back from 4.2% to 6.2% of earnings.
- Social Security wage base increases from $110,100 to $113,700.
Alternative Minimum Tax:
Depreciation and Equipment Purchases:
- Maximum Section 179 depreciation reduces from $139,000 to $25,000.
- Bonus depreciation expires.
- Purchases of medical devises will be subject to a 2.3%?excise tax on purchase price of the equipment.
Estate and Gift Taxes:
- $5M exemption (with an allowance of portability between? spouses ? when one spouse died the unused $5M exemption of the deceased??spouse would be added to the exemption of the surviving spouse) reverts back to $1M (with no portability).
- 35% Estate tax rate changes to progressive tax rates with the highest rate set at 55%.
- Annual gift tax exclusion increased to $14,000.
- 529 college savings amount increased to $70,000? ($140,000 joint)
Other Expiring Provisions:
- Marriage penalty relief (expending of the 15% tax bracket and standard deduction for MFJ filers to be twice that of Single?taxpayers).
- Dependent care credit based upon $3,000 per child and $6,000 for two or more children reduces to $2,400 and $4,800 respectively.
- The child tax credit amount reverts from $1,000 to $500 and is no longer a “refundable” credit.
- The American Opportunity college tuition tax credit.? (The Hope and Lifetime Learning Credits both continue.)
- The exclusion from gross income for discharge of indebtedness on a principal residence.
- The exclusion for employer-provided education assistance (with an annual max of $5,250).
- The $250 deduction for teacher expenses.
- The deduction for Mortgage Insurance Premiums.
- The deduction for state and local sales tax instead of??state income taxes on Schedule A.
- The above the line deduction of up to $4,000 for?qualified tuition expenses.
- The tax-free treatment of charitable distributions made?from IRA?s of people over the age of 70.5.
- Tax credits for plug-in vehicles and alternate fuel vehicles.
In a shocking development, the IRS recently announced that they will be honoring the FICA tax refunds submitted by residency programs and individual doctors.? The catch is that only FICA taxes paid prior to 4/1/05 qualify.
For more information, go to our MDTAXES’?April 2010 Newsletter, our January 2009 Newsletter, or our February 2001 Newsletter or read through the?IRS’ Chief Counsel Advice Memorandum on this issue.
Many healthcare professionals work based on the Academic Calendar. That means that a lot of Doctors switch jobs over the summer. According to our friends at the IRS in their IRS Summertime Tax Tip 2012-06:
Summertime is the season that often leads to major life decisions, such as buying a home, moving or a job change. If you are looking for a new job that is in the same line of work, you may be able to deduct some of your job hunting expenses on your federal income tax return.
Here are seven things the IRS wants you to know about deducting costs related to your job search:
- To qualify for a deduction, your expenses must be spent on a job search in your current occupation. You may not deduct expenses?you incur while looking for a job in a new occupation.
- You can deduct employment and outplacement agency fees?you pay while looking for a job in your present occupation. If your?employer pays you back in a later year for employment agency fees, you?must include the amount you received in your gross income, up to the amount of your tax benefit in the earlier year.
- You can deduct amounts you spend for preparing and mailing copies of your r?sum? to prospective employers as long as you are?looking for a new job in your present occupation.
- If you travel to look for a new job in your present?occupation, you may be able to deduct travel expenses to and from the area to which you travelled. You can only deduct the travel expenses if the?trip is primarily to look for a new job. The amount of time you spend on personal activity unrelated to your job search compared to the amount of time you spend looking for work is important in determining whether the?trip is primarily personal or is primarily to look for a new job.
- You cannot deduct your job search expenses if there was?a substantial break between the end of your last job and the time you begin looking for a new one.
- You cannot deduct job search expenses if you are looking for a job for the first time.
- In order to be deductible, the amount that you spend?for job search expenses, combined with other miscellaneous expenses, must exceed a certain threshold. To determine your deduction, use Schedule A, Itemized Deductions. Job search expenses are claimed as a miscellaneous?itemized deduction. The amount of your miscellaneous deduction that?exceeds two percent of your adjusted gross income is deductible.
For more information about job search expenses, see IRS Publication 529, Miscellaneous Deductions. This publication is available on www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).
- Schedule A, Itemized Deductions (PDF)
- Publication 529, Miscellaneous Deductions (PDF)
The Internal Revenue Service issued its annual ?Dirty Dozen? ranking of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.
The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.
?Taxpayers should be careful and avoid falling into a trap with the Dirty Dozen,? said IRS Commissioner Doug Shulman. ?Scam artists will tempt people in-person, on-line and by e-mail with misleading promises about lost refunds and free money. Don?t be fooled by these scams.?
Illegal scams can lead to significant penalties and interest and possible criminal prosecution. The IRS Criminal Investigation Division works closely with the Department of Justice to shutdown scams and prosecute the criminals behind them.
The following is the Dirty Dozen tax scams for 2012:
- Identity Theft
- Return Preparer Fraud
- Hiding Income Offshore
- ?Free Money? from the IRS & Tax Scams Involving Social Security
- False/Inflated Income and Expenses
- False Form 1099 Refund Claims
- Frivolous Arguments
- Falsely Claiming Zero Wages
- Abuse of Charitable Organizations and Deductions
- Disguised Corporate Ownership
- Misuse of Trusts
More information on these Tax Scams is available at www.irs.gov/newsroom/article/0,,id=254383,00.html.
If your Keogh or Solo 401(k) accounts are worth more than $250,000, or if you have employees in your plan, you need to file Form 5500-EZ by Tuesday, July 31.
For more info: http://www.irs.gov/retirement/article/0,,id=117588,00.html
Have questions? We can help: 781.938.0045.