2015 tax cheat sheet for advisors and their clients

Even though tax season for 2014 isn’t over, it’s still a good time to get a jump on planning for this year’s tax challenges. For tax year 2015, there are annual inflation adjustments for more than 40 tax provisions, including the tax rate schedules, and other tax changes.

The tax items for tax year 2015 of greatest interest to most taxpayers include the following dollar amounts. Keep in mind that the Patient Protection and Affordable Care Act (PPACA) will increase many taxes on capital gains, income, and other areas including reducing tax deductions for high income earners and families.

• Income tax rates: 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.

• Standard deductions: 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.

• Personal exemptions: 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.)

• Retirement accounts: 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 from $17,500 to $18,000 in 2015. See other rules on retirement accounts at the IRS. For 2014, workers age 50 and older can contribute an additional $5,500 to their 401(k) in 2014, or a total of $23,000.

• Estate tax: 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.

• Foreign income: For 2015, the foreign earned income exclusion breaks the six-figure mark, rising to $100,800, up from $99,200 for 2014.

• Gifting: The annual exclusion for gifts remains at $14,000 for 2015.

• FSA: The annual dollar limit on employee contributions to employer-sponsored health care 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.

• Added capital gains taxes with PPACA: The Net Investment Income Tax is imposed by section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8%. Individuals will owe the tax if they have Net Investment Income and also have modified adjusted gross income over the following thresholds:

Taxpayers should be aware that these threshold amounts are not indexed for inflation. If you are an individual who is exempt from Medicare taxes, you still may be subject to the Net Investment Income Tax if you have Net Investment Income and also have modified adjusted gross income over the applicable thresholds

• Capital gains: The tax rate on most net capital gain is no higher than 15% for most taxpayers. Some or all net capital gain may be taxed at 0% if you are in the 10% or 15% ordinary income tax brackets. However, a 20% rate on net capital gain applies in tax years 2013 and later to the extent that a taxpayer’s taxable income exceeds the thresholds set for the new 39.6% ordinary tax rate ($406,750 for single; $457,600 for married filing jointly or qualifying widow(er); $432,200 for head of household, and $228,800 for married filing separately). See more on capital gains at the IRS.