Tax Updates 2014
2014 Tax Extenders Legislation
On December 16, 2014, Congress approved the Tax Increase Prevention Act of 2014, a tax bill that extends over 50 tax breaks. The breaks, otherwise known as “extenders” include individual and business provisions that expired on December 31, 2013, and renewed for one year, retroactive to January 1, 2014. The bill was signed by the President and is now law...for another year
Individual Tax Extenders
- Tax deduction of state and local general sales taxes in lieu of state and local income taxes - Taxpayers who itemize their deductions on a Schedule A may elect to deduct state and local general sales taxes paid, rather than state and local income taxes. This provision is most beneficial to taxpayers who reside in states with no or low-income taxes (i.e. Florida).
- Tax exemption of distributions from individual retirement accounts for charitable purposes - Individual Retirement Arrangement (IRA) owners age 70-1/2 or older may exclude up to $100,000 from gross income if the IRA funds were paid directly to qualified charities.
- Tax deduction of contributions of real property interests for conservation purposes – Taxpayers may deduct a charitable contribution for the value of a qualified real property interest to a qualified organization exclusively for conservation purposes.
- Tax deduction of qualified tuition and related expenses - Taxpayers may deduct up to $4,000 in education expenses so long as you meet certain income criteria.
- Tax deduction of expenses of elementary and secondary school teachers - Primary and secondary educators are eligible to deduct up to $250 of unreimbursed expenses for books, supplies, computer equipment, other equipment, and supplementary materials used in the classroom. The deduction is claimed above-the-line.
- Tax deduction of mortgage insurance premiums - Taxpayers may deduct premiums paid for qualified mortgage insurance obtained in connection with acquisition indebtedness on a qualified residence.
Business Tax Extenders
- Tax Credit for increasing research activities - Businesses that incur expenditures for developing, designing, or improving a product, process, formula, technique, invention or software, you may be eligible for a dollar-for-dollar reduction in tax. Generally, the credit is equal to 20% of the amount by which a business’s qualified research expenses for a taxable year exceed its base amount for that year.
- Work Opportunity Tax Credit (WOTC) - Employers may claim a tax credit for hiring certain targeted workers, including veterans. The credit could be as high as $6,000 per qualified employee (higher for some veterans).
- New Market Tax Credit – The credit provides taxpayers with 7 years of Federal tax credits for making investments in businesses located in Low-Income Communities.
- Bonus Depreciation - accelerated depreciation of certain business property – Businesses that invest in new equipment would qualify for the 50% bonus first-year depreciation allowance. There was no limit on the total amount of bonus depreciation that may be claimed. In addition to the bonus depreciation, regular depreciation using the MACRS rules can be taken on the remaining 50% of the new equipment cost.
- Increased expensing allowance for business assets, computer software, and qualified real property - Business owners may immediately deduct up to $500,000 of qualifying assets under Section 179, that otherwise require capitalization and become subject to depreciation. Under this provision, once total purchases exceed $2,000,000, the expense amount $500,000 begins to phase-out. The advantage of this provision is that it applies to used as well as new assets.
- Accelerated depreciation of qualified leasehold improvement, restaurant, and retail improvement property – Businesses that invest in qualified leasehold improvement, restaurant, and retail improvement property may immediately deduct up to $250,000 under the provisions of Section 179.
- Enhanced deduction for charitable contributions of food inventory – Businesses which make donations of food inventories, may claim the enhanced deduction for such donations.
- Reduction of the recognition period for the built-in gains of S corporations – Business that converted from a C to an S Corporation in a prior year, may qualify for the five year recognition period for built-in gain rather than the ten year recognition period.
- 100% exclusion from gross income of gain from the sale of small business stock - Taxpayers may qualify for the 100-percent exclusion for gain on the sale or exchange of qualified small business stock. Preferential AMT treatment also applies.
- Tax credit for residential energy efficiency improvements – Taxpayers may receive a tax credit up to $500 for the installation of qualified insulation, windows, doors, and roofs as well as certain water heaters and qualified heating and air conditioning systems.
- Tax credit for energy-efficient new homes - An eligible contractor may claim a tax credit of $1,000 or $2,000 for building or manufacturing a qualified new energy-efficient home.
- Tax deduction for energy-efficient commercial building – Taxpayers may claim a full or partial energy-efficient commercial building property deduction for all qualifying property installed as part of a plan to reduce the total annual energy and power costs of the lighting, heating, cooling, ventilation, and hot water systems.
Tax Season Opens As Planned Following Extenders Legislation
IR-2014-119, Dec. 29, 2014
WASHINGTON -- Following the passage of the extenders legislation, the Internal Revenue Service announced today it anticipates opening the 2015 filing season as scheduled in January.
The IRS will begin accepting tax returns electronically on Jan. 20. Paper tax returns will begin processing at the same time.
The decision follows Congress renewing a number of "extender" provisions of the tax law that expired at the end of 2013. These provisions were renewed by Congress through the end of 2014. The final legislation was signed into law on Dec 19, 2014.
"We have reviewed the late tax law changes and determined there was nothing preventing us from continuing our updating and testing of our systems," said IRS Commissioner John Koskinen. "Our employees will continue an aggressive schedule of testing and preparation of our systems during the next month to complete the final stages needed for the 2015 tax season."
The IRS reminds taxpayers that filing electronically is the most accurate way to file a tax return and the fastest way to get a refund. There is no advantage to people filing tax returns on paper in early January instead of waiting for e-file to begin.
Telephone Scam / New Email Phishing Scam
Telephone Scam Now Making the Rounds
The IRS warns consumers about a sophisticated phone scam targeting taxpayers, including recent immigrants, throughout the country. Victims are told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation or suspension of a business or driver’s license. Characteristics of this scam include:
- Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
- Scammers may be able to recite the last four digits of a victim’s Social Security Number.
- Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
- Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
- Victims hear background noise of other calls being conducted to mimic a call site.
- After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.
If you know you owe taxes or you think you might owe taxes, call the IRS at 1-800-829-1040. If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), call and report the incident to the Treasury Inspector General for Tax Administration at 1-800-366-4484.
Please note that the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.
- If you get an unsolicited email that appears to be from the IRS, please report it by sending it firstname.lastname@example.org.
- If you find a suspicious website that claims to be the IRS, please send the site’s URL by email to email@example.com, using the subject line: suspicious website.
For more information on phishing scams, please see Suspicious e-Mails and Identity Theft.
New Email Phishing Scam
The IRS has been alerted to a new email phishing scam. The emails appear to be from the IRS Taxpayer Advocate Service and include a bogus case number and the following message:
“Your reported 2013 income is flagged for review due to a document processing error. Your case has been forwarded to the Taxpayer Advocate Service for resolution assistance. To avoid delays processing your 2013 filing contact the Taxpayer Advocate Service for resolution assistance.”
The recipient is directed to click on links that supposedly provide information about the "advocate" assigned to their case or that let them "review reported income." The links lead to web pages that solicit personal information.
Taxpayers who get these messages should not respond to the email or click on the links. Instead, they should forward the scam emails to the IRS at firstname.lastname@example.org. For more information, visit the IRS's Report Phishing web page.
The Taxpayer Advocate Service is a legitimate IRS organization that helps taxpayers resolve federal tax issues that have not been resolved through the normal IRS channels. The IRS, including TAS, does not initiate contact with taxpayers by email, texting or any social media.