No harm, aside from some lost interest. No tax fouls or early withdrawal penalties. And now, thanks to a court ruling, no more.
A February 2014 U.S. Tax Court ruling invalidated the unlimited IRA rollover. The court held that the rollover limitation applies on an aggregate basis. That means that regardless of how many IRAs you have, you can make only one IRA-to-IRA rollover per year. The only bit of relief granted retirement account owners is that the rule does not take effect until Jan. 1, 2015.
4. Inflation hurts, helps
Every fall, the IRS adjusts the dollar amounts for more than 40 tax provisions. Most of the increases are welcome. Tax brackets are wider, meaning you can make a bit more in 2015 without being bumped up to a higher tax rate. The standard deductions for each filing status are larger, as is the personal exemption amount, and you can put more into workplace retirement accounts in 2015.
However, wealthier taxpayers beware. While you can earn more in 2015 before ending up in the top 39.6 percent tax bracket, inflation is of no help when it comes to the net investment income tax. This Affordable Care Act tax of 3.8 percent on certain assets kicks in when you make $200,000 as a single or head of household filer; $250,000 if you're married and file jointly; or $125,000 if you and your spouse file separate returns.
If those income amounts look familiar, it's because they are the same as in 2014, the first year this tax was collected. The net investment income tax earnings thresholds are not adjusted for inflation. Unless this is changed by Congress, the number of taxpayers subject to this surtax will grow over time.
5. Same-sex state filing rules in flux
Same-sex married couples, be sure to check with your state tax office before you file that return. The IRS accepts married filing jointly returns from same-sex married couples, even if their home states don't recognize the marriages.
However, many more states are now allowing same-sex ceremonies, largely in part to court rulings. Since the U.S. Supreme Court in June 2013 struck down the Defense of Marriage Act heterosexual-only definition, same-sex marriage advocates have recorded more than 50 court-ordered victories. Other cases are working their way through the judicial system, with some legal observers expecting the Supreme Court to make another key same-sex marriage ruling this term.
As courts decide and weddings are performed, state tax offices are -- or are not -- making corresponding tax treatment decisions. To ensure filing of the proper forms and in the way acceptable to a state's tax department, same-sex partners should check with their tax office's filing and check back periodically to see if they can or need to amend that state filing.
6. FSA carry-over rule
Medical flexible spending accounts, or FSAs, are a great workplace benefit. They allow employees to put away part of their pay before taxes are figured and then to use that pretax money to pay out-of-pocket medical costs.
The accounts got even more flexible on Oct. 31, 2013. That's when the U.S. Treasury and IRS announced that instead of requiring employees to forfeit unused FSA money at the end of the benefit year, companies could allow workers to carry over $500 to the next benefit year. Unfortunately, that welcome but late-in-the-year rollover decision meant that few companies made the rollover change for the 2014 benefit year. But with added lead time, more companies have added this benefit, allowing excess 2014 FSA funds to be carried into 2015. Check with your company about the option so you can maximize this tax-favored workplace perk.
7. Virtual currency, real taxes
The world and its finances are increasingly digital and the IRS is doing its best to keep up, particularly in the case of virtual currency. Although the currencies, such as bitcoin, operate like coins and paper bills, virtual currency does not have legal tender status in any jurisdiction. Therefore, the IRS has decided to treat the currency as property rather than money.
Still, the tax agency wants to know about your payments received or investments in virtual currency. For example, the IRS has declared that wages paid to employees in virtual currency are taxable income. That also means the fair market value of virtual currency is subject to federal income tax withholding, Social Security and Medicare payroll taxes and unemployment taxes. It also must be reported on the employee's W-2 form. Ditto for such payments to independent contractors who'll find the value of their virtual income payments reported on 1099 forms.
As for holdings of bitcoin, investors will report gain and loss transactions as they do other assets, paying ordinary income taxes on short-term gains or lower capital gains tax rates on realized profits.
8. Tax reform prospects
Yes, you heard this last year, but some baby steps actually were made in 2014 that could lead to at least some changes in our overloaded, complicated tax code. Rep. Dave Camp, R-Mich., chair of the House Ways and Means Committee in the 113th Congress, put together a comprehensive working draft that got tax discussions going. Unfortunately, some of the talk was tough, even from many in his own party. But folks finally seem to be acknowledging that to streamline the Internal Revenue Code, some targeted tax breaks must go. How far down the tax reform road will the 114th Congress get? Probably not too far. But with enthusiastic new chairmen for the tax-writing House Ways and Means and Senate Finance committees -- former GOP vice presidential candidate Rep. Paul Ryan, R-Wis., and Sen. Orrin Hatch, R-Utah, respectively -- some revision of the tax code could happen.
9. Scaled-back tax preparer regulation
The IRS suffered a setback in 2014 when a federal court told the agency that it didn't have the authority to regulate certain paid tax preparers. The IRS isn't worried about attorneys, certified public accountants or enrolled agents; they already are regulated under professional licensing and continuing education regimes. But other paid preparers should at least stay abreast of tax law developments and demonstrate that knowledge by passing annual competency tests, the IRS says.
Since the IRS can't require this, it's offering such a system on a voluntary basis. As part of the new Annual Filing Season Program, participating tax preparers will be included in a new public directory that will be added to the IRS website in January 2015. Along with the preparers who pass the IRS' voluntary accreditation program, attorneys, CPAs, enrolled agents and enrolled retirement plan agents will be listed in the directory of credentialed federal tax return preparers. Taxpayers can use this online resource to search for qualified tax-filing help.
10. Old and new tax scams
One of the reasons that the IRS wants to regulate tax preparers is that unscrupulous tax help is a regular in the agency's annual list of the dirty dozen tax scams. 2014 also saw the explosion of a telephone tax scam, in which con artists pretending to be IRS agents call people and demand money that the crooks claim is due to the U.S. Treasury.
When the IRS issued its first warning in March 2014, the agency called it the largest telephone tax scam ever. Things got worse as the year progressed, with scammers tweaking the calls to continue to trap victims. Tax experts also say they expect taxpayer confusion about claiming or reconciling the health care premium tax credit to spur a new round of scams. So, be on guard in 2015 for new and old illegal attempts to take your identity and tax money.