2014 Tax Numbers to Know

Jan 13, 2014 by

IRS shieldIt’s a new year, and the IRS is busy publicizing updated numbers for 2014 and managing the “tax season.” Here’s a quick & dirty guide to some of the new numbers most likely to affect you.

Standard Deduction

Bottom Line: Small Increase

If you don’t itemize deductions (and 2/3rds of U.S. taxpayers don’t), you take the “standard deduction.” The deduction reduces your taxable income, so you pay less tax than otherwise.

The standard deduction amounts for 2014 are:

  • $6,200 for single filers and married people filing separate returns
  • $9,100 for head-of-household taxpayers
  • $12,400 for married couples filing jointly and qualifying widows/widowers.

Compared to 2013, these are deduction increases of $100, $150, and $200 respectively for singles, heads of household, and married joint filers.

Things get more complicated if you’re age 65 or older or blind, or if claimed as a dependent on someone else’s tax return. Read this to learn more.

Personal Exemption

Bottom Line: Small Increase

Whether or not you itemize deductions, you get to take a “personal tax exemption.” You can take exemptions for yourself, your spouse, and your dependents. 2013’s exemption (for returns due 15 April 2014) was $3,900. In 2014, the exemption goes up $50 to $3,950. Like the standard deduction, personal exemptions reduce your taxable income. If you’re in the 15% marginal tax bracket, each $3,950 exemption will cut your 2014 tax bill by $592.50. The extra $50 exemption in 2014 would translate to a $7.50 per exemption tax cut. Yeah, I know—don’t spend it all in one place. Hey—at least the exemption went up!

As of 2013, the personal exemption is phased out for higher income earners. The “phasing”—which means reduction in IRS-speak—starts at Adjusted Gross Income of:

  • $150,000 for married filing separately taxpayers
  • $250,000 for single filers
  • $275,000 for head of household taxpayers
  • $300,000 for married filing jointly taxpayers

Retirement Plan Contribution Limits

Bottom Line: No Change

Sadly, the maximum amount you can contribute to a traditional or Roth IRA is unchanged in 2014 at $5,500 if you’re under age 50 on 31 December 2014 and $6,500 if you’re age 50 or older on 31 December 2014. The story is the same for deferred contribution plans like 401(k)s, 403(b)s, 457s, and SIMPLE plans. Mysteriously, Congress evidently thinks Americans need no additional help in saving enough for retirement.

I’m not sure if you’ll consider this good news or bad, but the income limit to which Social Security tax is applied will increase in 2014 from $113,700 to $117,000.

Mileage Deduction

Bottom Line: Small Decrease

Mileage expense deduction rates have each dropped ½ cent per mile for 2014 to $0.56 for business and $0.235 for moving or medical expenses. The charity rate stays the same at $0.14 per mile.

Estate and Gift Tax Amounts

Bottom Line: Little Change

The estate tax has been such a political football and subject of bombast that you’ve probably lost interest in keeping track of its status. The American Taxpayer Relief Act of 2012 (ATRA) made the estate tax a permanent (or what passes for “permanent” in Washington) part of the tax code and the exemption amount automatically indexed for inflation. In 2014 the estate tax exemption will increase by $90,000 to $5.34 million. You may consider that good news. Before you get overexcited recall that ATRA also boosted the tax rate on estates in excess of the exemption from 35% to 40%.

Since for most of you the issue has likely never come up, you may be surprised to learn that, if you give someone a gift of cash or something worth a lot of money, you may have to pay tax on the gift! The amount you can give as a gift without paying the gift tax is unchanged in 2014 at $14,000. If you’re feeling generous, you could give this amount to as many people as you want without paying gift tax.

Do You Resent Having to Think About Tax Issues?

Are you frustrated that there seem to be a million tax issues that you need to keep track of to avoid paying more tax than you’re legally required to pay? I wonder to what sort of productive use all the resources devoted to tax avoidance could be beneficially dedicated.

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  • Travis Pizel

    Great pieces of information to know as the dreaded tax season approaches, Kurt! I have to tell you, I don’t look forward to doing my taxes…not one little bit. 🙂

  • John S @ Frugal Rules

    Thanks for the breakdown Kurt! Thankfully we now have a tax planner to help us wade through a lot of this now. I always did them myself, but the business made it so I needed (or wanted, depends on how you look at it 🙂 ) to have a pro taking care of it. I’m really hoping we don’t get taken to the woodshed by the IRS this year, so we’ll see.

    • Best for you to focus on the business and let the pro do what he/she’s good at! Maybe you’ll win enough in Vegas to cover your tax bill. 🙂

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