Tax Increase Act of 2014 (signed into law December 19, 2014)

Once again Congress has waited until the last moment to sign into law, or extend rather, tax legislation from prior years which means tax software producers and technicians will be scrambling to update 2014 programs for preparers as quickly as possible. These provisions have been extended for one year (2014) only, meaning Congress will have to debate and discuss all this once again in 2015. Read further to catch up on some of the more meaningful and substantial provisions that were extended into 2014 from past years.


Section 179 Deduction & Bonus Depreciation for 2014

This long-standing favorite deduction for businesses, car dealers, and equipment manufacturers alike was set to revert to a maximum deduction of only $25,000 for qualified equipment, and phased out once your fixed asset purchases for the year exceeded $200,000. The deduction limitation has now been increased back to $500,000, and the phase out threshold for fixed asset purchases to $2,000,000, which is what the tax code had held in 2013. 

The code 168(k) 50% first-year bonus depreciation available for the purchase of new business equipment has been extended for assets placed into service before January 1, 2015. This taxpayer-friendly provision had been scheduled to sunset altogether in 2014 but has been kept available to taxpayers for at least one year further.


Teachers' Classroom Expense Deduction

You would think that this wonderful little piece of tax legislation affecting underpaid and deserving educators would be a permanent part of our tax code, but it is available through 2014 only as of now. Teachers in grades K-12, counselors, physical education instructors, and principals may deduct on the front page of Form 1040, as an adjustment to gross income, up to $250 of school supplies and educational materials purchased by themselves out of pocket. This deduction is reduced by any reimbursement received from the school or employer.

Electronic Filing for 2014

The Internal Revenue Service will begin accepting electronically filed tax returns on Tuesday, January 20th this year.

Deducting Charitable Expenses

You’re never able to deduct the value of your services or time devoted to charitable work. However, if you travel to Haiti or someother location, to perform legitimate, substantial services for an IRS recognized charity, you may be able to claim your out-of-pocket travel expenses as a charitable contribution. Meals would still be subject to a 50% limitation.  If the total of the out-of-pocket expenses is $250 or more, you'll need a wriiten receipt from the charity you're serving describing what you were doing and whether or not you received anything in return(goods and services) from the charity in consideration for your time.  Be careful with travel destinations that have an element of personal enjoyment or recreation about them. These will be subject to scrutiny and possible denial of your deduction.


American Opportunity Tax Credit

There are some wonderful tax credits available to parents( and students) for tuition and related expenses paid to a college, or what the IRS describes as post-secondary education. The American Opportunity Tax Credit is probably the most used. You may receive a credit of up to $2,500 per student for each student who is enrolled at an eligible institution and is enrolled full-time. The credit is subject to a phase-out range of  $160,000 - $180,000 for married filers and $80,000 - $90,000 for other filers. The student must be a dependent of the parents on their return in order for them to claim the credit.

Basis Calculations in S Corporations

One of the great advantages of being a shareholder in an S corporation is the ability to deduct losses generated from operations on your personal tax returns. However, your “basis” in the corporation must equal or exceed the losses in order for them to be deductible. Frequently I see tax returns prepared where the client has been deducting losses from an S corporation where they have never had basis at all or their basis has long been used up. IRS audits confirm this is a huge problem for taxpayers who are reporting losses in excess of basis well in the millions of dollars. Shareholders are responsible for tracking and keeping up with basis. You receive basis in your S corporation by contributing capital(cash or other assets) and/or earning a profit which you do not withdraw from the business. Losses which you are unable to deduct carry over to future years when your basis is increased.

Filing Requirements for Non-Profit Organizations

It’s been recently reported that over 100 local non-profit organizations will be losing their tax-exempt status with the IRS due to not filing the proper tax returns on a timely basis. For 2014, a non-profit organization that has either gross receipts greater than $200,000 or total assets at year- end greater than $500,00, is required to file Form 990 with the IRS. If your gross receipts for the year are greater than $50,000 but less than $200,000, and total assets at the end of the year are less than $500,000, the organization may file Form 990-EZ. Most non-profit organizations with gross receipts averaging less than $50,00 may submit Form 990-N. Form 990N(e-Postcard) must be filed electronically and is due no later than the 15th day of the 5th month after the organiaztion’s year-end.

N.C. 529 College Savings Plan Deductions

Section 529 college savings plans have been a wonderful way to save for for your children's higher education expenses. From 2007 through 2013, North Carolina allowed a deduction from your state tax return of up to $2,500 for single filers, and $5,000 for married filing joint filers, for contributions made to North Carolina's 529 savings plan. Effective 2014, this incentive to save for your children's education has been repealed and is no longer available.     

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