Sunday, February 8, 2015

Advice IQ: New tax rules to know for new year

Lewis Walker for USA Today writes: It's a new tax year, and many deductions, exemptions and other Internal Revenue Service provisions have changed. Be aware of them. Some will cost you more, some will help you.

Entering 2015, we begin the paper chase leading up to filing tax forms for 2014. As we account for last year, start planning now for 2015. Time flies. This century already is 14% gone.
This year, the estate tax exemption increases to $5.43 million with an inflation adjustment. With proper planning, married couples can take advantage of two individual exemptions, passing $10.86 million to heirs free of federal estate taxes.
A taxable estate includes the face amount of life insurance owned by the deceased, so flawed insurance planning for a high net worth person can inadvertently subject proceeds to taxes. Most people do not have to worry about estate taxes. But if you do not have an up-to-date will and powers of attorney for assets and health care, add that to your to-do list.
If son Billy or daughter Suzie turns 18 in 2015, they will be adults under the law in most states; they also need the documents mentioned above. Without a power of attorney for health care that contains references to the Health Insurance Portability and Accountability Act of 1996 (HIPAA), if your child is sick, injured, or hospitalized you cannot get any information from medical providers, other than how to pay the bill!
Ahh, the dreaded Form 1040, the basic document to file your taxes. For 2015, the personal exemption is $4,000 and the phase-out – the level where that exemption is reduced – begins with an adjusted gross income (AGI) of $258,250 for individuals, $309,900 for married couples filing jointly.
The standard deduction increases slightly to $6,300 for singles and married persons filing separately, $12,600 for married couples filing jointly and $9,250 for heads of household. The top tax rate of 39.6% kicks in for singles at $413,200 in income, $464,850 on joint returns.
But note, the phase-outs referenced above also apply to a wide range of itemized deductions, including mortgage interest, charitable giving, medical expenses, etc. For higher bracket earners and investors, a pro-active tax planning strategy is de rigueur in this age of "spreading your money around," to quote progressive politicians. Sure, we need to pay our fair share. It is in defining fair that the debate gets heated.
For a worker, the new year's dawning moves you one year closer to your targeted retirement date. For 2015, the contribution limit for 401(k) and similar plans is $18,000 with a $6,000 catch-up provision for those age 50 and over. The ceiling for individual retirement account and Roth IRA plans is $5,000 with a $1,000 age 50 and over catch-up. Higher earners should check with their advisor on phase-out of deductibility on IRA contributions.
Those turning 70½ in 2015 are subject to required minimum distribution rules (RMDs) from certain qualified retirement plans not later than April 1, 2016. Those under age 70½ are subject to RMD rules on inherited IRAs, a surprise to recent inheritors.
If you are still working and participate in an employer-sponsored plan such as a 401(k), you may delay taking a RMD until you retire. However, if you own more than 5% of the company sponsoring the plan, you must start distributions after age 70½, even with continued working.
The 2015 gift tax exclusion is $14,000 per person. Couples may join together to gift $28,000 to a grandchild, for example. You may front load a 529 college savings plan with up to five years of gifts. Wealthy grandparents, for example, could move up to $140,000 per child out of their taxable estate with a one-time gift.
For those with charitable inclinations a number of advance planning methods can leverage your gift with tax-wise strategies.
Ronald Reagan defined a "taxpayer" as "someone who works for the federal government, but doesn't have to take a civil service examination." OK, but go for all of the deductions and exemptions to which you are entitled. Plan ahead.
Lewis Walker, CFP, is the president of Walker Capital Management in Peachtree Corners, Ga,