Every year changes are made to the tax law that affect the way you manage your money throughout the year and how you file your tax return in the new calendar year. As soon as you are comfortable with one aspect of tax law, changes are made and you must relearn everything you knew. Working with an experienced tax attorney makes it easier to deal with an ever-changing situation, but it is also important to have a general understanding of the current laws.
What do you need to know about the most recent changes to tax laws?
Effect of ACA (i.e.; Obamacare) on Your Taxes
The Affordable Care Act requires you to carry a minimum amount of health insurance. If your plan does not meet the requirements, you will be forced to pay a fine, which in 2014 equals 1% of your annual income or $95 for each person you claim as a dependent. Further changes could be enacted in the coming years, but most expect the fine to be higher in 2015. At this point, it is too late to apply for coverage to avoid the 2014 penalty, so speak with your tax attorney to determine the best way to handle the fee.
The ACA also included an additional 3.8% tax on investment income. The tax applies to those making more than $200,000 (or $250,000 as a married couple filing jointly), so try to realize capital gains during years you earn less than those limits. The use of income timing, installment sales, and other tax deferral strategies can be effective in managing this new tax.
Finally, the ACA requires a new 0.9% Medicare health insurance tax on wages for those earning more than $200,000. If you are self-employed, you should plan for this additional tax when calculating your estimated tax payments. If you are an employee, the tax will be added to your Medicare tax in your paycheck.
Energy tax credit
Energy tax credit opportunities have been extended to 2016, so you are still able to get a credit for certain energy efficient upgrades to your home. In most cases, the credit is 30% of the total cost of the product. If you were thinking of putting off utility or other upgrades until after the first of the year, you might want to reconsider so you are eligible to claim the credit on this year’s tax return.
In previous years, you were able to deduct medical expenses that surpassed 7.5% of your adjust gross income, but as of 2013, you can deduct them only if they surpass 10%. The 7.5% limit remains the same for those over 65 years of age. Despite the increase in the limitation, it is still important to plan for this opportunity when possible. For instance, paying a medical bill in one lump sum could qualify you for a tax break, whereas staggering the payments could result in a complete loss of tax benefits.
If you have questions about the most recent changes to the tax laws or you need assistance with tax planning, contact an experienced tax professional. Feel free to contact us to answer your questions at 516.537.4440