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NEW CARRYOVER RULES FOR CAFETERIA PLANS

11/16/2013

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Many employers provide flexible spending arrangements, commonly called cafeteria plans.  These plans allow employees to put money tax free into spending plans for specific purposes, such as child care and health care costs not covered by their health insurance.

Beginning in 2013, the amount an employee can put into a cafeteria plan for health care costs is $2500. 

Initially, these contributions were "use-it-or-lose-it" so an employee had to be very cautious about the amount they contributed so as to not leave anything at the end of the year.  In 2005 the "use-it-or-lose-it" rule was modified to provide a grace period.  Employers could permit employees to use amounts remaining from the previous year to pay for expenses made through March 15th of the following year.

The IRS has modified the "use-it-or-lose-it" rule once again.  Employers have the option of allowing employees to carryover up to $500 of the amount they have set aside for health care expenses from one year to the next and use that to pay for qualified expenses throughout the entire year rather than just expenses made through March 15th.  The carryover amount does not count against the $2500 contribution an employee can make each year.

Check with your employer to see if they are going to adopt the new carryover  provisions.
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IRS ANNOUNCES ADJUSTMENTS FOR INFLATION

11/16/2013

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The IRS has announced the 2014 inflation adjustments for over 40 tax provisions, including the income tax
brackets.  The adjustments that affect most taxpayers are the following -
  • The standard deduction rises to $6,200 for singles and married persons filing separate returns and $12,400 for married couples filing jointly, up from $6,100 and $12,200, respectively, for tax year 2013. The standard deduction for heads of household rises from $8,950 to $9,100.
  • The amount that can be claimed for itemized deductions begins to be reduced for singles with incomes of $254,200 or more or $305,050 for married couples filing jointly.
  • The personal exemption rises to $3,950, up from the 2013 exemption of $3,900. The exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 for singles and $305,050 for married couples filing jointly. It phases out completely for singles at $376,700 and $427,550 for married couples filing jointly.
Many items remain unchanged, including:

  • The annual exclusion for gifts remains at $14,000 for 2014.
  • The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) remains unchanged at $2,500.
  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan remains unchanged at $17,500.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan remains unchanged at $5,500.
  • The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

 If you have questions/concerns about how the adjustments will affect you, please call Turner's Tax Service at 530-626-8551 and we'll be happy to discuss your individual situation with you.
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SOME TAX BREAKS EXPIRING AT THE END OF 2013

11/12/2013

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Several tax breaks are scheduled to expire at the end of this year.  Many of these tax breaks have been extended in the past, but given the current state of affairs in Washington, it's uncertain whether Congress will do so this year.

These are the tax breaks that are scheduled to go away -

Teachers' classroom expense deduction.  K-12 teachers have been able to deduct $250 worth of unreimbursed classroom expenses from their gross income, but will not be able to do that for 2014.  Those that itemize will still be able to claim those expenses.

Exclusion of cancellation of indebtedness on principal residence.  Forgiven debts are treated as taxable income.  However, if your principal residence is foreclosed or sold in a short sale, you have been able to exclude the forgiven debt as income if you meet certain conditions.  If your home is in foreclosure or a short sale is under way, you may want to make sure the process is completed before the end of the year so you can take advantage of this exclusion. 

Mortgage insurance premiums.  Homeowners who don't make a 20% down payment typically pay for private mortgage insurance .  Those premiums were deductible in 2012 and 2013 but will not be deductible in 2014.  Mortgage interest continues to be deductible.

IRA distributions to charity.  People older than 70 1/2 are required to take minimum distributions each year from their individual retirement accounts.  They have been able to contribute that money directly to charity and not count it as income but will not be able to do so in 2014.

State and local sales tax.  Taxpayers who itemize their deductions have had the choice of deducting state income tax or state and local sales tax.  This has been particularly advantageous to taxpayers living in states that do not have state income tax like Washington and Nevada or taxpayers who have made a large purchase such as a car or a boat.  Beginning in 2014 the option to claim sales tax will no longer be available.

Transit benefits.  In 2013, employees can have their employer deduct up to $245 pretax per month on transit benefits such as bus passes or parking.  In 2014 the amount that can be deducted for transit benefits drops to $130 per month but the parking deduction remains at $245.

Electric vehicles.  Consumers who buy a qualified electric plug-in vehicle may be eligible for a tax credit of up to $7500 depending on the size of the car's battery.  That credit will not be available for purchases made in 2014.

Adding energy efficient features to your home.  Homeowners have been eligible to take a $500 credit for adding energy efficient features like insulation, dual pane windows, heating and air conditioning systems and hot water heaters to their home.  That credit will not be available for purchases made in 2014.

Turner's Tax Service will be happy to answer any questions you may have about the expiring tax breaks and what you can do in the remaining weeks of 2013 to take advantage of them.  Please call our office at 530-626-8551 for further information.
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IRS ISSUES WARNING ABOUT TELEPHONE SCAM

11/1/2013

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The IRS issued a warning today about a sophisticated telephone scam targeting taxpayers 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 threatened with arrest, deportation or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting.

Taxpayers who receive such a phone call may contact Turner's Tax Service for assistance or take the following steps -
  • If you know you owe taxes or you think you might owe taxes, call the IRS at
    800-829-1040. The IRS employees at that line can help you with a payment issue,
    if there really is such an issue.
  • 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), then call and report the incident to the Treasury Inspector General for Tax
    Administration at 800-366-4484.
  • If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Please add "IRS Telephone Scam" to
    the comments of your complaint.

 

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2014 SOCIAL SECURITY AND MEDICARE RATES

11/1/2013

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The Social Security Administration has announced a number of changes for 2014. 
  • Social Security must be paid on wages up to $117,000.  The ceiling in 2013 was  $113,700. 
  • Monthly Social Security and Supplemental Security Income (SSI) benefits will increase 1.5 percent beginning with benefits received in January 2014.  Increased payments to SSI beneficiaries will begin on December 31, 2013.
  •  Medicare premiums will remain unchanged.
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    Federal and state tax laws and regulations change regularly.  As we become aware of changes, we will post them here and, if you are a client who has provided us with an email address, we will also email them to you.

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