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2015 IRS Inflation Adjustments and Year End Tax Planning Opportunities

11.10.2014 | Client Alert

Here are notable cost of living adjustments (COLA) issued by the IRS. All are effective January 1, 2015. You will also find some tax planning strategies to consider in light of your financial circumstances.

  2015 2014
Top Tax Rate of 39.6% $464,850 married filing jointly
$413,200 single
$457,600
$406,750
Maximum Wages Subject to Social Security Tax $118,500 $117,000
Standard Deduction $12,600 married filing jointly
$9,250 head of household
$6,300 single
$12,400
$9,100
$6,200
Limit for Itemized Deductions $309,900 married filing jointly
$258,250 individual
$305,050
$254,200
Personal Exemption $4,000 (Phase-out begins at incomes of $309,900 married filing jointly and $258,250 individuals) $3,950
Alternative Minimum Tax (AMT) $83,400 married filing jointly
$53,600 individuals
$82,100
$52,800
Earned Income Credit
(3 or More Qualifying Children)
$6,242 $6,143
Foreign Earned Income Exclusion $100,800 $99,200
Dollar Limit for Contributions to Healthcare Flex Spending Arrangements (FSA) $2,550 $2,500
401(k), 403(b),
457 Plan
Salary Deferral
$18,000
$6,000
(Catch up Limit for those Age 50+)
$17,500
$5,500
Defined Contribution Plan Limitation $53,000 $52,000
Maximum Compensation for Qualified Retirement Plan $265,000 $260,000
Gift Tax Exclusion $14,000 $14,000

 

Some Strategies to Consider Now

Align Your Net Gains and Losses. Examine your 2014 short- and long-term gains and losses to determine if your capital gains and your loss carryforwards are being used to your maximum advantage.  It may be possible to use up $3,000 of net capital losses to offset ordinary income for 2014. If you choose to harvest some of your losses, note that you cannot immediately repurchase the same security to reestablish your position.  You must wait at least 31 days. This is known as the Wash Rule. 

Accelerate or Defer Deductions.  Accelerating deductions can deliver immediate benefits — less tax paid this year.  However, deferring those deductions to future years when tax rates may be higher is also a viable strategy. Payments of deductible expenses — property taxes, certain medical expenses — can be moved so that the timing of those payments work to your tax advantage.

Convert from a Traditional to a Roth IRA.  A popular strategy for high net worth individuals because there is no longer an income limit, converting from a  traditional to a Roth  IRA means it will be taxed as ordinary income in the conversion year at the rates in effect on the date of conversion.  Among the advantages of a Roth are: 

  • Tax-free growth of the assets
  • Tax-free distributions
  • No required minimum distributions during the original holder’s lifetime

Review Your Mutual Fund Capital Gain Distribution Estimates.  Generally, mutual funds post distribution estimates in the 4th quarter of each year.  By estimating your likely tax liability, you can gauge if you should offset a capital gain with losses. You might consider selling shares ahead of the distribution.  You may want to postpone purchasing a mutual fund’s shares immediately before it distributes a sizeable capital gain.

To learn more about strategies to consider before the end of the year, contact your Berdon advisor. You can learn more about planning opportunities by reviewing our 2014-2015 Tax Planning Guide below.

Download 2014-2015 Tax Planning Guide

Request a hard copy

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