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As you surely know, either from keeping up with our newsletters, or from elsewhere in the media, each year the Internal Revenue Service adjusts various dollar limits for certain tax benefits according to inflation.
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Only a few days ago, on October 30th, the IRS announced the annual inflation adjustments for 2015 for more than forty tax provisions, including the tax rate schedules, and other tax changes.
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Revenue Procedure 2014-61 provides details about all of these annual adjustments.
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- According to the IRS, the tax items for tax year 2015 of greatest interest to most taxpayers include the dollar amounts listed below.
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 The tax rate of 39.6 percent affects singles whose income exceeds $413,200 ($464,850 for married taxpayers filing a joint return), up from $406,750 and $457,600, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.
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It seems that you can earn a little more next year before being bumped into a higher tax bracket. The increases apply across the board to all the rates, from 10 percent to 39.6 percent.
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The standard deduction rises to $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly, up from $6,200 and $12,400, respectively, for tax year 2014. The standard deduction for heads of household rises to $9,250, up from $9,100.
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| The standard deduction, as defined under United States tax law, is a dollar amount that non-itemizers may subtract from their income and is based upon filing status. It is available to US citizens and resident aliens (for tax purposes) who are individuals, married persons, and heads of household and increases every year. It is not available to nonresident aliens residing in the United States. |
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The limitation for itemized deductions to be claimed on tax year 2015 returns of individuals begins with incomes of $258,250 or more ($309,900 for married couples filing jointly).
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The personal exemption for tax year 2015 rises to $4,000, up from the 2014 exemption of $3,950. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $258,250 ($309,900 for married couples filing jointly). It phases out completely at $380,750 ($432,400 for married couples filing jointly.)
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| Before your income is calculated for tax purposes on your paycheck, the IRS allows you to reduce it based on exemptions, which are standard amounts of money (defined each year by the IRS) that are not taxed. |
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| The Alternative Minimum Tax exemption amount for tax year 2015 is $53,600 ($83,400, for married couples filing jointly). The 2014 exemption amount was $52,800 ($82,100 for married couples filing jointly). |
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The Alternative Minimum Tax parallels the regular income tax, so taxpayers whose AMT liability exceeds their regular tax liability pay the difference as AMT.
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The AMT has a completely different set of calculations than the regular tax. For the regular tax, you add up your total income, subtract out various deductions to find taxable income, then calculate the tax. Against the regular tax you can claim various credits to reduce your tax even further. Taxable income for AMT purposes does not allow the standard deduction, personal exemptions, or certain types of itemized deductions. Also some income which is not subject to the regular tax is added for AMT purposes. Your tax under AMT rules may be higher than your tax under regular tax rules.
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The 2015 maximum Earned Income Credit amount is $6,242 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,143 for tax year 2014. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.
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Estates of decedents who die during 2015 have a basic exclusion amount of $5,430,000, up from a total of $5,340,000 for estates of decedents who died in 2014.
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| For 2015, the exclusion from tax on a gift to a spouse who is not a U.S. citizen is $147,000, up from $145,000 for 2014. |
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| For 2015, the foreign earned income exclusion breaks the six-figure mark, rising to $100,800, up from $99,200 for 2014. |
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The annual exclusion for gifts remains at $14,000 for 2015.
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| The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) rises to $2,550, up $50 dollars from the amount for 2014. |
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| Under the small business health care tax credit, the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,800 for tax year 2015, up from $25,400 for 2014. |
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| Inflation has determined changes in the Social Security sector as well. Monthly Social Security and Supplemental Security Income (SSI) benefits for nearly 64 million Americans will increase 1.7 percent in 2015. |
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| The 1.7 percent cost-of-living adjustment (COLA) will begin with benefits that more than 58 million Social Security beneficiaries receive in January 2015. Increased payments to more than 8 million SSI beneficiaries will begin on December 31, 2014. |
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| The purpose of the COLA is to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation. It is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the current year. If there is no increase, there can be no COLA. |
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| Congress enacted the COLA provision as part of the 1972 Social Security Amendments, and automatic annual COLAs began in 1975. Before that, benefits were increased only when Congress enacted special legislation. |
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| The earnings limit for workers who are younger than "full" retirement age (age 66 for people born in 1943 through 1954) will be $15,720. |
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| The earnings limit for people turning 66 in 2015 will be $41,880. There is no limit on earnings for workers who are "full" retirement age or older for the entire year. |
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With all of these in mind, now may be the best time to discuss with your tax professional the means by which you can reduce your tax burden for 2015 and enhance tax benefits that you may be entitled to.
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