As you have probably noticed, Congress and the President cannot agree on some pretty important tax matters and have
tabled them until after the November elections. There are several tax provisions that expired at the end of 2013 that, if
extended retroactively to January 1, 2014, would have an impact on the 2014 tax returns.
TAX PROVISIONS THAT EXPIRED AT END OF 2013
1. The itemized deduction for sales tax when it is larger than the state and local income taxes paid;
2. The $250 deduction for classroom supplies available to qualified educators;
3. The opportunity for taxpayers age 70 ½ or older to donate a maximum of $100,000 to a charitable organization
from their IRA account…this can be used to satisfy their “required minimum distribution”;
4. The “before adjusted gross income” deduction for qualified tuition and fees paid to post secondary educational
institutions (maximum of $4,000);
5. The favorable 15 year depreciation for certain property improvements and new construction;
6. The 50% bonus depreciation available for new equipment purchased by a business;
7. The residential energy credit for individuals (life time limit of $500)
8. Business Equipment Expensing Election (Section 179) – A $25,000 expensing deduction is available for new and
used equipment purchased by businesses with tax years beginning 2014, reduced from $500,000 in 2013.
TAX PROVISIONS CONTINUING IN 2014
Additional Medicare Tax on Earned Income – An additional .9% Medicare tax will be imposed on wages and selfemployment income in excess of $200,000 for single taxpayers and $250,000 for married taxpayers filing a joint tax
return. Employers are required to withhold this additional tax when an individual’s income exceeds $200,000.
Medicare Tax on Unearned Income – a 3.8% Medicare tax will be imposed on the lesser of net investment income
(interest, dividends, royalties, and rents) or modified adjusted gross income in excess of $200,000 for single taxpayers
and $250,000 for married couples filing a joint tax return.
Itemized Deductions for Medical Expenses – The threshold to claim an itemized deduction for medical expenses will
increase from 7.5% to 10%. Therefore, only those medical expenses in excess of 10% of a taxpayer’s adjusted gross
income will be allowed as an itemized deduction. For taxpayers age 65 and older, this provision is postponed until 2017.
Health Flexible Spending Account Limit – Salary reductions for health flexible spending arrangements within cafeteria
plans will now be limited to $2,500.
ESTATES AND TRUSTS
The ordinary income tax rates for trusts and estates are unchanged except that the 35% tax bracket has been increased
to 39.6%.
The capital gains tax rates for trusts and estates have been changed permanently:
1. 0% for net long term capital gains subject to the 15% ordinary income tax rate;
2. 15% for the net long term capital gains subject to the 25%, 28%, and 33% ordinary income tax rates;
3. 20% for the net long term capital gains subject to the 39.6% ordinary income tax rate.
Qualified dividends received in trusts and estates will continue to be taxed as long term capital gains.
The federal estate and gift tax maximum rate has been increased from 35% to 40%.
The federal estate and gift tax exemption has been increased to $5,340,000 and is indexed to inflation for future years.
The portability feature (surviving spouse is able to add any unused exemption of deceased spouse to his/her exemption)
has also been retained. These provisions are permanent.
AFFORDABLE CARE ACT
(Individuals)
The individual requirement for minimum essential coverage begins January 1, 2014. Health insurance can be employeesponsored, coverage through the state or federal exchanges, Medicare, Medicaid, or other qualified plans. Insurance
coverage must be in place each month of the year to avoid penalties.
A premium assistance tax credit will be available for those families within 400% of the federal poverty line for their
family size THAT purchased insurance through the Health Insurance Marketplace (Exchange). For a family of four, the
credit would be available up to a gross income of $94,200 in 2014. For a family of two, it would be up to $62,040.
Taxpayers receiving premium assistance through the Health Insurance Marketplace will receive a Form 1095-A detailing
the coverage and credits received for 2014. Any credits received will be subject to recapture if the taxpayers income is
higher than estimated on the application for premium assistance submitted upon entering the marketplace.
Taxpayers who maintained essential minimum coverage but did not receive premium assistance may receive Form 1095B detailing coverage. This information is needed to complete your 2014 tax returns.
REVIEW OF MICHIGAN INCOME TAX
All non-refundable credits are gone.
Michigan Homestead Property Tax Credit – No credit is available if the taxable value of the homestead is greater than
$135,000 or if the “household resources” (all taxable and non taxable income with a deduction for insurance premiums
paid, but no deductions for business or rental losses) is $50,000 or more (credit is reduced prorata for household income
between $41,000 and $50,000). The credit for seniors and disabled taxpayers is reduced by 4% for each $1,000 of
household resources in excess of $21,000 (maximum reduction of 40% for household resources of $30,000 or more).
Retirement Income – The taxation of retirement income now depends on the year that you were born (for married
couples the birth date of the oldest spouse is used):
1. For taxpayers born before 1946, no changes were implemented...single taxpayers were allowed to exclude
$48,372 in 2013 and married couples filing jointly were allowed to exclude $96,745. Some governmental
pensions are entirely excluded. These amounts are indexed to inflation.
2. For taxpayers born from 1946 through 1952, the exemption for pension income will be $20,000 for single
taxpayers and $40,000 for a joint return until the taxpayer reaches 67 years of age. After age 66, the
$20,000/$40,000 exemption applies to all income. Regardless of age, the exemption is eliminated if household
income exceeds $75,000 for single taxpayers and $150,000 for a joint return.
3. For taxpayers born after 1952, the exemption for pensions is eliminated until age 67. After age 66, an
exemption of $20,000 for single taxpayers and $40,000 for joint tax returns applies to all income, including social
security income. Taxpayers will have the option of exempting all of the federal taxable social security income
instead of the $20,000/$40,000 exemption. If the $20,000/$40,000 exemption is used, the taxpayer will not be
able to use the social security exemption or the standard personal exemption. The $20,000/$40,000 exemption
will be eliminated if household income exceeds $75,000 for single taxpayers and $150,000 for joint tax returns.
4. The deduction for dividends, interest, and capital gains is now available for individuals age 67 and older (was age
65). The deduction was limited to $10,767 for single taxpayers and $21,534 for joint tax returns and is indexed
for inflation.
2014 TAX TABLES
SINGLE
TAX
MARRIED
RATE
FILING JOINTLY
FIRST
$
9,075.00
10%
FIRST
$
18,150.00
NEXT
$
27,825.00
15%
NEXT
$
55,650.00
NEXT
$
52,550.00
25%
NEXT
$
75,050.00
NEXT
$
97,000.00
28%
NEXT
$
78,000.00
NEXT
$
218,750.00
33%
NEXT
$
178,250.00
NEXT
$
1,650.00
35%
NEXT
$
52,500.00
OVER
$
406,750.00
39.6%
OVER
$
457,600.00
MARRIED
TAX
HEAD OF
FILING SEPARATELY
RATE
HOUSEHOLD
FIRST
$
9,075.00
10%
FIRST
$
12,950.00
NEXT
$
27,825.00
15%
NEXT
$
36,450.00
NEXT
$
37,525.00
25%
NEXT
$
78,150.00
NEXT
$
39,000.00
28%
NEXT
$
79,050.00
NEXT
$
89,125.00
33%
NEXT
$
198,500.00
NEXT
$
26,250.00
35%
NEXT
$
27,100.00
OVER
$
228,800.00
39.6%
OVER
$
432,200.00