Tax Saving Tips
and Updates
for 2015
Uncertainty is a word that captures
the federal tax environment. With the
2016 U.S. election cycle in full bloom,
it is difficult to determine which reform or extension bills will be enacted
by a partisan Congress, or when. Given
that uncertainty, tax planning can be
tough. This brochure should help you
get through what we do know will affect your tax posture for 2015.
Please note: The PICPA worked carefully to prepare this guide, but it cannot be used as official tax advice that
would protect taxpayers from penalty
due to the complexity of tax law,
individual taxpayer facts and circumstances, and changes enacted after
this writing. We encourage taxpayers
to seek advice from our member CPAs
about the items contained in this brochure, as well as other tax issues and
planning opportunities.
Filing Basics
Filing Status
Taxpayers can file as single, married
filing jointly, married filing separately,
head of household, or qualifying
widow(er) if the circumstances legally
support the status chosen. If you are
married and filing jointly, you can take
advantage of certain tax deductions,
tax credits, and benefits not available
to couples filing separately. Unmarried
taxpayers may file as single or, if they
qualify, head of household.
Rates
For 2015, the top rate is 39.6 percent
for single taxpayers making more than
$413,200, head of households making
more than $439,000, and married
filing jointly taxpayers and surviving
spouses making more than $464,850
(or $232,425 if married filing separately). Below that, the ordinary income
tax rates are 10, 15, 25, 28, 33, and
35 percent, with different brackets for
each type of filer.
The Affordable Care Act includes additional Medicare taxes for 2015 on
earned income and unearned income.
For earned income, the Medicare contribution tax rate on wages, compensation, or self-employment income is
an additional 0.9 percent, if that type
of income exceeds certain thresholds.
The threshold levels for 2015 are
$250,000 for married filing jointly
($125,000 if married filing separately)
and $200,000 for all other taxpayer
filing statuses. For unearned income,
see the “Net Investment Income Tax”
section in this brochure.
Exemptions
For 2015, the exemption amount has
increased to $4,000 for yourself, your
spouse, and each of your dependents who are qualifying children or
relatives. The exemption is subject to
phase-outs beginning at $258,250
(single), $284,050 (head of household), $154,950 (married filing separately), and $309,900 (married filing
jointly); with a complete phase-out at
$380,750 (single) and $432,400 (married filing jointly).
Deductions
The standard deduction amounts have
increased slightly for 2015 as follows: $6,300 if single or married filing
separately, $12,600 for married filing
jointly or qualifying widow(er), and
$9,250 for head of household. Taxpayers who are 65 and older or are blind
receive an additional standard deduction of $1,250 for married filing jointly
or separately, or $1,550 for single or
head of household. For individuals
claimed as a dependent on another
tax return, the 2015 standard deduction is the greater of $1,050 or $350
plus earned income, not to exceed the
standard deduction amount for those
who are not dependents.
The American Tax Relief Act (ATRA) of
2012 reduced itemized deductions by
3 percent of any excess adjusted gross
income (AGI) over $258,250 (single),
$284,050 (head of household),
$154,950 (married filing separately),
and $309,900 (married filing jointly).
ATRA also increased the AGI limitation
floor from which you can claim unreimbursed medical expense deductions
from 7.5 percent of AGI to 10 percent
of AGI before such deductions can be
claimed. There is a temporary exemption through 2016 for individuals age
65 and older and their spouses, allowing them to continue using the prior
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Tax Saving Tips and Updates for 2015
7.5 percent AGI limitation. The 2 percent floor for unreimbursed business
expenses and the 10 percent floor for
casualty losses in excess of insurance
reimbursements also apply in 2015.
Mileage and vehicle costs can be significant considerations in computing
itemized deductions as well. For 2015,
the business mileage rate is $0.575 per
mile. The medical and moving mileage
rate is $0.23, and the charity mileage
rate is $0.14 per mile.
Retirement Savings Tax Breaks
IRAs
You may contribute up to $5,500 to a
traditional or Roth IRA in 2015. Those
50 or older at year-end can make an
additional catch-up contribution of
$1,000. Contributions to traditional
IRAs may be deductible depending
on several factors, including filing
status, and the deductible amounts
are phased out at higher levels of AGI.
Nondeductible contributions are also
allowed up to the applicable limits.
Distributions are fully taxable as ordinary income, unless there were historical nondeductible contributions.
Roth IRA contributions are not deductible, but earnings accumulate tax-deferred and may be withdrawn tax-free
and penalty-free if you meet certain
requirements. Allowable contributions,
however, are phased out at higher levels of AGI, depending on filing status.
Employer-Sponsored 401(k)s
Pretax contributions to traditional
401(k) plans reduce taxable wages.
