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Tax Changes for 2015: A Checklist
Welcome 2015! As the new year rolls around, it's always a sure bet that there will be changes to current tax law and 2015 is no different. From health savings accounts to retirement contributions and standard deductions, here's a checklist of tax changes to help you plan the year ahead.
For 2015, more than 40 tax provisions are affected by inflation adjustments, including personal exemptions, AMT exemption amounts, and foreign earned income exclusion, as well as most retirement contribution limits.
For 2015, the tax rate structure, which ranges from 10 to 39.6 percent, remains the same as in 2014, but tax-bracket thresholds increase for each filing status. Standard deductions and the personal exemption have also been adjusted upward to reflect inflation. For details see the article, "Tax Brackets, Deductions, and Exemptions for 2015," below.
Alternative Minimum Tax (AMT)
For 2015, the net unearned income for a child under the age of 19 (or a full-time student under the age of 24) that is not subject to "kiddie tax" is $2,100.
Health Savings Accounts (HSAs)
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 $1,250 for self-only coverage or $2,500 for family coverage (unchanged from 2014) and must limit annual out-of-pocket expenses of the beneficiary to $6,350 for self-only coverage (up $100 from 2014) and $12,700 for family coverage (up $200 from 2014).
Medical Savings Accounts (MSAs)
Self-only coverage. For taxable years beginning in 2015, the term "high deductible health plan" means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,200 (same as 2014) and not more than $3,300 (up $50 from 2014), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,450 (up $100 from 2014).
AGI Limit for Deductible Medical Expenses
Eligible Long-Term Care Premiums
Foreign Earned Income Exclusion
Long-Term Capital Gains and Dividends
Pease and PEP (Personal Exemption Phaseout)
Estate and Gift Taxes
Individuals - Tax Credits
Earned Income Tax Credit
Child Tax Credit
Child and Dependent Care Credit
Individuals - Education
American Opportunity Tax Credit and Lifetime Learning Credits
Interest on Educational Loans
Individuals - Retirement
Income Phase-out Ranges
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 $96,000 to $116,000, up from $95,000 to $115,000. 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 $181,000 and $191,000, up from $178,000 and $188,000.
The modified AGI phase-out range for taxpayers making contributions to a Roth IRA is $181,000 to $191,000 for married couples filing jointly, up from $178,000 to $188,000 in 2014. For singles and heads of household, the income phase-out range is $114,000 to $129,000, up from $112,000 to $127,000. For a married individual filing a separate return who is covered by a retirement plan, the phase-out range remains $0 to $10,000.
Standard Mileage Rates
Section 179 Expensing
Employee Health Insurance Expenses
For taxable years beginning in 2015, the dollar amount is $25,800. This amount is used for limiting the small employer health insurance credit and for determining who is an eligible small employer for purposes of the credit.
Transportation Fringe Benefits
While this checklist outlines important tax changes for 2015, additional changes in tax law are more than likely to arise during the year ahead.
Don't hesitate to call us if you want to get an early start on tax planning for 2015. We're here to help!
10 Tax Breaks Reauthorized for Tax Year 2014
In late December Congress finally took action, passing the tax extender bill, officially known as the Tax Increase Prevention Act of 2014 (H.R. 5771), which was signed into law by President Obama.
The good news is that these tax provisions are retroactive to January 1, 2014. The bad news is that they expired on December 31, 2014. Even so, you might be able to take advantage of them when you file your 2014 tax return. Let's take a look at some of the tax provisions most likely to affect taxpayers when filing their 2014 tax returns.
1. Teachers' Deduction for Certain Expenses Primary and secondary school teachers buying school supplies out-of-pocket may be able to take an above-the-line deduction of up to $250 for unreimbursed expenses. An above the line deduction means that it can be taken before calculating adjusted gross income.
2. State and Local Sales Taxes Taxpayers that pay state and local sales tax can deduct the amounts paid on their federal tax returns (instead of state and local income taxes)--as long as they itemize. In other words, if you're thinking of buying a big ticket item such as a boat or car and live in a state with sales tax, you might want to think about buying it this year.
