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2015 Tax Changes

Dr. Anita Morgan, DBA, CPA, CFE

Associate Professor of Accounting and Director, MPPA

I know what you’re thinking: “I haven’t even received all the documents to file my 2014 tax return! Why do I care about 2015 changes?” Some of the changes coming for 2015 will require some planning in advance; it’s best to understand them now so you can plan to avoid a large tax expense about this time next year. I’m providing a list of important changes you need to know about now.

On Oct. 30, 2014, the IRS released the tax schedules for 2015 showing inflation adjustments to tax rates and many tax provisions[1]. The personal exemption will increase from $3,950 to $4,000; however, this will phase out at incomes of $258,250 and higher for single filers and $309,900 for married filers. However, the standard deductions for all filers will increase. The complete list of changes is provided on the IRS website.

A recent USA Today story[2] listed seven big changes to taxes in 2015. I will highlight a few of them below.

Health Insurance Penalty – The Affordable Care Act requires all Americans to have health insurance. Failure to purchase insurance may result in a fine of the greater of 1 percent of your household income, or $95 per person in 2014. In 2015, this penalty increases to the greater of 2 percent, or $325 per person. This could result in a significant tax expense, especially for larger families. If you don’t currently have health insurance, this is the year to purchase some.

401(k) Limits – The limit on the amount you can contribute to your 401(k) increases by $500 (to $18,000) in 2015. Additionally, if you are more than 50, you can contribute an additional $6,000 (up $500 from 2014) to catch up if you haven’t yet saved enough for retirement. If you are more than 50, you should seriously consider taking advantage of this method of reducing your tax liability while saving for retirement.

Flexible Spending Account Limits – The limit for employee contributions to flexible spending accounts is up $50 for 2015, to $2,550. If you’ve never used one, you might want to consider it. Flexible spending accounts allow you to use pre-tax dollars for some out-of-pocket medical expenses.

Alternative Minimum Tax – The alternative minimum tax exemption amount will increase by about 1.5 percent for 2015. The new amount for individuals is $53,600 and $83,400 for joint filers.

Estate Tax – The exclusion amount on estate taxes increases to $5.43 million in 2015, up from $5.34 million in 2014.

Top Tax Rate – The top tax rate of 39.6 percent will apply to single filers earning more than $413,200, increasing from $406,750 in 2014. The top rate will apply to married couples earning more than $464,850 in 2015, up from $457,600 in 2014.

I hope this helps you to begin planning for your 2015 tax return.