Learn about 2015 Tax Changes and tax moves that you can make for the 2016 tax year and beyond…
With the tax season holding a special place in my heart due to it being the catalyst for my (and TheWealthIncreaser.com’s) personal finance career, I felt that now was an appropriate time to discuss tax planning for 2016 while at the same time discuss tax changes that have taken place for the 2015 tax season that you can benefit from as you complete your 2015 taxes.
Although no major tax changes occurred in 2015 there were several that are worthy of discussion.
In this discussion I have attempted to make the understanding as simplistic as possible as I realize that those in the tax industry can make the discussion so perplexing that you–and others will often run away from the discussion–as opposed to grasping the discussion.
It is the desire of TheWealthIncreaser.com that you fully grasp this discussion and go on to achieve great success in your and your family’s future.
The personal exemption amount that you can deduct has increased:
Exemption amount:
That amount that you can deduct for each exemption has increased. It was $3,950 for 2014. It is $4,000 for 2015.
Exemption phaseout :
You lose at least part of the benefit of your exemptions if your adjusted gross income is more than a certain amount.
For 2015, this amount is $154,950 for a married individual filing a separate return; $258,250 for a single individual; $284,050 for a head of household; and $309,900 for married individuals filing jointly or a qualifying widow(er).
Here are two types of exemptions you may be able to take:
- Personal exemptions for yourself and your spouse,
- Exemptions for dependents (dependency exemptions)
While each is worth the same amount ($4,000 for 2015), different rules apply to each type.
Personal Exemptions
You are generally allowed one exemption for yourself. If you are married, you may be allowed one exemption for your spouse. These are called personal exemptions.
Your Own Exemption
You can take one exemption for yourself unless you can be claimed as a dependent by another taxpayer.
The tax season often brings anxiety and confusion for many taxpayers.
With the tax laws seeming to shift constantly from year to year many taxpayers fear owing more or receiving less—and over the years we have found that anxiety in the lives of many is real.
Based on that real knowledge this page was created in a real attempt to alleviate as much of that fear as possible as it is often a fear that should not be present in most.
It is important that your accountant or tax professional keep you up to date during the year so that you can plan more effectively and reduce your annual taxes.
With no major new tax legislation making headlines in 2015, you might take a more relaxed approach to tax planning. That can often be the wrong move!
It is important that you plan year round and January is a great time to gather your tax documents for the current year and also plan for next year’s tax season.
By doing so early you can potentially plan the necessary actions that will reduce your taxes for the 2016 tax year—and reduce your taxes when you complete your taxes in 2017.
It important that you realize that tax laws are always changing, even if it is as minor as keeping up with inflation adjustments. Some tax laws are tweaked every year, and provisions of tax laws that have been in place in past years are often tweaked by Congress at year end.
Some will normally be phased in, extended or eliminated and there can be uncertainty about which tax breaks will be extended even if you plan early in the year—and throughout the year.
2015 Tax Rates & Exemption Schedule from the IRS
Here are some of the changes for 2015 and beyond that will potentially affect you and your family:
Steeper Health Insurance Premium
If you didn’t have health insurance in 2014, and you didn’t qualify for an exception to the penalty, the consequences were that you may have paid $95 per person or 1 percent of your household income, whichever is greater.
In 2015, you’ll pay $325 per person, or 2 percent of your household income, whichever is greater. That’s a pretty steep increase.
Possible Solutions:
Even if you qualify for one of the many exclusions, you may not know that some exceptions require you to apply for a certificate from the state or federal marketplace.
You should apply for a certificate early so that you have the required exemption certificate number when you prepare your return.
You can also consider enhancing your skills and work on finding a new employer who offers health insurance—or if your current income allows it, or you otherwise qualify—search the public and private marketplace for appropriate and affordable health care for you and your family.
Use IRA Rollovers with Caution
The glory days of giving yourself a short term (60 days) loan on multiple occasions no longer exists. Using an IRA Rollover was an easy way to “borrow” retirement money for up to 60 days.
You could withdraw money from one IRA and wait up to 60 days before you moved it into another IRA.
Possible Solution:
As of 2015, you must limit borrowing for 60 days to only once from an IRA in a 12-month period. If you want to move IRA funds using direct “trustee-to-trustee” transfers, you can still do that as often as you want.
Health Flexible Spending Accounts (FSAs) Have New Guidelines
The good news for you in 2013 was that if you were one who didn’t use all of your FSA amounts by the end of the year was that as of 2013, you could roll over $500 from an FSA into the next plan year.
