Tax Filing Season Starts on Time
The IRS announced that the 2015 tax season opens on Jan. 20. No returns, paper or electronic, will be processed by the IRS before this date. The April 15th tax deadline will remain in place.
Alternative Minimum Tax (AMT)
Exemption amounts for the AMT, which was made permanent by the American Taxpayer Relief Act (ATRA) are indexed for inflation and allow the use of nonrefundable personal credits against the AMT. For 2015, the exemption amounts are $53,600 for individuals ($52,800 in 2014) and $83,400 for married couples filing jointly ($82,100 in 2014).
For 2015, the amount of unearned net income that a child can take home without paying any federal income ax is $1,050 (increased from $1,000 in 2014).
"Kiddie Tax" rule applies when your child unearned income exceeds $2,000. As the result, part of the unearned income excess $2,000 may be taxed at the parent's tax rate instead of the child's tax rate.
The parent may be able to avoid having to file a return for the child by including the child's income to the parent's income. However, certain conditions must be met. For example, the child's interest and dividend income was less than $10,000; and the child was under age of 19 or under age of 24, if he/she is a full-time student.
Health Savings Accounts (HSAs)
Contributions to a Health Savings Account (HSA) are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Medical expenses must not be reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return.
A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care.
For calendar year 2015, a qualifying HDHP must have a deductible of at least $1,300 for self-only coverage or $2,600 for family coverage ( $1,250 and $2,500 respectively in 2014) and must limit annual out-of-pocket expenses of the beneficiary to $6,450 for self-only coverage (up $100 from 2014) and $12,900 for family coverage (up $200 from 2014).
Medical Savings Accounts (MSAs)
There are two types of Medical Savings Accounts (MSAs): the Archer MSA created to help self-employed individuals and employees of certain small employers, and the Medicare Advantage MSA, which is also an Archer MSA, and is designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare. Both MSAs require that you are enrolled in a high deductible health plan (HDHP).
Affordable Care Mandate and Credit
The Affordable Care Act mandates that most individuals have minimum essetial coverage (health insurance) by 2014. Nonexempt individuals who do not maintain required health coverage for
themselves and any nonexempt dependents are subject to a shared responsibility penalty.
Beggining in 2014, tax payers with modest incomes are eligible for a refundable income tax credit (the premium assistance credit) to help pay for health insurance coverage in a qualified health plan.
AGI Limit for Deductible Medical Expenses
In 2015, the deduction threshold for deductible medical expenses remains at 10 percent (same as 2014) of adjusted gross income (AGI); however, if either you or your spouse were age 65 or older as of December 31, 2013, the new 10 percent of AGI threshold will not take effect until 2017. In other words, the 7.5 percent threshold continues to apply for tax years 2013 to 2016 for these individuals. In addition, if you or your spouse turns age 65 in 2015, or 2016, the 7.5 percent of AGI threshold applies for that year through 2016 as well. Starting in 2017, the 10 percent of AGI threshold applies to everyone.
Eligible Long-Term Care Premiums
Premiums for long-term care are treated the same as health care premiums and are deductible on your taxes subject to certain limitations. For individuals age 40 or younger at the end of 2014, the limitation is $370. Persons more than 40 but not more than 50 can deduct $700. Those more than 50 but not more than 60 can deduct $1,400, while individuals more than 60 but not more than 70 can deduct $3,720. The maximum deduction $4,660 and applies to anyone more than 70 years of age.
The additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly), which became effective two years ago, in 2013, remains in effect for 2015, as does the Net Investment Income Tax (NIIT) of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (AGI) more than $200,000 ($250,00 joint filers). Investment income includes dividends, interest, rents, royalties, gains from the disposition of property, and certain passive activity income. Estates, trusts and self-employed individuals are all liable for the new tax.
Foreign Earned Income Exclusion
For 2015, the foreign earned income exclusion amount is $100,800, up from $99,200 in 2014.
Long-Term Capital Gains and Dividends
In 2015 tax rates on capital gains and dividends remain the same as 2014 rates; however threshold amounts are indexed for inflation. As such, for taxpayers in the lower tax brackets (10 and 15 percent), the rate remains 0 percent. For taxpayers in the four middle tax brackets, 25, 28, 33, and 35 percent, the rate is 15 percent. For an individual taxpayer in the highest tax bracket, 39.6 percent, whose income is at or above $413,201 ($464,850 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.
