The federal income tax rates for 2015 are the same as last year: 10%, 15%, 25%, 28%,
33%, 35%, and 39.6%. However, the rate bracket beginning and ending points are
increased slightly to account for inflation. For 2015, the maximum 39.6% bracket
affects singles with taxable income above $413,200, married joint-filing couples with
income above $464,850, heads of households with income above $439,000, and married
individuals who file separate returns with income above $232,425. Higher-income
individuals can also get hit by the 0.9% additional Medicare tax on wages and
self-employment income and the 3.8% net investment income tax (NIIT), which can both
result in a higher-than-advertised marginal federal income tax rate for 2015.
What we've listed below are a few money-saving ideas to get you started that you may
want to put in action before the end of 2015:
- For 2015, the standard deduction is $12,600 for married taxpayers filing joint
returns. For single taxpayers, the amount is $6,300. If your total itemized
deductions each year are normally close to these amounts, you may be able to
leverage the benefit of your deductions by bunching deductions, such as
charitable contributions and property taxes, in every other year. This allows you
to time your itemized deductions so they are high in one year and low in the
next. However, the alternative minimum tax (AMT), discussed later in this
article, should be considered when using this strategy.
- If you or a family member own traditional IRAs and reached age 70½ this
year, consider whether it's better to take the first required minimum
distribution in 2015 or by April 1 of next year.
- If your employer offers a Flexible Spending Account arrangement for your
out-of-pocket medical or child care expenses, make sure you're maximizing the tax
benefits during the upcoming enrollment period for 2016.
- If you have a 401(k) plan at work, it's just about time to tell your company how
much you want to set aside on a tax-free basis for next year. Contribute as much
as you can stand, especially if your employer makes matching contributions. You
give up "free money" when you fail to participate with the maximum amount the
company will match.
- If it looks like you are going to owe income taxes for 2015, consider bumping up
the federal income taxes withheld from your paychecks now through the end of the
- Between now and year end, review your securities portfolio for any losers that
can be sold before year end to offset gains you have already recognized this year
or to get you to the $3,000 ($1,500 married filing separately) net capital loss
that's deductible each year.
- If you own any securities that are all but worthless with little hope of
recovery, you might consider selling them before the end of the year so you can
capitalize on the loss this year.
- Don't overlook estate planning. For 2015, the unified federal gift and estate tax
exemption is a generous $5.43 million, and the federal estate tax rate is a
historically reasonable 40%. Even if you already have an estate plan, it may need
updating to reflect the current estate and gift tax rules. Also, you may need to
make some changes that have nothing to do with taxes.
- If you are self-employed, consider employing your child. Doing so shifts income
(which is not subject to the "kiddie tax") from you to your child, who normally
is in a lower tax bracket or may avoid tax entirely due to the standard
deduction. There can also be payroll tax savings and the ability to contribute to
an IRA for the child.
- If you own an interest in a partnership or S corporation that you expect to
generate a loss this year, you may want to make a capital contribution (or in the
case of an S corporation, loan it additional funds) before year end to ensure you
have sufficient basis to claim a full deduction.
Remember that effective tax planning requires considering at least this year and next
year. Without a multiyear outlook, you can't be sure maneuvers intended to save taxes
on your 2015 return won't backfire and cost additional money in the future.
And finally, watch out for the AMT in all of your planning, because what may be a
great move for regular tax purposes may create or increase an AMT problem. There's a good chance you'll be hit with AMT if you deduct a significant amount of state and local taxes, claim multiple dependents, exercise incentive stock options, or recognize a large capital gain this year.
Again, these are just a few suggestions to get you thinking. If you'd like to know
more about them or want to discuss other ideas, please feel free to call us.
This publication is distributed with the understanding that the author, publisher and
distributor are not rendering legal, accounting or other professional advice or
opinions on specific facts or matters, and, accordingly, assume no liability
whatsoever in connection with its use. The information contained in this newsletter
was not intended or written to be used and cannot be used for the purpose of (1)
avoiding tax-related penalties prescribed by the Internal Revenue Code or (2)
promoting or marketing any tax-related matter addressed herein. © 2015