- End of 2014 Tax Law Changes
- March 12, 2015
- Law Firm: Pessin Katz Law P.A. - Towson Office
- At the end of 2014 some new tax developments emerged of importance to our readers:
ABLE Accounts: A new law titled “Achieving a Better Life Experience” (ABLE) allows the establishment of tax-free accounts that can be used to save for disability-related expenses. ABLE accounts can be created by individuals to support themselves or by families to support their dependents. Assets can be accumulated, invested, grown and distributed free from federal taxes. Contributions to the accounts are not deductible, but assets in the account grow tax free and are protected from tax as long as they are used to pay “qualified expenses”. Withdrawals are tax-free if the money is used for disability-related expenses including: education; housing; transportation; employment support; health, prevention, and wellness costs; assistive technology and personal support services. A non-qualified distribution is subject to income tax and a 10% penalty on the part of the distribution attributable to earnings. Each disabled person is limited to one ABLE account, and total annual contributions by all individuals to any one ABLE account can be made up to the inflation-adjusted gift tax exclusion amount which is $14,000 for 2015.
Premium Tax Credit. The premium tax credit (“PTC”) case, involving whether those persons purchasing health insurance through the federal health insurance exchange rather than a state exchange are entitled to a PTC, is still pending in the Supreme Court. Most individuals have health insurance and only need to check a box on their return for 2014 to satisfy the “individual mandate” under the Affordable Care Act. Individuals and families who get coverage through the Health Insurance Marketplace (Marketplace, also known as an exchange) may be eligible for the premium tax credit. Eligible individuals and families can choose to have advance credit payments paid directly to their insurance company to lower what they pay out-of-pocket for their monthly premiums. Early in 2015, individuals who bought health insurance through the Marketplace will receive Form 1095-A, Health Insurance Marketplace Statement, which includes information about their coverage and any premium assistance received. Individuals claiming the premium tax credit, including those who received advance payments of the premium tax credit, must file a federal income tax return for the year and attach Form 8962, Premium Tax Credit to their income tax return.
IRA Rollovers. Federal law limits the number of IRA rollovers that can be made in any one-year period to one. The U.S. Tax Court held that the limit applies to all of an individual’s IRAs even though the IRS had stated that the limit applies to each separate IRA an individual owns. Shortly after that decision, the IRS announced that it will adopt the more restrictive view for distributions after 2014. In November, 2014, the IRS issued more guidance to clarify the start of the new policy. As clarified, an individual receiving an IRA distribution on or after Jan. 1, 2015 cannot roll over any portion of the distribution into an IRA if the individual has received a distribution from any IRA in the preceding one-year period that was rolled over into an IRA. However, as a transition rule for distributions in 2015, a distribution occurring in 2014 that was rolled over is disregarded for purposes of determining whether a 2015 distribution can be rolled over, provided that the 2015 distribution is from an IRA that neither made nor received the 2014 distribution.
Personal Service Corporation Taxation. A “qualified personal service corporation” (an employee-owned corporation performing legal, health or other professional services) is subject to a flat tax of 35%, unlike other corporations that are subject to graduated rates of 15%, 25% and 34%. The U.S. Tax Court would not allow the IRS to tax a personal service corporation which was part of an affiliated group of corporations at the flat 35% rate. The Tax Court held that the group’s consolidated income, including the income of the qualified personal service corporation, must be taxed at the graduated rates.
Standard Mileage Rates. The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) is 57.5¢ per each business mile traveled after 2014. That’s 1.5¢ more than the 56¢ allowance for business mileage during 2014. But the 2015 rate for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction is 23¢ per mile, 0.5¢ less per mile than the 23.5¢ rate for 2014.
Non-farmer Conservation Payments. The U.S. Department of Agriculture program makes payments for placing land in a conservation “reserve” voluntarily. A recent appellate court ruling held that payments received under the program by a non-farmer taxpayer were not subject to self-employment tax Rather, the payments constituted “rentals from real estate” excludible from self-employment income.
Death of Joint Tenant Extinguishes Tax Lien. A U.S. district court held that an IRS lien on a taxpayer’s interest in property was extinguished upon death because the property was owned jointly with a right of survivorship and there was a surviving joint tenant. Therefore, there was no interest left to which the lien could continue to attach.