Everything You Need to Know for 2014 Tax Planning

It may seem like you have all the time in the world before you need to start thinking about 2014 taxes, but it is never too early to get organized and have a plan. The sooner you understand your income tax situation for 2014, the sooner you can address your tax liabilities. By investing a little time now, you may be able to save big later. Here are some key tax provisions to keep in mind for 2014.

Income Tax Rates
The ordinary income tax rates remain the same in 2014: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent. The IRS adjusted the taxable income in each bracket slightly to account for inflation.

Find Your 2014 Tax Rate
Single filer ordinary income
Married filing jointly ordinary income
2014 tax rate
$0–$9,075 $0–$18,150 10%
$9,076–$36,900 $18,151–$73,800 15%
$36,901–$89,350 $73,801–$148,850 25%
$89,351–$186,350 $148,851–$226,850 28%
$186,351–$405,100 $226,851–$405,100 33%
$405,101–$406,750 $405,101–$457,600 35%
$406,751+ $457,601+ 39.6%

Personal Exemption
The personal exemption for 2014 rises to $3,950. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 for individuals ($305,050 for married couples filing jointly). It phases out completely at $376,700 for individual taxpayers ($427,550 for married couples filing jointly).

Standard Deduction
The standard deduction rises to $6,200 for individuals or those who are married but filing separately and $12,400 for married couples filing jointly. The standard deduction for heads of household rises to $9,100.

Itemized Deductions
The limitation for itemized deductions claimed on tax year 2014 returns of individuals begins with incomes of $254,200 or more ($305,050 for married couples filing jointly).

Medical Deductions
You can claim deductions for medical expenses not covered by your health insurance that exceed 10 percent of your adjusted gross income. If you are older than 65, you are allowed to deduct unreimbursed medical care expenses that exceed 7.5 percent of your adjusted gross income.

Estate, Gift and Generation-Skipping Taxes
The amount an individual can transfer in total lifetime and testamentary transfers increases to $5.34 million. The generation-skipping tax exemption increases to $5.34 million.

Annual Exclusion Gifts
You may make annual exclusion gifts of $14,000 per individual per beneficiary ($28,000 for married couples).

Health Care Flexible Spending Arrangements
The annual dollar limit on employee contributions to employer-sponsored health care flexible spending arrangements remains unchanged at $2,500.

Net Investment Income Tax
The 3.8 percent net investment income tax applies to individuals, estates and trusts that have unearned income, such as interest, dividends, rents, royalties and certain capital gains. The tax applies only on the lesser of (1) modified adjusted gross income in excess of certain thresholds ($200,000 for individuals and $250,000 for married couples filing jointly) or (2) net investment income.

Additional Medicare Tax
The 0.9 percent additional Medicare tax applies to an individual's wages, Railroad Retirement Tax Act compensation and self-employment income that exceeds a threshold amount based on the individual's filing status. Taxpayers with more than $200,000 in earned income ($250,000 for married couples filing jointly) will pay an additional 0.9 percent Medicare tax on the excess. The tax doesn't apply to retirement plan distributions or social security.

New on Your W-2
Starting in 2014, you'll see a new number on your W-2 form. The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan on employees' W-2 forms. This reporting is for informational purposes only, to show employees the value of their health care benefits.

Contact your tax advisor to learn more about how these 2014 tax provisions affect you. If you are interested in including a gift to Gustavus Adolphus College in your plans, please don't hesitate to contact Jackie Peterson today at 507-933-7543 or jpeters9@gustavus.edu.