3. Mortgage Insurance Premiums Mortgage insurance premiums (PMI) are paid by homeowners with less than 20 percent equity in their homes. These premiums were deductible in tax years 2012, 2013, and once again in 2014; however, this tax break ended on December 31, 2014. Whether it will be extended for 2015 is unknown. Mortgage interest deductions for taxpayers who itemize are not affected.
4. Exclusion of Discharge of Principal Residence Indebtedness Typically, forgiven debt is considered taxable income in the eyes of the IRS; however, this tax provision, which was extended through and expired at the end of 2014, allows homeowners whose homes have been foreclosed on or subjected to short sale to exclude up to $2 million of cancelled mortgage debt. Also included are taxpayers seeking debt modification on their home.
5. Distributions from IRAs for Charitable Contributions Taxpayers who are age 70 1/2 or older can donate up to $100,000 in distributions from their IRA to charity. Some people do not want to take the mandatory minimum distributions (which are counted as income) upon reaching this age and instead can contribute it to charity, using it as a strategy to lower income enough to take advantage of other tax provisions with phaseout limits.
6. Parity for Mass Transit Fringe Benefits This tax extender allows commuters who used mass transit in 2014 to exclude from income (up to $250 per month), transit benefits paid by their employers such as monthly rail or subway passes, making it on par with parking benefits (also up to $250 pre-tax). Like the other tax extenders, this provision expired at the end of last year (2014). In 2015, pre-tax benefits for mass transit commuters drop to a maximum of $130 per month, while parking benefits remain at $250.
7. Energy Efficient Improvements (including Appliances This tax break has been around for a while, but if you made your home more energy efficient in 2014, now is the time to take advantage of this tax credit on your 2014 tax return. The credit reduces your taxes as opposed to a deduction that reduces your taxable income, and is 10 percent of the cost of building materials for items such as insulation, new water heaters, or a wood pellet stove.
Note: This tax is cumulative, so if you've taken the credit in any tax year since 2006, you will not be able to take the full $500 tax credit this year. If, for example, you took a credit of $300 in 2012, the maximum credit you could take this year is $200.
8. Qualified Tuition and Expenses
The deduction for qualified tuition and fees, extended through 2014, is an above-the-line tax deduction, which means that you don't have to itemize your deductions to claim the expense. Taxpayers with income of up to $130,000 (joint) or $65,000 (single) can claim a deduction for up to $4,000 in expenses. Taxpayers with income over $130,000 but under $160,000 (joint) and over $65,000 but under $80,000 (single) can take a deduction up to $2,000; however, taxpayers with income over those amounts are not eligible for the deduction.
Qualified education expenses are defined as tuition and related expenses required for enrollment or attendance at an eligible educational institution. Related expenses include student-activity fees and expenses for books, supplies, and equipment as required by the institution.
9. Donation of Conservation Property Also extended through 2014 was a tax provision that allowed taxpayers to donate property or easements to a local land trust or other conservation organization and receive a tax break in return.
10. Small Business Stock If you invested in a small business such as a start-up C-corporation in 2014, consider taking advantage of this tax provision on your 2014 tax return. If you held onto this stock for five years, you can exclude 100 percent of the capital gains--in other words, you won't be paying any capital gains. If you waited until January 2015 however, you will only be able to exclude 50 percent of the capital gains.
In addition to the tax extenders, there's also good news for people with disabilities. Attached to the extender bill is the Achieving a Better Life Experience (ABLE) Act that allows people who were disabled before the age of 26 (and including family and friends) to contribute up to a combined total of $14,000 a year to an ABLE account. Accumulated earnings are tax free. Also, money held in the account would not disqualify the disabled person from receiving federal assistance benefits such as Medicaid and Supplemental Security Income--provided it is not used to pay for housing, transportation, education and wellness.
To learn more about ABLE or any of the tax extenders or are wondering whether you should be taking advantage of these and other tax credits and deductions that expired at the end of 2014, please give us a call today.
Ensuring Financial Success for Your Business
Can you point your company in the direction of financial success, step on the gas, and then sit back and wait to arrive at your destination?
Not quite. You can't let your business run on autopilot and expect good results. Any business owner knows you need to make numerous adjustments along the way - decisions about pricing, hiring, investments, and so on.
So, how do you handle the array of questions facing you?
One way is through cost accounting.
