New Year, New IRS Rules and Regulations


It wouldn’t be a new year if there weren’t changes put forth by the IRS. Now that tax season is in full swing, its time to take a closer look at what changes may affect you. With every change of the calendar year, the Internal Revenue Service (IRS) likes to add to the ever increasing complex world of tax rules and regulations. Let’s take a closer look at some of the things that may affect your tax situation.

The good news is, unless you have taxable income in excess for $400,000, you really are not going to see much change in the tax brackets for 2014. But if your Modified Adjusted Gross Income (MAGI) exceeds $250,000, then you will more than likely have to deal with the net investment income tax from Medicare.The Medicare taxes that went into effect for 2013 aren’t indexed for inflation, so they will remain the same as 2014.Remember, the Medicare tax is increased 0.9% for WAGE income above $250,000 for married filing jointly. In addition, there is a 3.8% Medicare contribution on net INVESTMENT income (NII), if your MAGI exceeds $250,000 for a married couple filing jointly. As usual those amounts are adjusted for single filers, and married filing separately.

NII applies to unearned income such as dividends, capital gains, royalties, rent and business income in which the taxpayer does not actively participate. What can you do to not get hit too hard by this Medicare surcharge?

Fortunately, there are ways in which to avoid this Medicare surcharge. One way is by looking for additional ways to defer your investment income. These new IRS rules & regulations spell out how you are to help fund Medicare from all your income sources, but that doesn’t include anything from within your non-qualified life insurance and annuities (those policies held outside of a retirement plan). The life insurance industry has been able to keep the inside accumulation of cash values from being taxable income. Which means that sometimes things that are considered old investment strategies, may need to be looked at as a possible new option to help avoid these Medicare surcharges.

It is always important to consult your accountant regarding your specific tax situation, but this may also be a good time to discuss with your financial advisor if non-qualified life insurance and annuities investment vehicles may be appropriate for you.


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