Before you know it, 2014 is going to be behind you, and you’ll be looking for your W-2 to arrive. Just like in past years there are going to be some noticeable changes on your 2014 income tax forms. Some of these may adjust the amount you are accustomed to paying the IRS or even receiving as a refund. So 2014 tax planning should be on the top of your list whether you are a US resident or an American expat living abroad.
Here is a look at 3 significant 2014 income tax changes you are going to be facing, and what they might mean for your 2014 expat tax return:
2014 Income Tax Changes: Tax Penalties for No Health Insurance
If you are not exempt from the new healthcare laws and you did not at least obtain “minimum essential coverage” by the end of this past March, you could be facing a penalty when you file your return. American expats are not subject to Obamacare penalties if they meet either the physical presence test or bona fide residence test.
There are a number of options that qualify as “minimum essential coverage”. These include:
- Any of the plans available for purchase through the Marketplace
- Any employer’s health insurance plan
- Retiree health plans
- Medicaid and Medicare
- Children’s Health Insurance Program
- Veteran’s health care programs
There are several others that may also qualify and are worth looking into if you want to avoid having to pay the penalty. The provider should be able to tell you whether or not they meet the criteria outlined in the new law.
In the event that you don’t have coverage, or did not get coverage before the March 31st deadline, prepare to pay a penalty. The penalty amount is going to be determined by your household income and number of dependents:
- 2014 Penalty: The higher of 1% of your total annual income above the tax filing threshold or $95 for each adult on your return and $47.50 for each child. The maximum amount allowed under the first method is the equivalent of the premium you would have paid with the “Bronze” health plan. The maximum amount for the second method of calculation for a family is $285.
- 2015 Penalty: The penalty jumps from 1% of your income to 2% or $325 per adult and $162.50 per child, with a maximum penalty of $975 per family allowed.
- 2016 Penalty: Prepare to pay 2.5% of your income or $695 per person listed on your tax return.
The no healthcare penalty gets steep very quickly. If you have not yet secured your health insurance coverage, it would be a good idea to make that one of your New Year’s resolutions. Otherwise any chance of getting a refund on your return will be overridden by the cost of your penalties.
2014 Income Tax Changes: Rising Exemptions, Deductions and Brackets
You could catch a break with other 2014 income tax changes like the new tax exemptions, deductions and tax brackets that are going into effect for the 2014 tax year. These were all raised in order to account for rising inflation.
For single taxpayers, the standard deduction went up a $100 to $6,200 while for joint returns the deduction is doubled to $12,400. Personal exemptions rose too, and are now $3,950. That is $50 more than last year. Under the right circumstances, these changes along with higher tax brackets will mean less money owed by you to Uncle Sam for 2014.
Higher income households do of course get the most benefit from these changes, but median income families will also see a benefit. Families of four who use the standard deduction and earn a gross income of $100,000 could see a difference of $75 in what they owe to the IRS, assuming that their earnings were the same as in 2013. Of course there may be other factors to consider, but the benefit of this change is evident.
2014 Income Tax Changes: Tax Deductions and Credits That You Will No Longer See
In 2012, a relief act was passed by Congress that allowed for special deductions and credits for a significant number of taxpayers. Those benefits expired at the end of 2013 and could make drastic changes in the way your 2014 tax return looks. For example, the higher education tuition deduction up to $4,000 is no longer applicable. Parents with children in college are going to feel that when filing for 2014. Teachers are also going to see a difference, as the $250 deduction they were allowed for additional classroom expenses will be gone as well.
There are a total of 55 deductions that will not be included on your 2014 tax form that could potentially hurt the chances of an anticipated refund. The only hope is that Congress will make the decision to extend the Taxpayer Relief Act of 2012 for one more year.
You can look over your last years return to see which of these deductions, if any, applied to you and prepare ahead for a possible let down. One common mistake that taxpayers make from year to year is assuming that the return they filed last year will mirror the one for the current year. If you received an unexpected refund last year, it could have been that one of those special deductions was the reason.
More Tax Changes to Come?
Even though tax time is right around the corner, there is still plenty of time for more last minute changes or updates. The best way to protect your wallet from these changes is to find about them in advance and get prepared. Knowing about a new deduction, or deletion of an old one, could mean big money changes for you when filing your 2014 tax return. So you should start 2014 tax planning now. To learn about other 2014 income tax changes, like us on Facebook or follow us on Twitter and Google Plus, or please contact expat tax experts at Artio Partners.