Top Tax Developments of 2014 with Impact on 2015
[caption id="attachment_381" align="alignleft" width="300"] Michael Blitstein, CJBS[/caption] by Michael W. Blitstein, CPA 2014 was a notable year for tax developments on a number of fronts. Selecting the top tax developments for 2014 requires judgment calls based upon uniqueness, taxpayers affected, and forward looking impact on 2015 and beyond. With respect to David Letterman, the following list of 2014 tax developments reflects this prioritization in no particular order. Passage of the Extenders Package 2014 was not a year for major tax legislation in Congress. In fact, Congress even failed to pass its usual two-year extenders package, instead settling on a one-year retroactive extension to January 1, 2014. As one senator put it, “This tax bill doesn't have the shelf life of a carton of eggs,” referring to the fact that the 50-plus extenders provisions expired again on January 1, 2015. Instead, it has been left to the 114th Congress to debate the extension of these tax breaks in 2015 and beyond, and for taxpayers to guess what expenses in 2015 will again be entitled to a tax break. Affordable Care Act In many ways, 2014 was a transition year for the Affordable Care Act. One of the most far reaching requirements, known as the “individual mandate”, took effect on January 1, 2014. Unless exempt, individuals who fail to carry minimum essential health coverage will make a shared responsibility payment in 2015. Another key provision, the “employer mandate”, was further delayed to 2015. Employer reporting for 2014 is voluntary. The IRS also developed new forms for reporting many new requirements. Repair Regulations In 2014, the IRS finished issuing the necessary guidance on the treatment of costs for tangible property under the sweeping “repair” regulations. The most important development was the issuance of final regulations on the treatment of dispositions of tangible property, including the identification of assets, the treatment of dispositions, and the computation of gain and loss. The complexity of the repair regulations has not gone unnoticed by many tax professionals, who have asked the IRS to simplify some of the provisions. IRS Operations IRS predicted a complex and challenging 2015 filing season due to cuts in the Service’s funding. This dictates the Service having to do more with less because of budget cuts. The IRS is funded $1.5 billion below the amount requested. IRS could face another round of budget cuts under the new Republican controlled Congress for 2016. Net Investment Income Tax Many higher income individuals were surprised to learn the full impact of the net investment income tax (“NII”) on their overall tax liability during the 2014 filing season when their 2013 returns were filed. Starting in 2013, taxpayers with qualifying income have been liable for the 3.8 percent net investment income tax. Recent run ups in the financial markets, combined with the fact that the thresholds are not adjusted for inflation, have increased the need to implement strategies that can avoid or minimize the NII tax. Retirement Planning A number of changes were made during 2014 affecting IRAs and other qualified plans, which cumulatively rise to the level of a “top tax development” for 2014:
- Distributions from a qualified retirement plan account are now able to have the taxable and non-taxable portions of the distribution directed to separate accounts.
- 401(k) plans can now offer deferred annuities through target date funds.
- A Tax Court ruling held that a taxpayer is limited to one 60-day rollover per year for all IRA accounts rather than one 60-day rollover per year for each IRA account. The IRS stated that the new interpretation of the rollover rules would be applied to rollover distributions received on or after January 1, 2015.
- A 2014 Supreme Court decision found that inherited IRA accounts were not retirement assets and therefore not subject to creditor protection under the Bankruptcy Code.
- The IRS announced the 2015 cost-of-living adjustments for qualified plans. Many retirement plan contribution and benefit limits increase slightly in 2015.
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