The Internal Revenue Service recently released inflation adjustments to various tax benefits as well as announcing a decrease in personal contact between taxpayers and IRS personnel with a greater reliance on automated self-service options. Given the current difficulty in obtaining a correct answer from a telephone call to the IRS this does not bode well for the future.

2014 Inflation Adjustments

The tax items for tax year 2014 of greatest interest to most taxpayers include the following:

— The tax rate of 39.6 percent affects singles whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return), up from $400,000 and $450,000, respectively. The other marginal rates — 10, 15, 25, 28, 33 and 35 percent — and the related income tax thresholds are described in the revenue procedure.

— The standard deduction rises to $6,200 for singles and married persons filing separate returns and $12,400 for married couples filing jointly, up from $6,100 and $12,200, respectively, for tax year 2013. The standard deduction for heads of household rises to $9,100, up from $8,950.

— The limitation for itemised deductions claimed on tax year 2014 returns of individuals begins with incomes of $254,200 or more ($305,050 for married couples filing jointly).

— The personal exemption rises to $3,950, up from the 2013 exemption of $3,900. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 ($305,050 for married couples filing jointly). It phases out completely at $376,700 ($427,550 for married couples filing jointly).

— The Alternative Minimum Tax exemption amount for tax year 2014 is $52,800 ($82,100, for married couples filing jointly). The 2013 exemption amount was $51,900 ($80,800 for married couples filing jointly).

— Estates of decedents who die during 2014 have a basic exclusion amount of $5,340,000, up from a total of $5,250,000 for estates of decedents who died in 2013.

— The annual exclusion for gifts remains at $14,000 for 2014.

— The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) remains unchanged at $2,500.

— The foreign earned income exclusion rises to $99,200 for tax year 2014, up from $97,600, for 2013.

2014 Tax Filing Season IRS Changes

At a point where the Internal Revenue Code has become increasingly complex the Internal Revenue Service announced plans to transition more of its services for taxpayers to online, automated self-service options next tax season to save money and manpower.

“With limited resources to support person-to-person services on the phone or at Taxpayer Assistance Centers, the IRS is emphasising services, such as those found on IRS.gov, to help meet a number of taxpayer needs,” said the IRS. “This approach will free up IRS assisters on the phone or in person to help with issues that cannot be resolved through other avenues, such as issues involving identity theft.”

The changes for the 2014 filing season affect tax return preparation, transcript delivery, tax law assistance, tax refund inquiries, Employer Identification Number, and the Practitioner Priority Service. The IRS said that many of the automated services will be available 24 hours and seven days a week.

Among the changes will be the elimination of tax prep services at IRS walk-in centres. In recent years, the IRS said it has been preparing fewer tax returns for taxpayers at its walk-in offices. Tax preparation has only been available in a limited format at some IRS offices and not every day of the week at some locations. In addition, the IRS Free File programme on IRS.gov will continue to offer free e-file and tax software to help taxpayers prepare their returns.

The majority of tax law questions the IRS receives each year are about basic tax law issues. This includes questions pertaining to Forms 1040A, 1040 EZ and related items on Form 1040 such as filing status, dependents, exemptions and taxable income. During each filing season (January to mid-April), the IRS will continue to answer these basic tax law questions. To focus IRS resources on the filing season, outside of the January — April time frame the IRS will refer all taxpayers with tax law questions to its online resources.

Typically, the most common question the IRS receives is about when people can expect to see their tax refunds. In recent years, the IRS has issued more than 90 percent of tax refunds in less than 21 days. With the continued growth of the internet and mobile apps, the IRS will now direct all tax refund inquiries during the first 21 days after a taxpayer files electronically to the “Where’s My Refund?” tool available in English and Spanish through the IRS2Go phone app, IRS.gov and the automated telephone service.

Despite the push to have everyone use online services, the IRS still has not announced plans to reopen two of the most popular online services used by tax practitioners, its Disclosure Authorisation and Electronic Account Resolution e-services apps, which closed in September despite protests from several associations representing accountants and tax preparers.

Tax Reform

Tax reform is clearly the elephant in the room in Congress that is moving along with the speed of an aged turtle. With elections for the entire House of Representatives in November 2014 and one third of the Senate it is doubtful that there will be any meaningful tax legislation prior to the end of 2014. Nevertheless, the House Ways and Means Committee and the Senate Finance Committee continue to issue draft proposals, primarily to measure reaction to the proposals. To date, the measures differ remarkably. One proposal is to impose a minimum tax on all foreign source corporate income while another is to allow corporations to remit foreign earning to the US tax free.

Administrative changes that are likely to pass both houses would include providing the IRS with power to regulate unenrolled tax preparers, require all tax preparers to exile and to tighten the rules on preparers of returns taking the child tax credit. Financial institutions reporting mortgage interest paid would also have to disclose the mortgage balance, home equity loan balance and real estate tax paid. Another proposal is to take away passports from individuals who owe more than $50,000 in taxes.

Tax Amnesty and Foreign Banks

The IRS is now using information obtained from US individuals seeking tax amnesty to investigate the foreign banks who helped these individuals hide their assets. The thought process is that if the foreign bank willing assisted one person to hide their assets the likelihood of their assisting other US individuals is very high.

Pursuant to the requirements relating to practice before the Internal Revenue Service, any tax advice in this communication is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties imposed under the United States Internal Revenue Code, or (ii) promoting, marketing or recommending to another person any tax related manner.

The tax advice given by this column is, by necessity, general in nature. You should, of course, check with your own US tax consultant as to how specific transactions affect you since tax advice varies with individual circumstances.

James Paul Sabo, CPA, is the President of ETS Ltd., PO Box HM 1574, Hamilton HM GX, Bermuda. Questions should be sent to: jsabo@expatriatetaxservices.com