2015 Tax Deduction, Exemption and Credit Update
It is that time of the year again.
The Internal Revenue Service has announced its annual adjustments for 2015 tax provisions. Many are different than last year, but some remain unchanged. Remember, the amounts listed below have nothing to do with preparing your 2014 tax return this spring. These amounts are valuable now in budgeting and tax planning for next year. Let’s look at the changes to basic deductions and expenses as well as specific ones detailed by category.
Basic Deductions and Exemptions
Standard Deductions: Everyone will see increases, with the single exemption rising from $6,200 to $6,300; married filing jointly going from $12,400 to $12,600; and head of household increasing from $9,100 to $9,250.
Personal Exemption: This basic exemption is set to increase slightly in 2015, from $3,950 up to $4,000. The personal exemption will phase out for single taxpayers with an adjusted gross income of $258,250 and $309,900 for married filing jointly. The personal exemption is completely lost at $380,750 and $432,400 for single and married filing jointly, respectively.
Alternative Minimum Tax Exemptions: The AMT exemption amount increases for 2015. For individuals it rises $800 from $52,800 in 2014 up to $53,600; for joint filers, the increase is $1,300 from $82,100 in 2014 up to $83,400 for 2015.
Family and Education Items
Kiddie Tax: The kiddie tax refers to the amount of unearned net income a child can claim without paying federal income taxes. For 2015, the threshold amount of net income that is not taxed or reported to the IRS rises to $1,050, up from $1,000 in 2014.
Hope Scholarship Credit: The Hope Scholarship Credit does not change for 2015. The credit is calculated as 100 percent of qualified tuition and related expenses up to $2,000, then 25 percent of expenses between $2,000 and $4,000. So, basically the maximum amount of the credit is $2,500. The deduction is available to single taxpayers earning a modified adjusted gross income of less than $80,000; less than $160,000 for taxpayers filing jointly.
Student Loan Interest Deduction: Similarly, the student loan interest deduction for 2015 remains the same, capped at $2,500. The phase outs also are the same as in 2014. Single filers begin to lose this deduction at a modified adjusted gross income of $65,000 and are totally phased out when they reach $80,000. Married filing jointly taxpayers lose a portion of the deduction at $130,000 and completely at $160,000.
Health Care Related Items
Flexible Spending Accounts: FSA account will see a slight increase on the maximum annual employee contribution limit with 2015 being set at $2,550 over the 2014 limit of $2,500.
Federal Estate Tax Items
Federal Estate Tax Exemption: The basic exclusion for federal estate taxes will increase by $90,000 from $5,340,000 in 2014 up to $5,430,000 for 2015.
Elective Retirement Contribution Limits: Employee participants in 401(k), 403(b) and most 457 plans will see a $500 increase in their contribution limit from $17,500 in 2014 to $18,000 in 2015. Similarly, the catch-up contribution limit for employees age 50 and up in these same plans also increases by $500 from $5,500 in 2014 to $6,000 in 2015.
IRA Contributions: IRA contribution limits remain the same as 2014 at $5,500 – as does the $1,000 catch up contribution limit for individuals age 50 and above.
Remember that these amounts are not related to the tax return you will be filing this upcoming spring, but are useful for financial and tax planning for your 2015 activities. As always, speak to your tax professional for advice relevant to your individual situation.