Starting in 2015 and beyond, the bad news is that you will be ineligible to participate in a Health Savings Account (HSA) for the year into which you rolled over an amount from a general purpose FSA.
Possible Solution:
Plan well in advance and do your best to use (spend) all of your contributions for the year by December 31st of the current tax year.
Foster Care Payments for Relatives may be Excluded from Income
If you are paid to give non-skilled medical support services and care for a person, living in your home, who has physical, mental or emotional issues, and you receive payments from the state or certified Medicaid provider, those payments can likely be excluded from your taxable income.
Previously, a relative could not be considered a foster child, and the income could not be excluded.
If this new exclusion applies to you—make sure you use the income exclusion when you file your taxes in the future!
Finally—Higher Education Good News
Pell Grants can now be allocated as living expenses. Yes, that is correct!
Doing so may increase the amount of education expense, such as tuition, that you (or your parents) can use to claim one of the education credits.
myRAs are Now Available
My Retirement Account or better known as myRA are new introductory retirement accounts and are now being offered through employers.
The myRA, or “my Retirement Account,” charges no fees and offers modest, guaranteed growth.
That’s a plus for risk-averse clients and those who are new to investing. You can start a myRA with just $25 and add as little as $5 at a time. When your accounts are worth $15,000, you must roll them over into private-sector Roth IRAs.
Possible Solution:
If you do not have a retirement plan in place—this new product offers you a relatively painless way to get started. Be sure that you properly establish an emergency fund and pay off or pay down your outstanding debt prior to or while contributing to this plan.
Inflation Adjustments
It is important that you realize that many areas of the tax code is adjusted for inflation/deflation. These annual inflation adjustments for 2015 (some that are listed below) may affect you in a positive or negative way.
Possible solution:
Be aware of all inflation adjustments and plan appropriately for those that affect you and your family
- Standard deduction. The standard deduction inches up to $6,300 for singles and married persons filing separate returns and to $12,600 for joint filers. The standard deduction for heads of household is $9,250 in 2015.
- Higher income levels for limitation on itemized deductions. You may see your itemized deductions limited if your incomes is at $258,250 or more ($309,900 for married couples filing jointly).
- Personal exemptions. They’re now a flat $4,000. If you are a high-income earner, the exemption may be phased out. The phase-out begins with adjusted gross incomes of $258,250 ($309,900 for married couples filing jointly). Personal exemptions are phased out completely at $380,750 ($432,400 for married couples filing jointly.)
- 39.6 percent tax bracket. This rate affects you if you are single and your income exceeds $413,200 ($464,850 for married taxpayers filing a joint return).
- Standard mileage allowance. The business standard mileage allowance for 2015 is 57.5 cents per mile.
- The rate for medical or moving expenses is actually down half a cent, to 23 cents per mile.
- For miles driven in service of charitable organizations, it’s still 14 cents.
- Alternative Minimum Tax exemption. The AMT exemption is $53,600, or $83,400 for joint filers.
- Earned Income Credit. The maximum EIC amount is $6,242 for taxpayers filing jointly with three or more qualifying children. The maximum amounts for you if you have another filing status and a different number of children are also adjusted.
- Estate tax exclusion. Federal estate tax planning is becoming less of a point for you, unless you are in the fortunate group with a sizable estate, as the estate tax exclusion continues to rise. An estate can be worth $5,430,000 before it is subject to federal estate tax.
- Foreign earned income exclusion. You may now qualify for an exclusion of up to $100,800.
- Employer-sponsored healthcare flexible spending arrangements. The annual dollar limit on employee contributions to an FSA rises to $2,550.
The amount that you can give as a gift to any one person without filing a gift tax return is still $14,000.
In addition, the amount your clients can contribute to an IRA remains at no more than $5,500 in a traditional or Roth IRA.
If they’re age 50 or older, they can contribute $6,500.
Extended Tax Breaks
Tax preparers may get a surprise this year – permanent or temporary extensions of popular tax breaks long before the tax season begins.
By a 23-3 bipartisan vote, the Finance Committee sent a package of tax breaks for individuals, businesses, and energy production to the Senate floor in August.
Extensions for the following breaks are included in the package or were approved earlier in the year:
- Higher education tuition deduction. You may still be able to deduct between $2,000 and $4,000 of qualified tuition expense.
- Energy credits. This includes credits for home improvements that improve energy efficiency, such as heating and cooling systems, insulation and windows.
- Educator expense deduction. Teachers can claim up to $250 of non-reimbursed classroom expenses.
