Below is an article by Jeff Reeves of Investorplace.com providing some the of major tax changes coming in 2015.
As 2014 draws to a close, it’s nearly time for the annual deluge of tax forms – including 1098’s reporting mortgage interest or W-2’s from employers reporting your annual wages.
But while gathering documents for the past year’s taxes is important, equally pressing is the need to adjust your budget to account for changes in the tax code that take effect starting on New Year’s Day.
After all, you have been paying taxes and making retirement contributions all year even though taxes don’t need to be filed until the following April. While there are a handful of last-minute strategies to play catch up on 2014 tax obligations, the sad reality is that many folks who have waited until now to think about their taxes are too late.
A better strategy is to plan ahead based on what you think you will owe the Internal Revenue Service, and be proactive on your withholding and savings strategies.
Regardless of what your situation looks like in 2014, here are seven big changes that will affect a large number of taxpayers starting in January 2015.
Health Insurance Penalty: Part of the Affordable Care Act mandates that all Americans have health insurance, or pay a tax penalty as a result. In 2014, the penalties are 1% of your household income or $95 per person – whichever is greater. But in 2015, those penalties ramp up significantly to 2% of total household income, or $325 per person. That can really add up for a middle-class family of four. If you’re not covered and paying a penalty on your 2014 taxes, make sure you get health insurance ASAP to avoid penalties as we enter a new tax year in January.
401(k) Limits: The limit on employee contributions to a 401(k) plan will increase to $18,000, up $500 from 2014’s cap. That means you tell your payroll department to adjust up your contribution starting on the first of the year to ensure you save the maximum allowable in 2015. Also, the “catch-up” allowance for those over than 50 has also been increased, allowing for an additional $6,000 in contributions instead of the $5,500 cap previously. These new contribution levels are also applicable to 403b accounts and most 457 retirement plans as well.
Flexible Spending Account Limits: The annual limit on employee contributions to flexible spending accounts is now $2,550 for qualified health care expenses. That’s up $50 from 2014, so make sure you opt in for this new maximum amount if you take advantage of a health care FSA.
Standard Deduction: The standard deduction – that is, the basic tax break extended to all Americans each year — rises to $6,300 for single filers and $12,600 for married taxpayers filing jointly in 2015. That’s up $100 and $200, respectively, from 2014 figures. The standard deduction is crucial to tax planning and withholding, because if you cannot itemize enough deductions to surpass this amount, this is the only tax break the government will likely be giving you on next year’s tax return.
Tax Brackets: For the new tax year starting in January, income tax thresholds have again been adjusted up for inflation. The highest tax rate of 39.6%, for instance, will now apply to single filers who make over $413,200 and married couples making $464,850. Both figures are up about 1.6% from tax year 2014. For more information on specific income tax brackets by filing status, check out the latest IRS revenue procedure document.
IRA Rollovers: Starting in 2015, you can only make one single rollover from an IRA in a 12-month period. This is a bit tricky, because you can still make as many “trustee-to-trustee” transfers as you wish, moving your money directly from one provider to another. What the new IRS rule targets is the practice of withdrawing all those funds and then re-depositing them in a new account – a tactic some folks were using as a short-term, interest-free loan. To protect yourself, limit all rollovers to direct transfers in 2015 if you plan on moving money more than once.
AMT Changes: The so-called “alternative minimum tax” is quite a headache for many middle-class Americans. Since certain breaks can significantly reduce your tax bill, the IRS created the AMT to set a limit on those benefits – and ensure a minimum tax burden on you. The Alternative Minimum Tax exemption amount for tax year 2015 is $53,600 for individuals or $83,400 for joint filers. That’s up slightly, about 1.5% from 2014.
Did you know that the IRS recently implemented the Fresh Start Program which has relaxed the rules in regards to releasing an IRS tax lien, implementing an Installment Agreement, and negotiating tax relief through the Offer in Compromise Program:
For IRS tax liens, it used to be that once the IRS filed the lien, they would not consider releasing until the tax debt was paid in full. With the Fresh Start Program, the IRS will now consider the release of an IRS lien if a taxpayer negotiates a direct debit installment agreement and once 3 consecutive payments have been made. The IRS will only consider this for installment agreement where the balance due is under $50,000. Additionally, the IRS has increased the requirement of filing a federal tax lien to tax balances above $10,000. Therefore for taxpayers who owe less than $10,000 the IRS will normally not bother pursuing a lien. The IRS will also allow certain taxpayers to apply for withdrawal of lien if they meet certain payoff criteria and apply by filing the appropriate paperwork.
The IRS is now allowing taxpayers to negotiate installment agreements on tax balances up to $50,000 without the necessity to provide a full financial disclosure. This is an increase from the prior requirement that demanded financial disclosure once you owed over $25,000. Normally, the IRS will consider allowing the repayment of a balance up to $50,000 over 72 months as long as the taxpayer agrees to the payments being directly debited from their bank account. If a taxpayer would like to negotiate this type of an agreement they must complete form 9465 and mail to the IRS for review and acceptance.
The most significant alteration made by the Fresh Start Program is in the relaxing of the way an Offer in Compromise is reviewed. The Offer in Compromise program allows those taxpayers who cannot repay their outstanding tax debt the opportunity to settle for a fraction of what is owed. The IRS has revamped the calculating formulas used to determine a taxpayer’s “ability to pay.” This has drastically increased the number of taxpayers who qualify for tax relief. However, due to the complexity of preparing, submitting and negotiating an Offer very few qualifying taxpayers have taken advantage of this opportunity.
If you would like more information, have questions, or want to be represented in front of the IRS regarding a back tax issue, please contact Resolve Tax at 800-721-3890. I’m are here to help.