Author: Leon Clinton

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!

• By Leon Clinton
• January 13, 2015

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.

• By Leon Clinton
• January 6, 2015