With the year coming to a close, tax time is right around the corner. And just like every year, there have been some changes for the 2014 tax year (the return you'll file in 2015) that may affect your wallet.
Here are three of the most significant changes, and how they might impact your taxes.
No health insurance = tax penalty
Unless you are exempt from the healthcare law (check out the exemption rules here), you could get hit with a penalty unless you obtained "minimum essential coverage" by March 31, 2014.
Minimum essential coverage can refer to one of several healthcare options. Any plan purchased through the Marketplace qualifies. Or, any employer's plan (including COBRA) counts, as does a retiree health plan, Medicare, Medicaid, the Children's Health Insurance Program, TRICARE, veteran's health care programs, and several others. If you aren't sure, your health coverage provider should be able to let you know if you qualify.
If you don't have coverage that falls into one of these categories, you should probably prepare to pay a penalty. The penalty varies depending on your income and number of family members.
For the 2014 tax year, the penalty is the higher of 1% of your annual income above the tax filing threshold or $95 per adult and $47.50 per child. Under the first method, the maximum penalty is equal to the national average premium for a "bronze" health plan, and under the "per person" method, the maximum penalty for a family is $285.
Each year the penalty will get a little stiffer, so if you aren't in compliance for 2014, you may want to seriously think about getting your ducks in a row for 2015.
If you fail to meet the insurance requirement in 2015, the penalty jumps to 2% of your income, or $325 per person ($162.50 per child), up to a maximum of $975 per family. In 2016, the penalties will be 2.5% of income or $695 per person.
Higher tax exemptions, tax deductions, and tax brackets
And now for some good news -- in order to keep up with inflation, both the standard deduction and personal exemption amounts have gone up.
The standard deduction for single taxpayers is now $6,200, a $100 annual increase. For married taxpayers, this amount doubles to $12,400. The personal exemption amount has also increased by $50 to $3,950 for the 2014 tax year.
Furthermore, the tax brackets have been adjusted upward for inflation.
As an example of what this could mean to you as a taxpayer, consider that when you combine the increased deductions and exemptions with the higher tax brackets, a married couple with two children filing jointly who earns $100,000 (pre-tax) would owe $75 less in income tax this year. Of course, this assumes their salary remained the same, and that the family uses the standard deduction instead of itemizing, but the difference is pretty significant.
Bear in mind that the new exemptions, deductions, and tax brackets are a much more valuable benefit to higher-income taxpayers, who could save several hundred dollars this year.
Expired tax deductions and tax credits
Several key tax benefits expired at the end of 2013, some of which affect a large number of taxpayers. One notable example is the higher education tuition deduction, which allowed taxpayers to deduct up to $4,000 of qualified educational expenses. Also expired is the educator expense deduction, which allowed teachers to deduct $250 in unreimbursed classroom expenses from their taxable income.
These deductions, as well as 53 others, were all part of the Taxpayer Relief Act of 2012 which expired on Dec. 31, 2013.
It is entirely possible that congress will decide to extend these again before people start filing their returns. However, if any of the expired tax benefits applied to you, it pays to be aware of them. After all, it's better to over-prepare and get back more money than you anticipated than it is to under-prepare and owe hundreds, or even thousands more than you expected.
Keep watching for more tax changes ...
While these are some of the 2015 tax changes we know about so far, that doesn't mean there won't be several more significant updates between now and the time people start filing returns.
It's important to keep yourself informed about the latest updates, as a single tax deduction could save you hundreds, or even thousands of dollars.