Here are some of the highlights:
- Debt forgiveness taxable again – Remember back to this time last year; the hot political item was the fiscal cliff and whether we would tumble down it. Part of the deal to keep us on the ledge was an extension of the Mortgage Forgiveness Debt Relief Act of 2007 through tax year 2013. This provision allows homeowners to exempt from income certain qualifying cancellation of debt items. Depending on the amount of debt in question, this may have major tax implications. This exemption is set to expire at the end of this year. If it is not extended by Washington D.C., then any qualified debt resolutions will again be taxable beginning next year.
- Mortgage insurance premiums not deductible – If you have private mortgage insurance and itemize your deductions, you may have been able to deduct your payments in the past. This type of itemized deduction is set to end this year. If this deduction is not extended by Washington D.C., this too will have a major impact for taxpayers who pay private mortgage insurance premiums monthly with their mortgage payments.
- Tax rate thresholds – Adjusted for inflation, your tax rate may decrease next year if your income remains the same as tax rate income thresholds will increase slightly in 2014. For example, a married couple filing jointly with annual taxable income of $73,000 for tax year 2013 will be taxed $9,982.50 plus 25% of the income in excess of $72,500. For tax year 2014, that same married couple will be taxed $1,850 plus 15% of the income in excess of 18,150. Now for those of you reading this article with a calculator close by, you’ll notice that in my example, there’s only a difference of $30.00 in the resulting tax. Not a huge deal. However, real life tax problems are never that simple or affordable, therefore, it is important to know which tax bracket you will fall into for the upcoming tax year so you can adjust your finances and withholdings accordingly.
- Standard deduction increase – The standard deduction you are allowed to claim in 2014 will be slightly more than your deduction for 2013, again adjusted for inflation. There will be a $100 increase to the standard deduction for single taxpayers, $200 for joint filers, and $150 for those filing as head of household.
While these changes are looming and may be scary given your particular situation, keep in mind that these changes are for tax year 2014, which will be effective for the taxes you will file in 2015. Therefore, you do have time to prepare for these changes, to ensure that you’re not going to have a tax bill for tax year 2014.
This article is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.