Cost Accounting Helps You Make Informed Decisions
Cost accounting reports and determines the various costs associated with running your business. With cost accounting, you track the cost of all your business functions - raw materials, labor, inventory, and overhead, among others.
Cost accounting allows you to understand the following:
Is It Hard?
To monitor your company's costs with this method, you need to pay attention to the two types of costs in any business: fixed and variable.
Fixed costs don't fluctuate with changes in production or sales. They include:
Variable costs DO change with variations in production and sales. Variable costs include:
We Can Help
If you'd like to better understand the ins and outs of your business and create sound guidance for internal decision making, you might consider cost accounting.
And we can help. Allow us to evaluate your business from top to bottom and determine the real cost of each component. With that as a foundation, we can help you draft budgets, adjust pricing, keep an appropriate level of inventory, and much more. Give us a call today.
Tax Brackets, Deductions, and Exemptions for 2015
More than 40 tax provisions, including the tax rate schedules, and other tax changes are adjusted for inflation in 2015. Let's take a look at the ones most likely to affect taxpayers like you.
The tax rate of 39.6 percent affects singles whose income exceeds $413,200 ($464,850 for married taxpayers filing a joint return), up from $406,750 and $457,600, 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 $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly, up from $6,200 and $12,400, respectively, for tax year 2014. The standard deduction for heads of household rises to $9,250, up from $9,100.
The limitation for itemized deductions to be claimed on tax year 2015 returns of individuals begins with incomes of $258,250 or more ($309,900 for married couples filing jointly).
The personal exemption for tax year 2015 rises to $4,000, up from the 2014 exemption of $3,950. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $258,250 ($309,900 for married couples filing jointly). It phases out completely at $380,750 ($432,400 for married couples filing jointly.)
The Alternative Minimum Tax exemption amount for tax year 2015 is $53,600 ($83,400, for married couples filing jointly). The 2014 exemption amount was $52,800 ($82,100 for married couples filing jointly).
For 2015, the maximum Earned Income Credit amount is $6,242 for taxpayers filing jointly who have 3 or more qualifying children. This is up from a total of $6,143 for tax year 2014. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts. Call us if you have any questions about this.
Estates of decedents who die during 2015 have a basic exclusion amount of $5,430,000, up from a total of $5,340,000 for estates of decedents who died in 2014.
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.
For 2015, the foreign earned income exclusion breaks the six-figure mark, rising to $100,800, up from $99,200 for 2014.
The annual exclusion for gifts remains at $14,000 for 2015.
The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) rises to $2,550, up $50 dollars from the amount for 2014.
Under the small business health care tax credit, the maximum credit is phased out based on the employer's number of full-time equivalent employees in excess of 10 and the employer's average annual wages in excess of $25,800 for tax year 2015, up from $25,400 for 2014.
Need help with tax planning in 2015? Give us a call. We are here to help you!
IRS Announces 2015 Standard Mileage Rates
Beginning on Jan. 1, 2015, the standard mileage rates for the use of a car, van, pickup or panel truck are:
These optional standard mileage rates are used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil. The rate for medical and moving purposes is based on the variable costs, such as gas and oil. The charitable rate is set by law.
Taxpayers always have the option of claiming deductions based on the actual costs of using a vehicle rather than the standard mileage rates.
A taxpayer may not use the business standard mileage rate for a vehicle after claiming accelerated depreciation, including the Section 179 expense deduction, on that vehicle. Likewise, the standard rate is not available to fleet owners (more than four vehicles used simultaneously). Call us if you need additional information about these and other special rules.
In addition, basis reduction amounts for those choosing the business standard mileage rate, as well as the maximum standard automobile cost that may be used in computing an allowance under a fixed and variable rate plan and the maximum standard automobile cost that may be used in computing the allowance under a fixed and variable rate (FAVR) Plan were also announced by the IRS.
Let us know if you have any questions about standard mileage rates and which driving activities you should keep track of as tax year 2015 begins.
