Connect with us

Hi, what are you looking for?

The American GeniusThe American Genius

Opinion Editorials

Major changes to IRS rules going into effect: get ready

(Editorial) If the IRS calls this year… tell them I’m not here. There are quite a few rule changes that many are not aware of, but they go into effect in short order.

irs reasons

irs

IRS changes are overwhelming

It’s truly shaping up to be one of the worst tax seasons in history. With all of the new legislation passed this year, it’s almost impossible to make heads or tails of it. Are the new regulations effective for 2013 or 2014? What are the new regulations? What happens if I file an extension? Well, rest assured one thing is certain; it is not going to be in your favor.

bar
First, here are some of the changes and or proposed changes as of Jan. 1st 2014:

  • For high income earners, the top ordinary tax rate will be 39.6 percent if, as a single filer, your taxable income is more than $400,000 ($450,000 for married couples filing jointly).
  • There is a new net investment income tax of 3.8 percent, also known as the Medicare surtax.
  • Personal exemptions and itemized deduction total will be reduced.
  • Affordable Care Act (don’t get me started) – if you don’t buy an insurance plan, you could face a penalty. The charge for 2014 is either 1 percent of your yearly household income or $95 per uninsured adult and $47.50 per child, up to $285 for a family. You pay whichever amount is higher. If you get insurance for part of the year, your penalty will be prorated. You’ll pay the penalty when you file your 2014 tax return in 2015.
  • Married same-sex couples now have the same federal tax filing responsibilities as heterosexual couples. The IRS instructed same-sex married couples to file jointly or as a married couple filing separately, even if the state where they live does not recognize their marriage. This will simplify same-sex couples’ federal filings, but if they must pay state income taxes, depending on their state’s law, they could still face filing two state returns as single taxpayers.
  • For 2013 returns filed in 2014, the IRS is now offering a simplified home office deduction. The new optional deduction is $5 for each square foot of home office space, up to a maximum of 300 square feet. That comes to a maximum $1,500 annual home office deduction. The IRS estimates that this option will save home-office filers who claim it’s an estimated 1.6 million hours of paperwork and record keeping collectively. Instead of filling out Form 8829, you’ll use a worksheet in the Schedule C instruction book and enter your simplified home-office deduction amount on Schedule C.
  • Inflation had a nominal effect on around 40 tax provisions. Most notable is that income brackets were widened, meaning you can earn a more next year without being bumped into a higher tax bracket. Most people claim the standard deduction, and those amounts for each filing status in 2014 were increased slightly, as was the personal exemption amount, going from $3,900 to $3,950. However, the amounts you can contribute to your workplace pension plan and individual retirement account in 2014 have stayed the same as in 2013.

Is there anything positive about these changes?

There is one good thing about all these IRS changes for this tax season – you get more time to file your return. Ok, not technically. Due to the federal government shut down for 16 days last October, the IRS says Jan. 31, 2014, is the earliest it will be ready to process individual tax returns. That date might even be pushed back to Feb. 4 in order for the agency to complete system updates and tests, which were interrupted by the shutdown.

The IRS promises to make an official announcement of the filing season start date as soon as it knows for sure. You can go ahead and submit your return electronically as soon as you’re ready; your e-filer will hold it until the IRS is ready to accept returns. If, however, you file a paper return, the IRS encourages you to wait until Jan. 28 (or later) to mail it.

So how can one avoid all the complication and mess?

Coming from a small business owner who has had his fair share of enjoyment of that 14% interest payment to the IRS, the absolute best thing you can do is DO NOT FILE YOUR OWN TAXES. Hiring a great accountant and/or CPA is well worth the weight in gold that they, or the IRS, will charge.

That is the only way I know to avoid all the hassle and aggravation. They also act as an insurance policy between you and the IRS should you have to go through an audit.

Advertisement. Scroll to continue reading.

Oh yeah and then there’s this:

The IRS effort to regulate professional tax preparers will continue in 2014, both in the court system and on Capitol Hill. The agency wants to register all tax preparers who aren’t already subject to certain standards (that is, attorneys, Enrolled Agents or CPAs) and require they pass competency exams and take continuing education classes. The IRS believes this will help reduce incorrectly and fraudulently filed returns.

Three tax pros filed a federal lawsuit against the IRS, winning the first court round. An appellate court decision is pending. Meanwhile, legislation has been filed in the House to give the IRS statutory authority to regulate tax preparers. Senate Finance Committee Chairman Max Baucus also has suggested such preparer oversight in his tax reform working drafts. A final decision on tax preparer standards could come in 2014, affecting taxpayers who seek professional help in fulfilling their tax responsibilities.

Written By

With 16 years of industry experience, earning his CCIM designation in 2007, Smith has held various leadership positions from CCIM Chapter President, CCIM Institute Regional VP, to Partner at McFalls & Smith International Development. Today, Smith is a commercial sales expert at Prudential PenFed Realty's Commercial Division, an Advisory Board Member at the University of Baltimore's Merrick School of Business, and a Professor at the Professional Development Institute. Smith has educated hundreds of REALTORS, investors, and small business owners, helping them find success through Commercial Real Estate.

1 Comment

Leave a Reply

Your email address will not be published.

AdBlocker Message

Our website is kept FREE to you by displaying online ads to our visitors. Please consider supporting us by disabling your ad blocker OR subscribing to our email newsletter: https://theamericangenius.com/get-american-genius-newsletter/

The
American Genius
news neatly in your inbox

Subscribe to our mailing list for news sent straight to your email inbox.

Advertisement

KEEP READING!

Business Finance

(FINANCE) Were you overwhelmed this year filing your taxes or are you in the extension period? Here are 6 tips to prepare ahead for...

Business Finance

(FINANCE) Many choose to freelance in order to escape the daily grind of working for an hourly wage. Why, then, should a freelancer charge...

Business Finance

(FINANCE) No one likes doing taxes in the first place, but having to deal with the afterthought of an audit on your tax return...

Business Finance

(FINANCE) Freelancers who are not always promised a regular paycheck could benefit from staying on top of their finances. Here's our tips!

The American Genius is a strong news voice in the entrepreneur and tech world, offering meaningful, concise insight into emerging technologies, the digital economy, best practices, and a shifting business culture. We refuse to publish fluff, and our readers rely on us for inspiring action. Copyright © 2005-2022, The American Genius, LLC.