The following is a summary of the most important tax developments that have occurred in the past three months that may affect you, your family, your investments, and your livelihood. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.

Impact of Inflation on Taxes

Official explains impact of chained CPI on social security and taxes.  A government official explained how using chained consumer price index (CPI) for benefit programs and the tax Code would affect taxpayers, social security recipients, and government revenues. In general, chained CPI grows at a slower pace than standard CPI by fully accounting for a consumer’s ability to substitute between goods in response to changes in relative prices. A switch to chained CPI would result in smaller annual cost-of living-adjustments for social security benefits and would affect a number of inflation-adjusted tax provisions. These items include the personal exemption, the standard deduction, and the income thresholds for the individual income tax brackets and for numerous other deductions, exclusions, and tax credits. If the change to chained CPI goes through, annual increases to these various tax-related amounts would be lower than under the current standard CPI for providing inflation adjustments. As a result, the government would pay out less benefits and take in more revenue if chained CPI is implemented.


Next year’s inflation adjustments for health savings accounts.  The IRS has provided the annual inflation-adjusted contribution, deductible, and out-of-pocket expense limits for 2014 for health savings accounts (HSAs). Eligible individuals may, subject to statutory limits, make deductible contributions to an HSA. Employers as well as other persons (e.g., family members) also may contribute on behalf of an eligible individual. Employer contributions generally are treated as employer-provided coverage for medical expenses under an accident or health plan and are excludable from income. In general, a person is an “eligible individual” if he is covered under a high deductible health plan (HDHP) and is not covered under any other health plan that is not a high deductible plan, unless the other coverage is permitted insurance (e.g., for worker’s compensation, a specified disease or illness, or providing a fixed payment for hospitalization). For calendar year 2014, the limitation on deductions is $3,300 (up from $3,250 for 2013) for an individual with self-only coverage. It’s $6,550 (up from $6,450 for 2013) for an individual with family coverage under a HDHP. Each of these amounts is increased by $1,000 if the eligible individual is age 55 or older.

Aaron’s Take:  The 2014 limitations are now $3,300/$6,550 (which can be increased by $1,000 for individuals over 55), allowing additional opportunity for tax savings.


Maximum auto/truck values for cents-per-mile valuation.  The IRS has released the 2013 maximum fair market values for employer-provided autos, trucks and vans, the personal use of which can be valued for fringe benefit purposes at the mileage allowance rate. An employer must treat an employee’s personal use of an employer-provided auto as fringe benefit income and value it using one of several methods. One of the permitted methods allows an employer to value personal use at the mileage allowance rate (56.5¢ per mile for 2013). However, this method may be used only if the auto’s fair market value does not exceed $12,800, as adjusted for inflation. The inflation-adjusted figures for vehicles first made available to employees for personal use in 2013 are $16,000 for autos (up from $15,900 for 2012) and $17,000 for trucks and vans (up from $16,700 for 2012).

Aaron’s Take: Taxpayers with employer-provided automobiles may be receiving a taxable fringe benefit.  These rules allow for the valuation of those fringe benefits.