Matching contributions and income
earned within your plan are tax-deferred until distributed. The employee
contribution limit for 2015 is $18,000.
Employees age 50 or older may make
an additional catch-up contribution of
$6,000 for 2015. Distributions are fully
taxable as ordinary income.
Roth 401(k) contributions are made
with after-tax dollars. Earnings accumulate tax-deferred, and may be
withdrawn tax-free and penalty-free
if you meet certain requirements.
Taxpayers are generally allowed to roll
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over certain pretax qualified retirement accounts such as traditional IRAs
and 401(k)s to designated Roth IRA
accounts. Such rollovers are generally
taxable on the amount of pretax contributions in the traditional plan.
Due to the complexity of all the rules
related to retirement plans, you should
consult with your CPA if you are receiving, or are about to receive, retirement
account distributions.
Saver’s Credit
To encourage taxpayers to contribute
to qualified retirement plans, Congress provides a “saver’s credit.” For
individual elective contributions up
to $2,000, there is up to a 50 percent credit, for a maximum credit of
$1,000. The credit is phased out, however, for higher-income taxpayers.
Tax Breaks and Other
Considerations for Homeowners
Interest, Points, and Certain Taxes
Home mortgage interest on up to
$1 million of home acquisition loans
secured by your principal residence or
second home is fully deductible. You
also may deduct interest on up to a
$100,000 home equity loan or line
of credit. Points paid to secure a loan
for the purchase or improvement of
a principal residence usually are fully
deductible in the year paid. However,
points paid to refinance an existing
mortgage must generally be deducted
over the life of the loan. Real estate
taxes and state and local property
taxes on tangible property are also
deductible, as are your state and local
income taxes.
Exclusion of Certain Capital Gains
upon Sale
If you sell your principal residence, you
can exclude up to $250,000 in gains
($500,000 if married and filing jointly).
To qualify, you generally must have
owned and used your home as a principal residence for at least two years
during the five-year period ending on
the date of sale. Limitations may apply
if you had any “nonqualified use.”
First-Time Homebuyer Tax Credit
Pay Back
Taxpayers who claimed a firsttime homebuyer credit on a home
acquired in 2008, 2009, or 2010
may have to repay the credit under
certain circumstances, including a
subsequent sale to a related party, an
abandonment or destruction of the
home, or conversion of the home to
a business or rental property.
Home Loan Forgiveness Could Now
Be Taxable
Another provision that expired Jan. 1,
2015, had allowed homeowners who
received mortgage relief to avoid hav-
Tax Saving Tips and Updates for 2015
ing that amount included in their taxable income. Unless Congress passes
an extenders package, any such relief
in 2015 could be taxable.
Energy Tax Credit Incentives
There is a 30 percent tax credit (generally without limit) available through
2016 of the cost of alternative energy
equipment that you installed on or in
your main or second home. Qualified
equipment includes solar hot water
heaters, solar electric equipment, and
wind turbines. Additionally, if an extenders bill passes, there may be a 10
percent credit up to $500 for qualifying energy-efficient improvements.
Child- and Education-Related
Tax Breaks
Child Tax Credit
The Child Tax Credit is still worth
$1,000 for each qualifying dependent
child who is under age 17 at the end
of 2015, and it may be partially refundable. The credit, however, phases
out when modified AGI exceeds certain levels.
Child and Dependent Care Credit
Parents who, in order to work, pay for
the care of a dependent under age 13,
whether the care is provided outside
or inside the home, may be eligible for
a nonrefundable tax credit of between
20 percent to 35 percent of qualifying expenses, depending on income
level. For 2015, the maximum amount
of qualifying expenses on which the
credit can be claimed is the lesser of
the amount of qualifying expenditures,
$3,000 for the care of one dependent
or $6,000 for at least two qualifying
children, or the taxpayer’s earned
income.
Earned Income Tax Credit
If a taxpayer has any earned income,
whether there is a qualifying child
or not, there may be a refundable
earned income credit of up to $6,242,
depending on filing status, number
of qualifying children, amount of
earned income, and AGI amount.
It is refundable.
Education Tax Benefits
An American Opportunity Tax Credit
of up to $2,500 per qualifying student
for qualifying expenditures is available
for each of the first four years of
college, and up to 40 percent of the
credit is refundable if total tax is cut to
zero. Additionally, a Lifetime Learning
Credit of 20 percent of up to $10,000
of eligible expenses per year is
available for undergraduate, graduate,
and professional degree courses. Both
credits phase out for higher income
individuals, and you cannot claim
both credits for the same student
in the same tax year. There is also a
deduction for AGI, available even if
you don’t itemize, of up to $2,500
for qualifying student loan interest,
although it also phases out for higher
income taxpayers. If an extenders
bill passes, there may also be an
alternative tuition deduction of up
to $4,000, and a teacher’s maximum
$250 deduction.
