The tax law is constantly changing, and this year the changes affect many taxpayers. Fox Business’s article last week points out the changes that will have the biggest impact.

  1. The Affordable Care Act Tax Subsidy — Most taxpayers who are eligible for the subsidy will receive it through a government payment to their insurance company that lowers their monthly premiums (the Advanced Premium Tax Credit). However, the taxpayer can elect to pay the insurance company’s full monthly insurance premium and then claim the subsidy as a tax credit on the annual return. 
  2. The Penalty for Not Having Health Insurance — Health insurers or employers will be providing individuals documentation of their health coverage annually, which taxpayers will file along with their return. At the time of filing, a penalty will be assessed if the taxpayer has refused to purchase health insurance according to the Affordable Care Act’s guidelines. The penalty amount will be taken from the individual’s tax refund.
  3. Medical Expense Deductions — Under the ACA, taxpayers can deduct medical expenses exceeding 10% of their adjusted gross income. However, there is an exception for those who are 65 and over as well as their spouses. Taxpayers in this age category can continue using the 7.5% threshold through 2016.
  4. Higher-education Tuition Deduction — Congress has failed to renew other popular tax breaks, such as the Higher-education Tuition Deduction, which enabled taxpayers to deduct between $2,000 and $4,000 of qualified tuition expense.
  5. IRA Distributions — If you’re an IRA owner who is 70.5 or older, you’re no longer allowed to distribute up to $100,000 of IRA funds tax-free to charities. Those distributions must now be taxed as ordinary income. 
  6. Teachers’ Unreimbursed Educational Expenses — Congress has also failed to renew the deduction teachers were allowed to take for expenses they incur buying classroom supplies with their own personal money.
  7. Mortgage Insurance Premium Deduction — Homeowners can now no longer deduct mortgage insurance premiums. Also, homeowners who are underwater are no longer able to exclude mortgage debt forgiveness from taxable income.
  8. Energy-efficient Home Improvement Deductions — Credits such as those for qualifying heating and cooling systems, windows, and sealing have now expired. Although credits for certain plug-in electric vehicles as well as solar and wind technologies will be in effect through 2016.
  9. Simplified Home Office Deduction — Under the new law, you can simply deduct $5 for every square foot of home office space, up to $1,500. You may also separately deduct mortgage interest and real estate taxes. 
  10. FSA Carry-overs — There’s a new $500 carry-over allowance on health care flexible spending accounts. Employees can now carry over up to $500 of any unused balance to the following year.

We’ve covered these changes before in separate posts, but it’s helpful to see them summarized to plan for next tax year. You don’t want to be surprised when you encounter one of these new changes next year.