2015: Year End - Tax Planning For Individuals, What To Expect!

It's November! I am always surprised by it's arrival & the realization that it's year-end tax planning time. The shortened day-light hours seem to  make that certain without a doubt. So let's roll-up our sleeves, get down to work and fine-tune possible last-minute strategies for lowering your 2015 tax bill. 

Tax Brackets: Let's take a quick look at the 2015 tax brackets, you will see from the table below that the top tax rate of 39.6% will apply to incomes over $$413,200 (single), $464,851 (married filing jointly and surviving spouse), $232,426 (married filing separately), and $439,000 (heads of households)

Picture Courtesy: Forbes Magazine
The 3.8% net investment income tax and/or the 0.9% Medicare surtax will also apply if you are in the high income bracket. 

The personal exemption for 2015 is $4000 each & the standard deduction amounts are as follows:

Retirement Plan Actions-Maximize Contributions: 
A. 2015 maximum employee contribution is $18,000 and $24,000 if you are 50 years of age or older. 
B. If you have a SIMPLE 401K, your maximum pre-tax contributions are $12,500 and $15,000 if 50 or older. 

C. If you qualify to contribute to a Traditional IRA, that max is $5,500. For taxpayers 50 or over but less than 70 1/2 years of age, $6,500.

D. If you have just started out on your career, the "myRA", maybe a good starter option for you. The myRA follows the same tax treatment and rules as the Roth IRA.  

E. You may want to look into whether you should convert your traditional IRAs to a Roth. 

Many other options can be discussed with regard to your existing 401Ks, 403Bs and 457 plans if you have after-tax contributions in them. Or if you have contributed more than the maximum into traditional IRAs. An Enrolled Agent will be able to guide you with the nuances. 

AMT Actions:
For 2015, the AMT rate is 26% on alternative minimum taxable income (AMTI) up to $185,400 ($92,700 for married filing separately) and 28% on AMTI over that amount. Taxpayers are allowed an AMT exemption depending on filing status, but the exemption is phased out for taxpayer's above a certain income level.

If you think you may be falling into this category, discuss with an Enrolled Agent what your options to minimize exposure are. 

American Opportunity Credit (AOC):
The AOC is available to you if you/ spouse/ dependent had qualified education expenses. The modified adjusted gross income (MAGI) to take the AOC is phased out at quite a low amount, $80,000 or more for single and $160,000 or more for joint filers. 

"Obamacare" Points to be Noted:
Note the "shared responsibility payment" penalty for not having health coverage for two or more months. Check to see if you are eligible for an exemption from the penalty. 

Tax Extender on the Health Coverage Credit means now it can be claimed for coverage through 2019. If you wish to claim this for 2014, we are still awaiting the new Form 8885.

 Child Tax Credit:
 If you are excluding foreign earned income from tax, your refundable portion of the child tax credit will be limited. 

Important Actions Other than Above:

It must be remembered that the focus for year end tax planning is not always only tax savings, the big financial picture should be kept in mind when adopting tax saving strategies. 

Income can be accelerated into 2015, if projected income for 2016 is going to be significantly higher. Options for this include, harvesting gains, converting retirement accounts, taking IRA distributions, settling insurance claims and so on. 

Income can also be deferred to 2016, if income in the coming year is going to be significantly lower. Examples for his include, taking year end bonus in January, if selling assets at a gain, doing it in 2016, or considering selling on installment if feasible, or parking investments in deferred annuities. 

The same goes for accelerating or deferring deductions to 2016.   

Important life events in the year will also effect your year-end tax planning strategy. 

One can also keep in mind the HSA balances, rentals from vacation homes, shifting income to a child and most importantly checking balances in foreign bank accounts if any. 

Call your tax professional, preferable an Enrolled Agent, to make your year-end tax planning appointment. 

Bibliography: IRS News Releases; Accounting Today; Parker Tax Publishing; Forbes Magazine; AICPA Tax Release.   

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website, www.mntaxsolutionsllc.com.


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