Tax Issues To Think About For 2014 and Beyond
There are two main tax issues to think about in the upcoming years: the affect of the Affordable Care Act (Obama Care), and the phasing out of popular tax deductions. This article will discuss succinctly the Act’s affect in regard to the penalty that will be placed on all those without healthcare, starting the 2014 tax year, and the phasing out of the lower healthcare threshold for itemized filers, higher-education tuition deduction, mortgage insurance premiums deduction, and the mortgage debt exclusion.
Obama Care Penalty
Starting in the tax year 2014, persons not enrolled for healthcare, either through their employer or on the government healthcare marketplace, will be forced to pay a penalty of the greater of $95 or 1% of the individuals income. The penalty, however, is scheduled to grow annually. If a person does not obtain healthcare for the tax year 2016 the penalty will be the greater of $695 or 2.5% of one’s annual income. This penalty amount is to be adjusted upward every year thereafter for cost of living increases, i.e. inflation. With the cost of health insurance for most hovering around $150 a month the penalty may not sound like a bad option. Without factoring in the exorbitant amount risk by not having healthcare insurance, the penalty is the better option.
Phased Out Deductions
The short truth is that the government is having a hard time covering its bills with the amount of cash flowing in through taxes. One way to remedy that problem is to cut some of the tax breaks, in this case income deductions. The old threshold for medical expenses was 7.5%, but going forward the new threshold will be 10%, except for those persons over 65. This should disallow some of the currently claiming individuals, possibly forcing them to take the standard deduction. The next three deductions are not merely being put out of reach for some. They are being discontinued all together. No longer will any taxpayer after the 2013 tax year be able to claim their higher-tuition expenses. In terms of deductions that apply to homes, persons who own a home will no longer be able to claim their mortgage insurance premiums as a deduction to their earned income. Moreover, persons who felt the pinch of the Great Recession in the form of underwater mortgages will no longer be able to exclude mortgage debt forgiveness. Going forward any mortgage debt that is forgiven must be claimed as income.
In a nut shell, the government is pressed for cash. It simply cannot afford to subsidize healthcare by paying for walk-ins at local public hospitals, or continue to allow large income deductions to the masses. It is only fitting due to the government’s problem that it generate tax revenue by enforcing a penalty and lessening the available deductions to income.