Changes to IRS taxes for 2014

The extender provisions have gone out and every one of those touches somebody. Among the more popular disappearing breaks is the deduction for tuition and fees. Until the end of the year, couples with less than $160,000 in adjusted gross income can take a deduction if they are paying qualified higher education expenses for a dependent. The deduction, which can reach $4,000 for those with income below $130,000, will be gone in 2014. Teachers will lose out because of the expiration of a provision that lets them deduct up to $250 of their spending on classroom supplies. The National Education Association estimates that teachers spend an average of $400 annually on supplies. Homeowners who have had loans modified or forgiven in the past did not have to include that amount as income, but they will starting in 2014. The provision that lets people 70½ give up to $100,000 of an IRA distribution to charity, thereby avoiding income taxes. The qualified charitable distribution, popular with both retirees and charities, is scheduled to expire at the end of 2013. The ability to itemize and deduct sales taxes from the federal return is also expiring, impacting people living in states without income taxes or those who have made major purchases this year. Many deductions that are expiring, such as certain credits for electric vehicles, affect fewer people. Capital gains in mutual funds could be higher, as mutual fund companies have used the losses they were carrying over from the financial crisis. New taxes on wealthy households, a 3.8 percent Medicare surtax on income above $250,000 for a married couple filing jointly. The surcharge is applied to the lesser of investment income or modified adjusted gross income above that amount. Also an additional 0.9 percent Medicare tax for people above the same income thresholds, applied to wages and other compensation subject to the existing Medicare tax. Combine the new taxes on high earners with a hike in the maximum tax rate to 39.6 percent for couples with income over $450,000. Many business tax breaks will also end. Small businesses will feel the pain when the amount they can deduct for qualified equipment drops from a maximum of $500,000 this year to $25,000 in 2014.

IRS mileage rates for 2014

The Internal Revenue Service today issued the 2014 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning on Jan. 1, 2014, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be: • 56 cents per mile for business miles driven • 23.5 cents per mile driven for medical or moving purposes • 14 cents per mile driven in service of charitable organizations The business, medical, and moving expense rates decrease one-half cent from the 2013 rates. The charitable rate is based on statute. The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs. Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously. These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51. Notice 2013-80 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan. Remember that the IRS requires a mileage log that includes where you drove, why you went there, the business purpose and the miles. In the event of an audit the IRS also wants to see repair receipts, oil changes or smog certificates that show the odometer readings. The IRS calls this third party verification of the miles the car traveled. You don't want your mileage log to show you drove 15,000 miles and the third party verification shows 10,000 miles for the year. Any questions or more information please call KatTax at 702-796-1040