Time for an Income Tax Check-up

The 2013 tax year is complete and we are now off and running into 2014 which means it’s time to get moving on your 2013 tax returns AND to have a 2014 “tax check-up”. Many tax payers wait until year-end to deal with tax planning. That can be a costly mistake. We highly recommend meeting now to discuss how recent tax law changes will affect your personal financial matters in 2014.


Combining submission of your 2013 documentation with a 2014 planning session is an economical and timely approach to ensuring you take advantage of all deductions you are entitled to and that you only pay the taxes that you are required to pay in both 2013 and 2014.

Here are some of the significant 2014 changes you may be affected by:

1.       Higher income taxpayers are going to pay more. The Bush-era tax cuts have expired. The top tax rate for taxpayers is now 39.6% for $400,000 for individual taxpayers and $450,000 for married couples filing jointly.

2.       All wages are subject to Medicare tax which is already the case but now taxpayers who make over $200,000 ($250,000 for married taxpayers) will be subject to the Medicare surtax. For those taxpayers, a Medicare surtax will be added onto your wages, compensation, or self-employment income over that amount at a rate of .9%.

3.       If you have both net investment income and modified adjusted gross income (MAGI) of at least $200,000 for an individual taxpayer and $250,000 for taxpayers filing as married you may be subject to the Net Investment Income Tax (NIIT). Net investment income includes items like interest, dividends, capital gains, rental and royalty income, and certain income from businesses. It doesn’t include wages, unemployment compensation, operating income from a non-passive business, Social Security Benefits, alimony, tax-exempt interest, self-employment income, and distributions from certain Qualified Plans.

4.       The limitation for itemized deductions – the Pease limitations, named after former Rep. Don Pease (D-OH) – claimed on individual returns for tax year 2014 will begin with incomes of $254,200 or more ($305,050 for married couples filing jointly). The limitations were brought back in 2013 at the original thresholds, indexed for inflation. The limitation reduces itemized deductions by 3% of the amount by which your adjusted gross income (AGI) exceeds those thresholds, up to a maximum reduction of 80%. That’s a complicated way of saying that your deductions are limited as your income increases.

5.       Kind of a “tag along” provision is the personal exemption phase-out (PEP). Phase-outs for PEP in 2014 begin with AGI of $254,200 for individuals and $305,050 for married couples filing jointly; the personal exemptions phase out completely at $376,700 for individual taxpayers ($427,550 for married couples filing jointly).

6.       Taxpayers who are affected by the Affordable Care Act could also have a tax impact in 2014. If you do not have health insurance in 2014 – and you don’t otherwise meet certain exemptions – you’re going to be subject to a “shared responsibility payment.” Whether you call it a tax, a fee or a penalty, if you don’t have health insurance coverage and don’t otherwise meet certain provisions, you’ll be responsible for either 1% of your taxable income or a flat fee of $95 per uninsured adult and $47.50 per child (up to $285 for a family), whichever amount is higher. The penalty is due when you file your 2014 tax return in April 2015. The flat fee increases to $325 in 2015 and $695 in 2016.

7.       In 2014, business owners will feel the loss of the Section 179 expense deduction. The deduction allowed small and mid-size business owners to immediately deduct an amount used to obtain qualifying equipment rather than spread the deduction over time according to a depreciation schedule. Up until this year, business owners could deduct up to a $500,000 of qualifying assets. In 2014, the limit drops to all the way to $25,000.

The best time to start your planning for 2014 is right now even before we’ve finalized your 2013 return. Our staff is ready to do an in-depth 2014 tax plan customized specifically for you. Don’t hesitate, please contact us at (414)352-3200 to set up a time to discuss your plan.