It’s that time of year again and April 15, 2015 is fast approaching. Yep I’m talking about one of those three ever present certain items in life- TAXES (if you were curious about the other two, the saying goes, “Nothing in life is certain except death, taxes and change.”) I have always found that the more prepared I am, the less frustrating this wonderful season of taxes is. My taxes are also made easier when I am prepared. For me, this means having all my paperwork ready but also knowing what changes are in store for the year. This is one busy wife, mom, and home owner’s take on being prepared for taxes this year and how to make taxes easier.* This is a three part series.
One supposed big change that hit me and many others, including some local news stations, with a punch of surprise was the hoax propagated by an internet “news” reporting site. Rather it is a site that spoofs or twists concepts. I’m talking about the National Report. If you are unfamiliar with this article, GOOD! If you are aware of the article that made its way around Facebook and other social media, rest assured it was and is a hoax. This has been verified by many sources, including Forbes and snopes.com. Despite the articles proclamation that tax returns for 2014 tax filings would be delayed until October 2015, tax returns should run on schedule and you could start filing your Federal 2014 taxes as early as January 20, 2015.
Speaking of refunds, if you are not already doing so, consider e-filing. Not only do you have less paperwork you need to worry about but you can receive your federal refund about 4 weeks faster. On average, those with paper filings can take approximately 6 weeks to receive refunds where as those who e-file their taxes receive their refunds around the two week mark. Now, the more complex the filing, the longer it could take.
Affordable Care Act
Another change that every American should be aware of is how the Affordable Care Act may effect them. I’m not going to debate the merits of the Affordable Care Act, better known as Obamacare, but knowing that it could effect your taxes is important. There are two ways that it could effect your tax filings – 1. If you were covered under a government subsidized health care plan or 2. If you elected to NOT have health care coverage.
If you are a part of group number one, be prepared to deal with some new forms. I’m not going in to all the details but you can check out How Obamacare could delay your tax refund for more information. Besides new forms, people covered under government subsidized plans should be aware that adjustments to the credits the received in reduced health care premiums may be adjust on their taxes should they have received higher wages than initially reported. When applying for subsidized healthcare, individuals are asked to guess their income and discounts on their premiums are made based on what they reported. That said, if you received a raise or your reported income was less than what is reported on your 2014 filings, then an adjustment to your refund may be made. Be sure to speak to a tax professional if you are in this situation.
In the case of group number 2, be prepared to pay penalties for not having coverage. The Affordable Care Act require all individuals to have some form of health care coverage.
While the Affordable Care Act is the largest change to our tax code this year, it is not the only one. There are quite a few. (Here is one of many articles that discuss these changes in greater detail than I will.)
American Taxpayer Relief Act of 2012 Extended
One change to be aware of is the 55 previously extended tax benefits from the American Taxpayer Relief Act of 2012 that expired on December 31, 2013 have since been extended again. As of December 16, 2014, Congress passed an extension of these benefits through December 31, 2014. This is good news for those who have used these deductions in the past, including educator expense deductions, higher education tuition deductions, energy credits deductions, etc.
There have been several threshold changes.
The itemized deduction threshold for medical increased from 7.5% of your annual income to 10% this year.
All tax brackets have increased to adjust for inflation. If you were single and earning $36,251 – $87,850 in 2013 or married and jointly earning $72,501- $146,400, you would have found yourself in the 25% tax bracket. But as of this year, to be taxed at 25%, as a single person you’d need to earn between $36,901 – $89,350 and as a married couple your combined income would need to be $73,801- $148,850. Not a huge change but could benefit some.
Standard deduction were also adjusted slightly for inflation. Single or married filing separately increased by $100 to $6,200, while head of household increases to $9,100 and married filing jointly is now $12,400. Lastly, each exemption claim increased to $3,950 this year.
It’s not all increases though and that’s good news too. Capital gains taxes have been reduced. If you are in tax brackets up to 15% will pay 0% for any capital gains, the 25% bracket will have rates reduced to 15% and even the top bracket of 39.6% will only 20% on capital gains.
What’s Taxable and What’s Not?
As a home based business owner, this question is something I find myself asking frequently. And with our ever changing sources of “income” this line can be blurry. For example, if my company awards me a prize such as an amethyst, topaz, and diamond ring (which was so fun to receive!), to me that’s just icing on the cake of a job well done. But to the Federal and State governments, that’s income! You always want to check with a tax advisor to be sure but my general rule of thumb has been, if I receive something I did not pay for, then its probably considered income to the feds.
This includes but not limited to:
- Game show and lottery winnings (my good friend Jon’s daughter won a mattress on the Ellen DeGeneres Show…income!)
- Compensations from your company that is not money such as cars, jewelry, prizes and other similar items
- Bloggers – products received for free from companies for your review
But that’s not all. Its hard enough when you have lost your job and even more humbling when you have to file for unemployment. To add insult to injury (especially considering how tragically low amount of unemployment can often be), unemployment is taxable income and you will receive the proper filing information from the unemployment office official documenting the taxable amount of benefits you received.
There’s more – inheritances from family members that have passed can be considered income and its therefore taxable. Plus gifts over $14,000 become taxable income. (I’d love a $13,999.99 gift any day if anyone wants to give me one. Any takers?)
And if you have a student in college there are changes to how Pell grants, living expenses, etc. can be deducted on taxes. Changes to foster care and taxes and so much more. I have tried to cover the basics here. Always seek a professional tax advisor to assist with your specific life and dynamics when it comes to filing your taxes.
*Disclaimer: I am not a professional tax advisor or representative in any manner. I am sharing research I have found while preparing my taxes this year. The above is meant to be general information and to invoke thought. They are in no manner to be seen as advise or consultation. Please always seek a tax professional/advisor to address the specifics of your life and its tax ramifications.