Tax season is upon us and the deadline to file is fast approaching. While you still may be scrambling to get your 2014 things in order, I want you to start considering and pre-planning for the coming year. And while I know it’s wildly annoying for me to bug you about events that are a year away, there are a number of changes that I want to make you aware of in advance. These law changes could affect you when filing next year.
1. Unemployment Benefits
No one wants to find themselves unemployed, ever. It’s nerve-racking and stressful to say the very least. During these times, your survival can be contingent on government aid and unemployment benefits. Now, these helpful benefits are considered taxable income on your federal return. Good news – your state may not tax unemployment income, so find solace in that possibility.
You should note that if you were laid off and provided with supplemental income from your former employer, this money is also considered taxable wage.
2. Virtual Currency
The IRS is trying to keep up with the digital era, and even though Bitcoins are increasing popular “currency”, it does not have legal tender status in any jurisdiction. Consequently, the IRS has chosen to consider Bitcoins and other digital currency, as property as opposed to money. However, every single cent still needs to be accounted for. So if you were an employee paid in virtual currency, this is now taxable income. It is also subject to federal income tax withholding, Social Security and Medicare taxes, and unemployment taxes.
3. Foster Care
This term has been broadened to encompass more than just temporary state-placed housing for minors. If you receive payments for providing non-skilled medical support or care for any person living in your home with emotional, mental, or physical issues, these payments will likely not have to be claimed as taxable income anymore, thanks to Notice 2014-7. This revision finally allows for taxpayers who care for their family members to receive the same tax-free treatment that non-family members receive.
The IRS adjusts tax provisions in the fall leading to wider tax brackets, allowing you to make some additional income without bumping you into a higher bracket, and making the standard deductions for each filing status larger. Additionally, the personal exemption amount is larger as well, and you can allocate more funds to your employee retirement accounts in 2015.
Standard deduction amounts have increased a little also. Single or married filing separately is now $6300, Head of Household is $9250, and married filed jointly or qualified widower is $12,600.
Note that if you are a bit wealthier, inflation may hurt you. The tax rate of 39.6% affects singles who make over $413,200, or married couples filing a joint return of $464,850 or more.
Medical flexible spending accounts (FSAs) are a benefit to many employees. With this, up to $2550 pre-tax dollars can be saved and set aside to pay for your healthcare expenses. In 2013, participants were finally allowed to roll over $500 or less from an FSA to the following year. Welcome news since prior to this all contributions were “use it or lose it”. Well things are changing a bit again. If you’re trying to carry over $500 from 2014 into the 2015 plan year, you still have the ability to, but this will now deem you completely ineligible to participate in a Heath Savings Account (HSA) for that entire year. Since HSAs have a higher maximum contribution, full rollover, and are more flexible overall, you may want to start weighing your options.
Moral of the story: Start planning ahead.