5 Tips to Know about the Saver's Credit
If you are a low-to-moderate income worker, you can take steps now to save two ways for the same amount. With the saver's credit you can save for your retirement and save on your taxes with a special tax credit. Here are five tips you should know about this credit:
1. Save for retirement. The formal name of the saver's credit is the retirement savings contributions credit. You may be able to claim this tax credit in addition to any other tax savings that also apply. The saver's credit helps offset part of the first $2,000 you voluntarily save for your retirement. This includes amounts you contribute to IRAs, 401(k) plans and similar workplace plans.
2. Save on taxes. The saver's credit can increase your refund or reduce the tax you owe. The maximum credit is $1,000, or $2,000 for married couples. The credit you receive is often much less, due in part because of the deductions and other credits you may claim.
3. Income limits. Income limits vary based on your filing status. You may be able to claim the saver's credit if you're a:
4. When to contribute. If you're eligible you still have time to contribute and get the saver's credit on your 2014 tax return. You have until April 15, 2015, to set up a new IRA or add money to an existing IRA for 2014. You must make an elective deferral (contribution) by the end of the year to a 401(k) plan or similar workplace program.
If you can't set aside money for this year you may want to schedule your 2015 contributions soon so your employer can begin withholding them in January.
5. Special rules apply. Other special rules that apply to the credit include:
Call us if you need help figuring your credit amount based on your filing status, adjusted gross income, tax liability and the amount of your qualified contribution.
Tax Due Dates for January 2015
All employers - Give your employees their copies of Form W-2 for 2014 by February 2, 2015. If an employee agreed to receive Form W-2 electronically, post it on a website accessible to the employee and notify the employee of the posting by February 2.
Employees - who work for tips. If you received $20 or more in tips during December, report them to your employer. You can use Form 4070, Employee's Report of Tips to Employer.
Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in December 2014.
Individuals - Make a payment of your estimated tax for 2014 if you did not pay your income tax for the year through withholding (or did not pay in enough tax that way). Use Form 1040-ES. This is the final installment date for 2014 estimated tax. However, you do not have to make this payment if you file your 2014 return (Form 1040) and pay any tax due by February 2, 2015.
Employers - Nonpayroll Withholding. If the monthly deposit rule applies, deposit the tax for payments in December 2014.
Farmers and Fisherman - Pay your estimated tax for 2014 using Form 1040-ES. You have until April 15 to file your 2014 income tax return (Form 1040). If you do not pay your estimated tax by January 15, you must file your 2014 return and pay any tax due by March 2, 2015, to avoid an estimated tax penalty.
Employers - Give your employees their copies of Form W-2 for 2014 by February 2, 2015. If an employee agreed to receive Form W-2 electronically, post it on a website accessible to the employee and notify the employee by February 2, 2015.
Businesses - Give annual information statements to recipients of 1099 payments made during 2014.
Employers - Federal unemployment tax. File Form 940 for 2014. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it is more than $500, you must deposit it. However, if you already deposited the tax for the year in full and on time, you have until February 10 to file the return.
Employers - Social Security, Medicare, and withheld income tax. File Form 941 for the fourth quarter of 2014. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return.
Employers - Nonpayroll taxes. File Form 945 to report income tax withheld for 2014 on all nonpayroll items, including backup withholding and withholding on pensions, annuities, IRAs, gambling winnings, and payments of Indian gaming profits to tribal members. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the year in full and on time, you have until February 10 to file the return.
Individuals - who must make estimated tax payments. If you did not pay your last installment of estimated tax by January 15, you may choose (but are not required) to file your income tax return (Form 1040) for 2014. Filing your return and paying any tax due by February 2, 2015 prevents any penalty for late payment of last installment.
Payers of Gambling Winnings - If you either paid reportable gambling winnings or withheld income tax from gambling winnings, give the winners their copies of Form W-2G.
Certain Small Employers - File Form 944 to report Social Security and Medicare taxes and withheld income tax for 2014. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is $2,500 or more from 2014 but less than $2,500 for the fourth quarter, deposit any undeposited tax or pay it in full with a timely filed return.
All businesses - Give annual information statements to recipients of certain payments you made during 2014. You can use the appropriate version of Form 1099 or other information return. Form 1099 can be issued electronically with the consent of the recipient.
Forms 1099-B, 1099-S, and certain reporting on Form 1099-MISC, Miscellaneous Income, are due to recipients by February 17. Payments that may be covered include the following:
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