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.