The real changes to the tax code for 2015 are mostly incremental and were set by Congress as indexing to inflation. Even past nightmares like annual political wrangling over the Alternative Minimum Tax have at least been stabilized.
There are some changes that taxpayers and their advisors should be aware of, said Bernard Kiely, of Kiely Capital Management, based in Morristown, N.J. One concerns withdrawing money from one IRA to roll it into another.
“The IRS clarified a rule this year,” Kiely said. “After losing a court decision, they made a rule that a withdrawal could be made from only one account per year.”
The idea, Kiely said, was to ensure that people wouldn’t remove money earmarked for retirement from multiple accounts — a practice that, as Michael Kitces pointed out, could be abused by account holders needing a free, short-term loan.
Kiely advised that a trustee-to-trustee transfer be used instead of a 60-day IRA rollover. That sort of transfer can be done for multiple accounts in the same tax year.
(For more on IRA rollover rules, check out 7 Facts About After-Tax IRA Rollovers.)
For Kiely, the biggest change involves a program the IRS put in to certify tax preparers. Those who don’t complete 18 hours of continuing education each year won’t be allowed to represent clients at audits.
“There are too many people out there preparing taxes who don’t know what they are doing,” Kiely said, adding that the voluntary program is a good idea.
Here’s a rundown of 6 Top Tax Changes for 2015:
1. Alternative Minimum Tax
This exemption amount rises this year to $53,600 (up $800) for singles and $83,400 (up $1,300) for married couples filing jointly.
There was a time when fear of the expiration of this tax sent shockwaves through many taxpayers. Congress would delay and delay fixing it (doesn’t that sound familiar?) But now that it is indexed to inflation, the worry has been removed.
2. Estate Tax
The exclusion amount for those who die in 2015 rises to $5.43 million, up from $5.34 million the previous year.
The so-called death tax doesn’t affect most people, but an unusual tax levied by New Jersey, which starts at $675,000, might be a factor in upper income individuals wanting to leave the state. Kiely cited a white paper by Regent Atlantic Capital, based in Morristown, that supports the idea that New Jersey’s high taxes, including the estate and inheritance levies, are a drain on the state.
3. Top Tax Rate
The top rate of 39.6% will apply to singles who earn more than $413,200, up from $406,750 in 2014, and $464,850 for married couples filing jointly, an increase from $457,600.
Before tax brackets were indexed for inflation, Kiely said, “tax bracket creep” was a problem. Indexing keeps the brackets in pace with inflation.
4. Standard Deduction
Both single and married couples filing jointly will see a slight increase in the standard deduction. For singles, the increase is $100 to $6,300. For married couples it’s $12,600, an increase of $200. For heads of households, the deduction will be $9,250, up $150.
The rise in this is tied to inflation, which makes planning easier, Kiely said.
5. Personal Exemption
There’s a $50 increase in store from $3,950 in 2014. The personal exemption is phased out as adjusted gross incomes rise before being eliminated at $380,750 for singles and $432,400 for married couples.
Kiely noted that the phase out in upper income levels is automatic.
6. Itemized Deductions
The limitations start at adjusted gross income of $258,250 for singles and $309,900 for married couples filing jointly.
The automatic reduction was brought back for the 2013 filing season, leaving upper income earners with bigger bills from the federal government.
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