2015 Tax Law Changes and Extensions that Affect Your Clients
Perhaps nothing confuses taxpayers more than constantly shifting tax laws. Occasionally, you may still have a client who asks about the over-55, one-time exclusion of gain from the sale of their home, which they must have heard about almost 20 years ago.
Whatever the question, you have the job of keeping clients up-to-date on tax law changes that affect them and their taxes.
With no major new tax legislation making headlines in 2015, your clients may assume the tax laws are staying much the same. You, of course, know that's not quite true.
Tax laws are always changing, even if just to keep up with inflation adjustments. Some tax laws are tweaked every year, with few people outside the tax profession ever noticing. Provisions of tax laws that have been in place in past years are still being phased in, and there can be uncertainty about which tax breaks will be extended.
Here are some of the changes for 2015 most likely to affect your clients.
The health insurance penalty is ramping up significantly.
If your clients didn't have health insurance in 2014, and they didn't qualify for an exception to the penalty, the consequences weren't so bad. They may have paid $95 per person or 1 percent of their household income, whichever was greater.
In 2015, they'll pay $325 per person, or 2 percent of their household income, whichever is greater. That's a steep increase.
Even if your clients qualify for one of the many exclusions, they may not know that some exceptions require them to apply for a certificate from the state or federal marketplace. They should do this in plenty of time so you have the required exemption certificate number when you prepare their returns.
The IRS is cracking down on IRA rollovers.
It was an easy way to "borrow” retirement money for up to 60 days. Taxpayers could withdraw money from one IRA and wait up to 60 days before they moved it into another IRA. As of 2015, clients can only do that once from an IRA in a 12-month period. If your clients want to move IRA funds using "trustee-to-trustee" transfers, they can still do that as often as they want.
Health Flexible Spending Accounts (FSAs) are subject to new rules.
The good news for clients who don't use all their FSA amounts by the end of the year was that as of 2013, they could roll over $500 from an FSA into the next plan year. Starting in 2015, the bad news is that as a result, they will be ineligible to participate in a Health Savings Account (HSA) for the year into which they rolled over an amount from a general purpose FSA.
Foster care payments for relatives may be excluded from income.
If clients are paid to give non-skilled medical support services and care for a person, living in their home, who has physical, mental or emotional issues, and they receive payments from the state or certified Medicaid provider, those payments can likely be excluded from their taxable income. Previously, a relative could not be considered a foster child, and the income could not be excluded.
Here's good news about Pell grants, living expenses and education credits.
Pell Grants can now be allocated as living expenses. Doing so may increase the amount of education expense, such as tuition, that clients can use to claim one of the education credits.
The first myRAs are up and running.
These new introductory retirement accounts are now being offered through employers. The myRA, or "my Retirement Account,” charges no fees and offers modest, guaranteed growth. That's a plus for risk-averse clients and those who are new to investing. They can start a myRA with just $25 and add as little as $5 at a time. When their accounts are worth $15,000, they must roll them over into private-sector Roth IRAs.
Inflation is always with us.
These annual inflation adjustments for 2015 may affect a high percentage of your tax clients.
- Standard deduction. The standard deduction inches up to $6,300 for singles and married persons filing separate returns and to $12,600 for joint filers. The standard deduction for heads of household is $9,250 in 2015.
- Higher income levels for limitation on itemized deductions. Clients may see their itemized deductions limited if their incomes are $258,250 or more ($309,900 for married couples filing jointly).
- Personal exemptions. They're now a flat $4,000. If you have high-income clients, however, the exemption may be phased out. The phase-out begins with adjusted gross incomes of $258,250 ($309,900 for married couples filing jointly). Personal exemptions are phased out completely at $380,750 ($432,400 for married couples filing jointly.)
- 39.6 percent tax bracket. This rate affects singles whose income exceeds $413,200 ($464,850 for married taxpayers filing a joint return).
- Standard mileage allowance. The business standard mileage allowance for 2015 is 57.5 cents per mile. The rate for medical or moving expenses is actually down half a cent, to 23 cents per mile. For miles driven in service of charitable organizations, it's still 14 cents.
- Alternative Minimum Tax exemption. The AMT exemption is $53,600, or $83,400 for joint filers.
- Earned Income Credit. The maximum EIC amount is $6,242 for taxpayers filing jointly with three or more qualifying children. The maximum amounts for your clients with other filing statuses and numbers of children are also adjusted.
- Estate tax exclusion. Federal estate tax planning is becoming less of a point for many clients, as the estate tax exclusion continues to rise. An estate can be worth $5,430,000 before it is subject to federal estate tax.
- Foreign earned income exclusion. Clients may now qualify for an exclusion of up to $100,800.
- Employer-sponsored healthcare flexible spending arrangements. The annual dollar limit on employee contributions to an FSA rises to $2,550.
Not every amount in the IRS code changed this year. The amount your clients can give as a gift to any one person without filing a gift tax return is still $14,000. In addition, the amount your clients can contribute to an IRA remains at no more than $5,500 in a traditional or Roth IRA. If they're age 50 or older, they can contribute $6,500.
Many expired tax breaks may be extended.
Tax preparers may get a surprise this year – permanent or temporary extensions of popular tax breaks long before tax season begins. By a 23-3 bipartisan vote, the Finance Committee sent a package of tax breaks for individuals, businesses, and energy production to the Senate floor in August.
Extensions for the following breaks are included in the package or were approved earlier in the year:
- Higher education tuition deduction. Your clients may still be able to deduct between $2,000 and $4,000 of qualified tuition expense.
- Energy credits. This includes credits for home improvements that improve energy efficiency, such as heating and cooling systems, insulation and windows.
- Educator expense deduction. Teachers can claim up to $250 of unreimbursed classroom expenses.
- Commuting tax breaks. The extension gives clients who commute by train or bus the same $250 monthly tax break for employer-provided subsidies as those who receive employer assistance for parking costs. The current mass transit deduction is $130 per month.
- Deduction for state income tax. This deduction makes a huge difference to residents of states without a state income tax. This extension has already been approved.
- IRA charitable donations. IRA owners at least age 70 ½ can still make tax-free donations of up to $100,000 from IRAs to certain qualified charities.
- Mortgage forgiveness exclusion. If homeowners who are underwater on their mortgages have part of their loan forgiven by a bank, up to $1 million of the forgiven debt (or $2 million for couples) would be excluded from treatment as income.
- Research and development tax credit. This has been extended for two years.
- Deduction for small business equipment purchases of up to $2 million. This is extended and now includes computer software.
- Work Opportunity Tax Credit. Clients who own businesses can claim a credit equal to a certain percentage of wages paid to new hires of one of nine targeted groups, including members of families receiving benefits under the Temporary Assistance to Needy Families (TANF) program, qualified veterans and ex-felons, designated community residents, vocational rehabilitation referrals, qualified summer youth employees, qualified food and nutrition recipients, qualified SSI recipients, and long-term family assistance recipients.
- Energy efficiency tax breaks. This includes a 10 percent credit for energy efficiency improvements to existing homes, and deductions for construction of energy efficient homes and commercial buildings.
About Sally Herigstad
Sally Herigstad is a certified public accountant and personal finance columnist and author of Help! I Can't Pay My Bills, Surviving a Financial Crisis (St. Martin's Griffin). She writes regularly at CreditCards.com, Bankrate.com, Interest.com, RedPlum, and MSN Money. She is an experienced speaker and a member of Toastmasters International. Follow Sally on Twitter.