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.

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.

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.