Practitioners' Corner:
What’s New on 2014 Form 1040 The 2015 filing season is quickly approaching. Along with year-end planning, taxpayers and practitioners are taking a preliminary look at the 2014 Form 1040, Individual Income Tax Return. Form 1040 for 2014 reflects some important changes, most significantly, new requirements related to the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). This Practitioners’ Corner highlights some of the key changes on 2014 Form 1040 and on some of its Schedules. ACA-related changes Beginning January 1, 2014, individuals must carry minimum essential health coverage or make an individual shared responsibility payment, unless exempt. For many individuals, their employer-provided health insurance will satisfy the requirement to carry minimum essential coverage. Similarly, individuals covered by Medicare, TRICARE, Medicaid, and certain other government programs are deemed to carry minimum essential coverage. Individuals without minimum essential coverage, and who are not exempt, may obtain coverage through the ACA Marketplace or make a shared responsibility payment. Individuals with Marketplace coverage also must determine their eligibility for the Code Sec. 36B premium assistance tax credit (if they did not already do so) when filing their 2014 return. For 2014, the individual shared responsibility payment is the greater of: one percent of household income that is above the tax return filing threshold for the individual’s filing status; or the individual’s flat dollar amount, which is $95 per adult and $47.50 per child, limited to a family maximum of $285, but capped at the cost of the national average premium for a bronze level health plan available through the Marketplace in 2014. Individuals who received an advance payment of the Code Sec. 36B premium assistance tax credit must file a 2014 Form 1040. Generally, married couples must file a joint return; however, the IRS has provided special relief to victims of domestic violence. The IRS has developed a number of new ACA-related forms that some taxpayers may need to keep for their records or file with their 2014 federal income tax return. They include: Form 1095-A: Health Insurance Marketplace Statement. Individuals who obtain health insurance coverage through the ACA Marketplace will receive Form 1095-A describing their coverage. Form 1095-B: Health Coverage. Insurers and self-funded plans will provide one to each enrollee. Form 1095-C: Employer-Provided Health Insurance Offer and Coverage. Applicable large employers will provide Form 1095-C to employees. Form 8962: Premium Tax Credit (PTC). Individuals who claim the Code Sec. 36B premium assistance tax credit will file Form 8962 with their 2014 income tax return. Form 8965: Health Coverage Exemptions. If an individual claims an exemption from the individual shared responsibility requirement, he or she will file Form 8965 with his or her 2014 income tax return. Some exemptions are available only through the ACA Marketplace; others through the IRS. For example, individuals who have been notified that their health insurance policy will not be renewed and consider the other plans available are unaffordable will apply for an exemption through the Marketplace. 2014 Form 1040 Line 26, Moving Expenses. For 2014, the standard mileage rate for moving expenses is 23.5 cents-per-mile. Line 32, IRA Deduction. The dollar limit on IRA deductions may be reduced if the individual is an active participant in one of the designated types of retirement plans for any part of any plan year ending with or within the individual's tax year. If the individual's (or married couples, if filing jointly) adjusted gross income (AGI) is less than an applicable dollar amount, there is no reduction in the limit. The limit is reduced proportionately if the taxpayer’s AGI exceeds the applicable dollar amount by less than $10,000 ($20,000 for joint filers). If the taxpayer's AGI exceeds the applicable dollar amount by more than $10,000 ($20,000 for joint filers), the taxpayer is not allowed any deduction for IRA contributions. For 2014, the inflation adjusted figures for the active participation limitation on the IRA contribution deduction are: (1) $96,000 for an active participant who is married and filing jointly; (2) $60,000 for all other taxpayers; and (3) $181,000 for a taxpayer who is not an active participant but whose spouse is an active participant. Line 40, Standard Deduction. The standard deduction for 2014 for single individuals and married couples filing separately is $6,200; the standard deduction for married couples filing a joint return and qualifying widows(ers) is $12,400; and the standard deduction for heads of household is $9,100. Line 42, Exemptions. The exemption amount for 2014 is $3,950. Certain taxpayers may be subject to the personal exemption phaseout. The total amount of exemptions that may