Year-End Tax Planning (2015)What Will Affect Your Return?

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No Big Changes This Yearwww.wrightaccountingcpa.com

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• Individual Taxpayers:

- Affordable Care Act provisions taking effect

- 2015 Tax Rates, NIIT and AMT

- Deductibles and other tax-reduction moves

- Education-related deductions

• Small Business Owners:

- Depreciation

- ACA nuances

- Home office deduction

- State and local taxes

Affordable Care Act Provisions

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• Fee increase for uninsured

- 2016: Higher of 2.5% of yearly household income or $695 per person ($347.50 per child under 18)

• Premium Tax Credit

- Household income between 100% and 400% of federal poverty line

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Health Care Reimbursement Arrangements (HRAs) – Know The Rules

• Funded solely by employer

• Can be used with any health plan

- Not just high deductible

• No annual limit

• Must be used along with a health plan

- Stand-alone HRA no longer compliant

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2015: No New Tax Brackets

RATE SINGLE MARRIED (JOINT) HEAD OF HOUSEHOLD

10% $0–$9,225 $0–$18,450 $0–$13,150

15% $9,226–$37,450 $18,451–$74,900 $13,151–$50,200

25% $37,451–$90,750 $74,901–$151,200 $50,201–$129,600

28% $90,751–$189,300 $151,201–$230,450 $129,601–$209,850

33% $189,301–$411,500 $230,451–$411,500 $209,851–$411,500

35% $411,501–$413,200 $411,501–$464,850 $411,501–$439,000

39.6% $413,201 and up $464,851 and up $439,001 and up

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Dividend and Capital Gains Rates Unchanged

• The top tax bracket for dividends and capital gains is 20% (23.8% if net investment income applies). Here’s the breakdown:

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0% for

taxpayers

in 0–15%

tax brackets

15% for taxpayers in

middle-income

tax brackets

20% for taxpayers in the highest tax bracket (39.6%)

Quick Review of Net Investment Income Tax (NIIT)

Additional 3.8% tax

• Affects individuals, estates and trusts with income above certain thresholds

• Capital gains, interest and dividends

• Rental and royalty income

• Medicare surcharge of 0.9% may also apply to wages, compensation and self-employment income

Alternative Minimum Tax (AMT)

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• Created to close loopholes exploited by the wealthy

• How does it work?

- Adds back certain non-taxable income and removes some deductions

- Re-computed income is then multiplied by a flat rate = AMT

• Higher of AMT or regular tax is paid

• Very complex to calculate

AMT – Good and Bad News

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• Good news:

- Higher exemption

- Indexed for inflation

• Bad news:

- Income levels not increased

• Possible pitfall:

- Triggering AMT when taking certain tax breaks

• AMT exemption for 2015:

- $53,600 (Single/head of household)

- $83,400 (Married filing jointly)

Personal Exemptions

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• 2015: $4,000 per eligible person

• Phase-out:

- Single: $258,250

- Married filing jointly: $309,900

- Head of household: $284,050

- Married filing separately: $154,950

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Itemized Deductions

• Limited for high-income taxpayers

• 3% reduction once AGI exceeds threshold

• Reduction never goes below 20%

• Exceptions for certain deductions include:

- Medical expenses

- Investment interest

- Casualty or theft losses

Tax Benefits in Limbo

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• Sales tax vs. state income tax deduction

• Private mortgage insurance

• Teacher expenses

• Qualified tuition

• Employer-provided transit benefits

• Discharge of principal residence debt (short sales)

Retirement Planning

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• 401(k)/403(b):

- $18,000 + $6,000 for over 50

• IRA:

- $5,500 + $1,000 for over 50

• Roth IRA:

- Anyone can convert, regardless of income

Estate and Gift Taxes

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• 2015 estate tax exemption: $5.43 million

• Top rate is 40%

• 2015 gift tax annual exclusion: $14,000

• Estate planning is more than minimizing estate taxes

- Outdated documents

- Repurposing insurance

- Privacy

- Asset protection

Education Tax Credits

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• American Opportunity Tax Credit

- In effect until 2017

- Up to $2,500 for first 4 years post-secondary school

• Lifetime Learning Credit

- Up to $2,000 for all post-secondary expenses

• Tuition and Fees Deduction

- If extended into 2015

More Education Incentives

• Employer-provided assistance: $5,250

• Student loan interest: $2,500

• Education savings accounts: $2,000

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Last-Minute Planning Tips

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• Pre-pay deductible expenses before Dec. 31

- Tuition due in January

- 4th quarter state estimates

• Harvest capital losses

• Maximizing out retirement savings

• Avoid mutual fund purchases in December

• Gift appreciated stock

• Don’t forget your flexible spending account (FSA)

Capital Loss Harvesting

• Sell down positions to offset income

• Avoid wash-sale rule

• Loss limited to $3,000 per year

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Top Issues for Small Business

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Depreciation Expense

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• Section 179 expense limit — waiting on Congress to make a final decision

- 2015: $25,000 unless Congress acts

- Note: Bill passed by the House makes permanent the $500,000 limit (waiting to see if this becomes a law)

SHOP Marketplace

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• Employers with 50 or fewer full-time equivalents (FTEs) can participate in the SHOP Marketplace

• Small businesses can qualify for a credit:

- Fewer than 25 full-time equivalents

- Average annual wages less than $50,000

- Contribute 50% or more to employee premiums

Home Office Deduction

• Two rules define who can take a deduction

• Regular method: Actual expenses

• Simplified method:

- $5 per square foot of home used for business (maximum 300 square feet) 

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Saving for Retirement

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• Savings Incentive Match for Employees (SIMPLE)

• Simplified Employee Pension (SEP) plans

• Profit-sharing plans

• A variety of 401(k) plans

State and Local Taxes

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• Beware of withholding, filing and payment obligations if you operate in multiple states

• Sales tax rules vary:

- Type of product

- Different counties and municipalities

Planning Opportunities

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• Complexity = possible savings opportunities

• A CPA can help

Protect Yourself from Identity Theft

• Individuals

- Protect your information

- Shred your mail

- Don’t be fooled by “phishing”

- Check your credit report regularly

annualcreditreport.com

- Contact all three reporting agencies as soon as you have a breach

- identitytheft.gov

• Businesses

- Only collect what you need for as long as you need it

- Secure your network

- Train and restrict access

- Audit regularly

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Questions

© 2015 American Institute of CPAs. All rights reserved. 18143-312

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