Tax Considerations for Investors
Capital Gain and Loss Planning
Planning when to realize capital gains
or losses can be extremely beneficial.
Such planning should consider the
continued risk (or benefit) of holding an investment longer, current and
future cash needs, the “wash sale”
rules that disallow certain losses, and
current vs. future tax rates.
For 2015, net capital losses (including
any net capital loss carryovers) are still
fully deductible against current year
capital gains. If capital losses exceed
capital gains, you can still deduct up
to $3,000 in net capital losses against
ordinary income ($1,500 if married filing separately). Any remaining capital
losses can still be carried over indefinitely to successive tax years to offset
capital gains in the future.
Rates on Capital Gains and Dividends
For 2015, there is a top (preferential)
rate of 20 percent on net long-term
capital gains and dividends. Specifically, the preferential tax rate is 0 percent
to the extent the income would have
been taxed in the 10 percent or 15
percent tax rate bracket if it were ordinary income; 20 percent to the extent
the income would have been taxed in
the 39.6 percent tax rate bracket if it
were ordinary income; and 15 percent
for all other taxpayers. (Note, there are
different rates on gains from certain
assets such as collectibles, depreciable
real property, and qualified smallbusiness stock.) Interest income and
short-term capital gains (i.e., held 12
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Tax Saving Tips and Updates for 2015
Section 179 Expense
Section 179 expense election for acquiring new or used tangible personal
property in a business is $25,000
in 2015. The limitation is reduced
dollar-for-dollar if acquisitions exceed
$200,000, and is limited to the business’s taxable income.
months or less) continue to be taxed
at ordinary rates, now as high as 39.6
percent in 2015.
local income taxes properly allocable
to items included in net investment
income.
Net Investment Income Tax
The health care law brought with it an
additional 3.8 percent tax on certain
net investment income if a taxpayer’s
modified AGI exceeds certain threshold levels. For 2015, these levels are
$250,000 for married filing jointly
(or $125,000 if married filing separately) and $200,000 for all other filing
statuses. In general, net investment
income includes, but is not limited to,
interest, dividends, capital gains (after
offset of capital losses), rental and
royalty income, certain annuities, and
income from businesses that are passive activities to the taxpayer, including
gains on their sale.
Kiddie Tax
Children’s unearned income may be
subject to tax at the parents’ highest
applicable marginal rates for the type
of unearned income. This is known
as the “Kiddie Tax.” For 2015, any net
unearned income over $2,100 will be
taxed at the applicable parental rates
if the child is in one of these three
categories as of year-end: under age
18, age 18 and does not have earned
income exceeding 50 percent of his
or her support, and age 19 through
23 and is a full-time student who
does not have earned income exceeding 50 percent of his or her support.
The amount exempt from tax and the
amount taxed at the child’s rate increases to $1,050 in 2015 from $1,000
in 2014.
The net investment income tax will
not apply to any amount of gain that
is excluded from gross income for
regular income tax purposes, such as
the exclusion of the first $250,000
($500,000 in the case of a married
couple) of gain recognized on the sale
of a principal residence. To calculate
your net investment income, your investment income is reduced by certain
expenses properly allocable to the
income, such as investment interest
expense, investment advisory and brokerage fees, expenses related to rental
and royalty income, and state and
Change in Business Return Due Dates
As part of a short-term highway funding bill, Congress changed certain tax
return due dates as follows: partnership returns are now due on the 15th
day of the third month following
year-end (like S corps), and C corps are
due the 15th day of the fourth month
following year-end. There also were
changes to extended due dates. These
changes are generally effective for tax
years beginning after Dec. 31, 2015.
Changes to Filing Deadline
Typically the deadline for filing
your income tax return with the IRS
is April 15. However, due to a legal
holiday in the District of Columbia, the
filing deadline for 2015 is Monday,
April 18, 2016.
NOTE
This text was prepared in August
2015. Additional legislation may be
passed before year-end.
The PICPA offers resources for
a variety of financial topics.
Visit www.picpa.org/resources
to learn more.
Other Tax Considerations
Alternative Minimum Tax (AMT)
AMT exemptions for 2015 are $53,600
for single and head of household
filers; $83,400 for married people
filing jointly and qualifying widows or
widowers; and $41,700 for married
people filing separately. The amounts
are phased out 25 cents for each dollar
of AMT income over those thresholds.
The Pennsylvania Institute of Certified Public
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