The Taxman

First and foremost we want to wish everyone out there a happy and healthy start to 2015. In this edition of Short Squeeze I thought it would be helpful to point out some Tax Law changes for 2015.

Defined Contribution Plans (401k, 403b, most 457s)

Deferral limits rise For 2015 the contribution limits for defined contribution retirement accounts  will increase to $18,000, along with a $6,000 catch up for those 50 and above (so $24,000 for the 50 and over group) . Employer-based retirement plans such as 401(k)s can be powerful savings builders, especially if you grab all the employer matching funds available. These numbers also apply to the federal government's Thrift Savings Plan. Note that to qualify for the catch-up contributions, you need to reach the minimum eligibility age of 50 at any time during 2015, so a Dec. 31 birthday does not decrease your eligibility.

Limits Rise for SEP IRAs

Self-employed folks accumulating retirement money in a SEP IRA will see their contribution limits rise from $52,000 in 2014 to $53,000 in 2015, with related compensation limits rising from $260,000 to $265,000. These numbers apply to solo 401(k)s as well. 

Limits Rise for SIMPLE IRAs

For 2015, you will be able to contribute $12,500, up from $12,000 in 2014, plus a $3,000 catch-up contribution if you're 50 or older.

Health Insurance

In 2015, the penalties will rise significantly. The payment for not having adequate coverage will be either 2% of your income above the tax filing threshold or $325 per adult and $162.50 per child, up to a maximum of $975 per family. We'll see even stiffer penalties in 2016. Even if you didn't have coverage in 2014 and are OK with paying the penalty this year, you might want to obtain coverage for next year, or have a qualifying exemption. It's not going to get any cheaper, and regardless of how you feel about the Affordable Care Act, it seems like a better deal to at least get something for your money (health insurance) than simply to throw it away in the form of penalties.

Standard Deduction

The standard deduction – that is, the basic tax break extended to all Americans each year -- rises to $6,300 for single filers and $12,600 for married taxpayers filing jointly in 2015. That's up $100 and $200, respectively, from 2014 figures. The standard deduction is crucial to tax planning and withholding, because if you cannot itemize enough deductions to surpass this amount, this is the only tax break the government will likely be giving you on next year's tax return.

Higher Income Limits for IRA Contributions

Income limits for deductible contributions to IRAs vary based on whether the taxpayer and/or the spouse are eligible to participate in an employer-sponsored retirement plan. The tax deduction for making a traditional IRA contribution is phased out for investors who have a workplace retirement plan and a modified adjusted gross income of more than $61,000 but less than $71,000 for individuals, and more than $98,000 but less than $118,000 for couples in 2015.

For individuals who don't have a workplace retirement plan but are married to someone who does, the tax deduction for an IRA contribution is phased out if the couple's income is more than $183,000 but less than $193,000 in 2015.

The maximum contribution for an IRA has not changed for 2015 and remains at $5,500 for people under 50, with an additional catch-up of $1,000 for those 50 and older for a total of $6,500.

Higher Income Limits for Roth IRA Contributions

The income limits for contributing to a Roth IRA will increase by $2,000 in 2015. The new limits are $116,000 or more but less than $131,000 for individuals, and $183,000 or more but less than $193,000 for married couples.

You can have both a traditional and Roth IRA, but you can only contribute a maximum of $5,500 (or $6,500 if you're 50 or older) across both accounts each year.

As we head into tax season and the New Year, please know that we are going to do all that we can to make sure your CPA has all the information they need pertaining to your accounts with us. Please do not hesitate to have your CPA or tax preparer contact us directly with any questions they may have regarding the preparation of your return, we are here to help!!

Until next time.

—Brett C. Hixon, CFP®

Changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of Raymond James we are not qualified to render advice on tax or legal matters.