- Commuting tax breaks. The extension gives those who commute by train or bus the same $250 monthly tax break for employer-provided subsidies as those who receive employer assistance for parking costs. The current mass transit deduction is $130 per month.
- Deduction for state income tax. This deduction makes a huge difference to residents of states without a state income tax. This extension has already been approved.
- IRA charitable donations. IRA owners at least age 70 ½ can still make tax-free donations of up to $100,000 from IRAs to certain qualified charities.
- Mortgage forgiveness exclusion. If homeowners who are underwater on their mortgages have part of their loan forgiven by a bank, up to $1 million of the forgiven debt (or $2 million for couples) would be excluded from treatment as income.
- Research and development tax credit. This has been extended for two years.
- Deduction for small business equipment purchases of up to $2 million. This is extended and now includes computer software.
- Work Opportunity Tax Credit. Those who own businesses can claim a credit equal to a certain percentage of wages paid to new hires of one of nine targeted groups, including members of families receiving benefits under the Temporary Assistance to Needy Families (TANF) program, qualified veterans and ex-felons, designated community residents, vocational rehabilitation referrals, qualified summer youth employees, qualified food and nutrition recipients, qualified SSI recipients, and long-term family assistance recipients.
- Energy efficiency tax breaks. This includes a 10 percent credit for energy efficiency improvements to existing homes, and deductions for construction of energy efficient homes and commercial buildings.
Final Thoughts on Your 2015 Taxes & Your Future Tax Planning
As 2016 comes in, it’s now the time for the annual review of your taxes. Now is the time to anticipate (forecast) your 2016 taxes – including 1098’s reporting mortgage interest or W-2’s from employers reporting your annual wages among others.
But while gathering documents for your 2015 taxes is important, equally important is the need to adjust your budget to account for changes in the tax code that take effect starting on New Year’s Day that will affect your 2016 taxes.
You have been paying taxes and making retirement contributions all year even though taxes don’t need to be filed until April!
You will soon know your 2015 tax situation and you can use that knowledge to plan for the 2016 tax year. Will dependents be added to—or falling off of your 2016 tax forms? Will your child be attending/graduating from college? Will you or your spouse retire this year?
The above (along with many more questions) are the type of questions that you must ask yourself—and answer appropriately (along with your tax professional) so that you can get a jump on your 2016 taxes and have a realistic understanding of where you will stand when you file your future tax returns.
Use any and all of the above information in this discussion to make the right moves—right now—so that you can lessen the tax burden on yourself and your family so that you can live more abundantly in your future.
While there are a handful of last-minute strategies that you can use to play catch up on your 2015 tax obligations, the reality is that “now is the time” to start your tax planning for your 2016 taxes.
You must know your annual earnings or have a realistic projection—you must know your w-4 withholding, you must know your retirement contributions and you must know all of the other tax related actions that you plan on taking NOW or need to take NOW—that will affect your future taxes.
In addition, you must plan for one of the most difficult and disheartening experiences while here on planet earth—the loss of a loved one.
No one has experienced this at the level that I have (subjective opinion) as I have experienced the loss of my younger brother who looks just like me, my mentor, my God Mother and countless others over the years—including my Aunt and one of my closest friends within 30 days of this discussion.
As painful as it may be, you will more than likely at some point in your life have to utilize the following forms.
Statement of Person Claiming Refund Due a Deceased Taxpayer (Form 1310) (PDF)
Now is the time that you seriously consider separating yourself from the crowd and get started now on a successful path to tax planning—and financial planning in general—by approaching your taxes in an intelligent, consistent and proactive manner.
By doing so you enhance your and your family’s WEALTH BUILDING FUTURE—IMMEDIATELY!
The above article was written by Thomas (TJ) Underwood on January 17, 2016. Thomas (TJ) Underwood is a licensed real estate broker in the state of Georgia and is the writer behind The Wealth Increaser, Home Buyer 411, Home Seller 411, The 3 Step Structured Approach to Managing Your Finances, Managing & Improving Your Credit & Finances for this MILLENNIUM and CREDIT & FINANCE IMPROVEMENT MADE EASY—FREE GUIDE.
He is the creator of TheWealthIncreaser.com where he regularly blogs about helping consumers improve their credit, finance and real estate pursuits in an intelligent, consistent and proactive manner. He’s always looking for ways to make intelligent finance improvement happen for those who “sincerely desire” success in their future.
You can contact him from a number of sources but the most direct way is to contact him through Realty 1 Strategic Advisors Website. You can also get highly relevant tips on “living your life more abundantly” and possibly earn revenue at the same time by linking to TheWealthIncreaser.com.
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