Monday, January 12, 2015

2015 Taxes: What's on Deck for Your Investments / Higher 401(k) contribution limits, myRA introduction are among bigger tax changes for new year.

Christine Benz for MorningStar writes:  Two years ago, many investors were on tenterhooks as Congress wound down its session. A host of the Bush-era tax cuts were on the chopping block as part of the so-called "fiscal cliff," including the reduction in the tax on dividends and the high estate-tax exclusion.  

In the end, Congress made only modest adjustments to investment-related taxes back then; for example, a 39.6% marginal tax rate went into effect for the highest-income earners in 2013, and the new Medicare surtax kicked in on schedule, too.  

Since then, the tax-related drama has been pretty subdued by comparison. Dividend and capital gains tax rates have stayed the same, and the federal estate tax will only affect the uber-rich. But that's not to suggest that investors can safely tune out tax considerations. The market's strong performance, combined with a nasty season for mutual fund capital gains distributions, accentuates the value of taking maximum advantage of tax-sheltered wrappers like 401(k)s and IRAs, for example. It also highlights the virtues of carefully monitoring your taxable positions to help insure that you're not paying more in dividend and capital gains taxes than you need to.  

Here's an overview of what's changing, tax-wise, in 2015, as well as what's staying the same. I've emphasized those tax items that have at least some connection to investments. 

Dividend and Capital Gains Taxes
Not too much to report here. Dividend and capital gains rates will remain the same in 2015 as they were last year, though the income tax brackets used to determine those rates have been adjusted for inflation. Investors who are in the 39.6% income tax bracket will pay a 20% tax rate on qualified dividends and long-term capital gains; investors in the 25% to 35% brackets will pay a 15% tax rate on qualified dividends and long-term gains; and investors in the 10% and 15% tax brackets for income tax will owe 0% tax on dividends and long-term capital gains. Nonqualified dividends, such as from REITs, and ordinary income from taxable bonds will be taxed at investors' ordinary income tax rates. 


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