be claimed by a taxpayer is reduced by two percent for each $2,500, or portion thereof (two percent for each $1,250 for married couples filing separate returns) by which the taxpayer's adjusted gross income exceeds the applicable threshold level. The threshold levels are $305,050 for married couples and surviving spouses; $279,650 for heads of households; $254,200 for unmarried taxpayers; and $152,525 for married taxpayers filing separately. Line 45, Alternative Minimum Tax. The alternative minimum tax (AMT) exemption amounts for 2014 are $52,800 for single individuals and heads of household and $80,800 for married couples filing a joint return and surviving spouses. Taxable income that exceeds the exemption amount is subject to a 26-percent AMT rate on the first $175,000 of alternative minimum taxable income (AMTI) and a 28 percent on any AMTI above this $175,000 amount. Line 46, Excess Advance Premium Credit Repayment. Recipients of advance payments of the Code Sec. 36B premium assistance tax credit must reconcile on their 2014 returns the amount forwarded to insurers with the credit they may claim. Taxpayers must complete Form 8962 and report the amount, if any, of excess advance payments of the Code Sec. 36B premium assistance tax credit. Changes in circumstances, such as marriage, the birth or adoption of a child, retirement, and so on, may impact an individual’s eligibility for the Code Sec. 36B premium assistance tax credit and/or the amount of the credit. The IRS has encouraged taxpayers to alert the Marketplace as soon as possible about any life changes. Line 61, Health Care: Individual Responsibility. On Line 61, the taxpayer indicates if the taxpayer is covered by minimum essential health coverage for 2014, if the taxpayer is exempt from the requirement to carry minimum essential health coverage or if the taxpayer is making an individual shared responsibility payment. Individuals claiming an exemption from the requirement to carry minimum essential health coverage will file Form 8965 (discussed above). Line 62, Additional Medicare Tax. Higher income taxpayers may be liable for the Additional Medicare Tax. The threshold amounts for 2014 (unchanged from 2013) are $200,000 for single individuals (and heads of household); $250,000 for married couples filing a joint return; and $125,000 for married individuals filing separate returns. Line 62, Net Investment Income (NII) Tax. Higher income taxpayers may be liable for the net investment income (NII) tax. The threshold amounts for 2014 (unchanged from 2013) are $250,000 in the case of joint returns or a surviving spouse; $125,000 in the case of a married taxpayer filing a separate return; and $200,000 in any other case. Line 69, Net Premium Tax Credit. Taxpayers will report on Line 69 the amount, if any, of the taxpayer’s Code Sec. 36B premium assistance tax credit. Other Items. The maximum exclusion for the employer-provided adoption exclusion for 2014 is $12,190. The maximum adoption credit for 2014 is $13,190 for both non-special needs adoptions and special needs adoptions. Schedule A, Itemized Deductions Line 1, Medical and Dental Expenses. The standard mileage rate for use of a vehicle for medical purposes is 23.5 cents-per-mile for 2014. The 7.5-percent threshold has increased to 10 percent (except for taxpayers or their spouses who are age 65 or older before the close of the year). Line 21, Unreimbursed Employee Expenses. The standard mileage rate for use of a vehicle for business purposes is 56 cents-per-mile for 2014. Line 29, Total Itemized Deductions. The limitation on itemized deductions reduces the total amount of a taxpayer's otherwise allowable itemized deductions by three percent of the amount by which the taxpayer's adjusted gross income exceeds an applicable threshold. The amount of itemized deductions is not reduced by more than 80 percent. The thresholds are $305,050 for married couples and surviving spouses; $279,650 for heads of households; $254,200 for unmarried taxpayers; and $152,525 for married taxpayers filing separately. Schedule B, Interest and Ordinary Dividends Line 3, Excludable Interest. For 2014, the exclusion for education-related savings bond interest phases out for individuals with modified AGI above $76,000 and $113,950 for married couples filing a joint return. Schedule C, Profit or Loss from Business Part II, Expenses, Line 9, Car and Truck Expenses. The standard mileage rate for use of a vehicle for business purposes is 56 cents-per-mile for 2014. Part II, Expenses, Line 13, Depreciation and Section 179 Expense. Bonus depreciation generally expired after December 31, 2013 (except for certain transportation and other property). Enhanced Code Sec. 179 expensing also expired after December 31, 2013. Under current law, the Code Sec. 179 dollar limit is $25,000 and the investment limit is $200,000 for 2014, unless enhanced by Congress.