Now that the holiday hustle has subsided and, while our New Year’s resolutions are still at least partially intact, we have the specter of Income Tax season staring us squarely in the face. The 2015 Tax Code changes are a mixed bag. As usual, it appears the IRS giveth to some, but then the IRS taketh away from others…some things never really change.
Here are some of the key changes to be aware of:
AFFORDABLE CARE ACT PENALTIES INCREASE
2014 tax returns will be the first ones that deal with penalties for failure to obtain health insurance coverage under the Affordable Care Act. The penalty for 2014 is 1 percent of household income or $95 per uninsured person, whichever is greater. For 2015, the penalties steepen to 2 percent of household income or $325 per uninsured person, whichever is greater.
INFLATION ADJUSTMENTS: THE GOOD, THE BAD AND THE UGLY
The tax rates are unchanged, but the tax brackets went up slightly to adjust for inflation. You are now in the highest bracket (39.6 percent) for 2015 returns if your adjusted gross income is more than:
- $413,200 for single
- $439,000 for a head of household
- $232,426 each for married, filing separately
- $464,850 for married, filing jointly
The threshold for the net investment income tax is not tied to inflation. While you can earn more in 2015 before ending up in the top 39.6 percent tax bracket, the net investment income tax kicks in at the same levels as 2014: $200,000 in adjusted gross income as a single or head of household filer, $250,000 if you are married and file jointly, or $125,000 if you and your spouse file separate returns. If you had a good year with investments that are NOT shielded from income taxes and your income falls into these levels, expect a tax of 3.8 percent on your dividends and gains.
The standard deduction rises slightly for all taxpayers. It will be $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly, up from $6,200 and $12,400, respectively. The standard deduction for heads of household rises to $9,250, up from $9,100.
For a complete tax bracket list courtesy of Forbes, go here.
HIGHER LIMITS ON RETIREMENT CONTRIBUTIONS
The limit on employee contributions to a 401(k) plans will increase to $18,000, up $500 from the cap in 2014. The same applies to 403b and 457 retirement plans. The “catch-up” allowance for those older than 50 has been increased to $6,000 instead of the previous $5,500 cap. A $500 annual increase might not seem like much, but over 25 years at 8 percent, it amounts to more than $36,500, and that is before any employer matching.
IRA contribution limits remain the same at $5,500 per person. The additional catch-up contribution limit for individuals aged 50 and over also is unchanged at $1,000.
THE FLEXIBLE SPENDING ACCOUNTS
The total eligible for this benefit increased to $2,550 from $2,500, and the accounts became more flexible. If your employer offers Flexible Spending Accounts, you should take advantage of this as it uses your money pretax to pay out-of-pocket medical costs. Historically, the IRS required you to spend all that you set aside within the calendar year, or you lost what was left over. In Oct. 2013, the U.S. Treasury and IRS relaxed the rules, allowing employees to carryover $500 to the following year. It happened so late, that many companies didn’t implement it for 2014. Check with your company to see if it has added the flexibility, giving you the option to carry over 2014 funds.
SOCIAL SECURITY
Benefits increase 1.7 percent. Tax rates remain the same at 7.65 percent (combined with Medicare) for employees and 15.3 percent for the self-employed. Maximum taxable earnings (the threshold before Social Security collections stop) increased by $1,500 to $118,500 for an individual. Note that after the threshold is reached, Medicare deductions continue at any income at a level of 1.45 percent.
BITCOIN/VIRTUAL CURRENCY
Yes, you have to report it. The IRS issued a clarification in 2014 and it is treated like currency or property. The fair market value is determined at the time of any transaction.
Securities offered through LPL Financial, Member FINRA/SIPC. Financial Planning offered through Lifestyle Planning Solutions, a registered investment advisor. Investment advice offered through Stratos Wealth Partners, a registered investment advisor. Botsford Financial Group, Lifestyle Planning Solutions and Stratos Wealth Partners are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
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This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