Pease and PEP (Personal Exemption Phaseout)
Both Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) have been permanently extended (and indexed to inflation) for taxable years beginning after December 31, 2012, and in 2015, affect taxpayers with income at or below $258,250 for single filers and $309,900 for married filing jointly. Personal exemption will be phased-out completely at $380,750 ($432,400 for married couples filinf jointly)
Estate and Gift Taxes
For an estate of any decedent during calendar year 2015, the basic exclusion amount is $5,430,000, indexed for inflation (up from $5,340,000 2014). The maximum tax rate remains at 40 percent. The annual exclusion for gifts also remains at $14,000 for 2015.
The exclusion from tax on a gift to a spouse who is not a U.S. citizen is $147,000, up from $145,000 for 2014.
In 2015, a non-refundable (only those individuals with tax liability will benefit) credit of up to $13,400 is available for qualified adoption expenses for each eligible child. Phaseouts do apply beginning at the tax payers with modified adjusted gross income (MAGI) in excess of $210,010 and completely pahsed out for taxpayers with MAGI of $241,010 or more.
Earned Income Tax Credit
For tax year 2015, the maximum earned income tax credit (EITC) for low and moderate income workers and working families rises to $6,242, up from $6,143 in 2014. The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.
Child Tax Credit
For tax year 2014, the child tax credit is $1,000 per child.
Child and Dependent Care Credit
If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses in 2014. For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.
Individuals - Education
For 2015, the American Opportunity Tax Credit will be an amount equal to 100% of qualified tuition and related expenses not in excess of $2,000 plus 25% of those expenses in excess of $2,000 but not in excess of $4,000. The American Opportunity Tax Credit (formerly Hope Scholarship Credit) was extended to the end of 2017 by ATRA.
The Lifetime Learning Credit remains at $2,000 per return. However, income restrictions apply to Lifetime Learning Credit. For 2015, those restrictions begin with taxpayers with modified adjusted gross income (MAGI) in excess of $55,000 ($110,000 for joint returns).
If you are eligible to claim the American Opportunity credit and you are also elgible to claim the lifetime learning credit for the same student in the same yea, you can choose to claim either credit, but not both.
Interest on Educational Loans
In 2015, the maximum amount that you can take as a deduction for interest paid on student loans is $2,500. The deduction is phased out for higher-income taxpayers with modified AGI of more than $65,000 ($130,000 joint filers) and completely phased out with MAGI of $80,000 or more ($160,000 or more for joint filers)
Individuals - Retirement
The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is increased to $18,000 in 2015. Contribution limits for SIMPLE plans increases to $12,500 in 2015 instead of $12,000 in 2014. The maximum compensation used to determine contributions increases to $265,000 (up $5,000 from 2014).
Income Phase-out Ranges
The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by an employer-sponsored retirement plan and have modified AGI between $61,000 and $71,000, up from $60,000 and $70,000 in 2014.
For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by an employer-sponsored retirement plan, the phase-out range is $98,000 to $118,000, up from $96,000 to $116,000. For an IRA contributor who is not covered by an employer-sponsored retirement plan and is married to someone who is covered, the deduction is phased out if the couple's modified AGI is between $183,000 and $193,000, up from $181,000 and $191,000 in 2014.
The modified AGI phase-out range for taxpayers making contributions to a Roth IRA is $183,000 to $193,000 for married couples filing jointly, up from $181,000 to $191,000 in 2014. For singles and heads of household, the income phase-out range is $116,000 to $131,000, up from $114,000 to $129,000. For a married individual filing a separate return who is covered by a retirement plan, the phase-out range remains $0 to $10,000.
In 2015, the AGI limit for the saver's credit (also known as the retirement savings contribution credit) for low and moderate income workers is $61,000 for married couples filing jointly, up from $60,000 in 2014; $45,750 for heads of household, up from $45,000; and $30,050 for married individuals filing separately and for singles, up from $30,000.
Standard Mileage Rates
The rate for business miles driven is 57.5 cents per mile for 2015, up from 56 cents per mile in 2014.
Section 179 Expensing
For 2014, the dollar limits for Sec. 179 expensing are back up at $500,000, with a $2.5 million investment ceiling. In addition, 50% bonus depreciation is back in 2014. However, bonus depreciation disappears again on Jan.1, 2015, and Sec. 179 will be reverted to a $25,000 limit with a $200,000 investment ceiling as it was.
Transportation Fringe Benefits
If you provide transportation fringe benefits to your employees, in 2015 the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $130 down and the monthly limitation for qualified parking is $250.