As we move full steam ahead into the 2015 filing season, I would like to take this chance to look ahead to a few changes to the Internal Revenue Code that our clients should be aware of in 2015. I will focus on identifying three of the most important areas.
The "Affordable" "Care" Act Changes for 2015
We are now seeing the provisions of the Affordable Care Act come into full-swing. The individual mandate requires most citizens to obtain health insurance if not covered by a state program — which also means federal (TBD). Individuals may choose to purchase their own private insurance or insurance from their state-operated insurance marketplace for instances when health insurance is not available through their employer.
I would recommend investigating the cost of health insurance available to them in 2015, sooner rather than later, because open enrollment closes on February 15th.
Those ignoring the individual mandate should be wary because stout (and not the good kind of stout) penalties will go into effect beginning next year. For example, generally those without qualifying health insurance coverage on March 31, 2014 are subject to the non-compliance penalty on the 2014 tax return. The noncompliance penalty for the 2014 tax year is the greater of: $95 for individuals and $285 for families or one percent of income for both individuals and families. Not so bad for those who missed the enrollment deadline so far. However, the penalty rises significantly for the 2015 tax year to the greater of $325 for individuals and $975 for families or two percent of income. It gets even worse in 2016 where the penalty soars to: the greater of $695 for individuals or $2,085 for families (whoa!) or two and a half percent of income.
Many of our clients are small business owners with less than fifty employees. In 2015, small business owners can access the Small Business Health Options Program (SHOP) Marketplace in order purchase qualifying coverage for their employees and themselves. Additionally, the Affordable Care Act provides for a tax credit small businesses with less than 25 full-time employees with average annual wages under $50,000. The Affordable Care act does not yet impose an employer coverage mandate for small businesses with less than fifty full-time employees.
Retirement Savings Changes for 2015
Our clients should be aware of the ever-changing laws regarding retirement accounts. For those looking to get the most out of their existing 401(k), the rules will allow individual contributions of $18,000 to 401(k) plans in 2015. Also, those eligible to make catch-up contributions may contribute $6,000.
The most significant change in the law is the new rollover limitation. New in 2015, individuals are limited to one tax-free rollover from one IRA to another eligible IRA in any 12 month period. A rollover is defined as distribution from one retirement plan that you contribute to another retirement plan. Prior to 2015, individuals were able to exclude rollover distributions from one IRA to another from gross income if the lump sum distribution was deposited into another eligible plan within 60 days.
The old rules enabled individuals to essentially take multiple two month loans from one IRA of many on a tax-free basis. Unfortunately, the change in the law limits individuals from taking such tax-free IRA loans. Individuals still have an opportunity to make multiple tax free transfers between eligible IRA’s during a twelve month period. Individuals may make these transfers by directing their trustee to transfer their IRA directly to another IRA trustee. Please note that not all types of IRA's can be transferred to a different type of IRA without incurring a tax liability. It is more important than ever for our clients with multiple retirement accounts to seek guidance before taking distributions.
2015 Tax Rate Changes
Individuals with taxable incomes of $413,200 ($464,850 for married taxpayers filing a joint return), now will be taxed at the highest rate of 39.6 percent. This is an increase from $406,750 and ($457,600 for married filing jointly) requirements of 2014.
There is no change to capital gains tax and most long-term capital gains will still be taxed at the 15% rate (unless you are in the 39.6% bracket and then you will be treated to a 20% long term capital gains rate because the government said so). The standard deduction is increased for inflation to $6,300 for single filers ($12,600 for married filing jointly.) The personal exemption for tax year 2015 increased from $50 to $4,000.
