This is a guest post from Amanda Argue.

Don’t you feel sometimes like income tax is the hardest subject in the world to understand? Well, it’s really nothing to be embarrassed about. That’s exactly what Albert Einstein said way back when:

“The hardest thing in the world to understand is income taxes.” – Albert Einstein

If the subject was perplexing to a genius like Einstein — and it’s only gotten more complicated since then — is it any wonder that most Americans are dazed and confused when it comes to filing their returns? So I thought it would be helpful to sort out the 2015 IRS tax code mess and make a place for quick reference available for tax planning and prep. Hope it helps!

Let’s dive in.

General tax updates

  • Tax bracket adjusted for inflation - The 2015 tax bracket has been updated to reflect a 1.6 percent increase, due to inflation. This means the top 1 percent of high-income earners, including individuals with over $413K in taxable income, will be shelling out 39.6 percent of income tax on their gross taxable wages. Yikes.

    Take a deeper look at the IRS Bracket changes to see which tax rate you will fall under in 2015.

  • Standard deduction changes - The standard deduction has also increased from the prior year. For individuals who select the standard deduction, you will be allowed to deduct these amounts:

• $6,300 for single taxpayers
• $12,600 for married filing jointly
• $6,300 for married filing separately
• $9,250 for head of household

Notes about taking the standard deduction:

If you decide to take the standard deduction amount, remember that you are not also allowed to itemize your deductions on Schedule A (Form 1040). In general, itemized deductions are there to help taxpayers who currently hold a mortgage or have investment interest they would like to deduct.

To learn more about itemized deductions, check out the IRS Guidelines.

  • Alternative minimum tax exemption - Originally, the alternative minimum tax was set to limit tax breaks for Americans looking to reduce their overall tax bill. As of 2015, the AMT income exemption for taking this tax break is set for individuals who earn over $53,600 and married filing jointly couples at $83,400 in taxable income.

    (If you use software to prepare your return, the AMT is calculated automatically for you. If you prepare your taxes manually without software, you may need to complete Form 6251 to see if you owe the AMT.) Here is the IRS guidance on the AMT tax break.

2015 IRS tax brackets, standard deductions, and personal exemptions

Tax Rate Single Married/Joint & Widow(er) Married/Separate Head of Household
10% $1 – $9,225 $1 – $18,450 $1 – $9,225 $1 – $13,150
15% $9,226 – $37,450 $18,451 – $74,900 $9,226 – $37,450 $13,151 – $50,200
25% $37,451 – $90,750 $74,901 – $151,200 $37,451 – $75,600 $50,201 – $129,600
28% $90,751 – $189,300 $151,201 – $230,450 $75,601 – $115,225 $129,601 – $209,850
33% $189,301 – $411,500 $230,451 – $411,500 $115,226 – $205,750 $209,851 – $411,500
35% $411,501 – $413,200 $411,501 – $464,850 $205,751 – $232,425 $411,501 – $439,200
39.60% over $413,200 over $464,850 over $232,425 over $439,200
Standard Deduction $6,300 $12,600 $6,300 $9,250
Personal Exemption $4,000

Healthcare tax updates

  • Affordable Care Act (ACA) penalty - As most of you are aware, Affordable Care Act, aka Obamacare, kick-started in 2014 mandating that all US citizens are required to have health insurance.

    The ACA penalty has increased in 2015, causing a majority of Americans to rethink their healthcare coverage plan, including myself. For those of you who are still considering whether or not you should purchase health insurance, here is a breakdown of the upcoming penalties for the 2015 and 2016 tax years…

    The fee for not having health coverage in 2015 is the greater of:

    1. 2 percent of your yearly household income. (Only the amount of income above the tax filing threshold, about $10,150 for an individual, is used to calculate the penalty.) Or,

    2. $325 per person, ($162.50 per child under 18). The maximum penalty per family using this method is $975.

    The fee for not having health coverage in 2016 is the greater of:

    1. 2.5 percent of your yearly household income (Only the amount of income above the tax filing threshold, about $10,150 for an individual in 2014, is used to calculate the penalty.) Or,

    2. $695 per person, ($347.50 per child under 18) The maximum penalty per family using this method is $2,085.

    Quick side note: There are quite a few exemptions to the Affordable Care Act Healthcare Penalty, from deciding to live outside the US for longer than 330 days to incurring a qualified hardship. It might be helpful to take a peek at the exemptions allowed underneath this act. You can check out a list of exemptions on the Healthcare.Gov website.
  • Health expense account (HSAs & FSAs) changes - For those individuals who have a Health Savings Account (HSA) in 2015, the contribution limit has been raised to $3,350 for the single plan and $6,650 for the family plan. In addition, the Health Savings Account (HSA) has three major tax savings:
    1. Contributions are tax deductible

    2. Growth of the HSA (outside of contributions) are tax-free

    3. Withdrawals are tax-free if used to pay for medical expenses

    On the other side, for those individuals who opted to use a Flexible Spending Account (FSA), you will also receive an increase in the total contributions limit to equate to $2,550, up $50 from 2014 that is required to be spent in the 2015 plan year.

    Keep this in mind when deciding which plan you want to contribute to in order to get the most tax savings out of your health coverage plans. Learn more about the health expense accounts within the IRS Guidelines.

Retirement plan updates

  • 401(k) contribution limits - Every year, the IRS increases the 401(k) contribution limits by roughly $500 per person. In 2015, employees can now contribute up to $18,000, which is up from the $17,500 limit imposed in 2014.

    In addition to the increase in 401(k) contributions, there is also the increase in catch-up contributions for individuals who are age 50 or over at the end of the calendar year. For 2015, the total catch-up contributions equate to $6,000 per person and are allowed under a 401(k), 403(b), SARSEP, and governmental 457(b) plans. Here is the IRS Guidance on the Retirement Topics.

  • Limitation on IRA rollovers - As of 2015, you are limited to one indirect rollover from your IRA account to another IRA account per year.

    With an indirect rollover, a plan participant is allowed to withdraw (through a distribution) all of their retirement balance without taking on a penalty if they decide to enroll the balance into a new IRA account. Due to the 2015 change, indirect rollovers are now only allowed to be performed once a year.

    However, if you want to transfer your IRA balances through a direct rollover, i.e., trustee to trustee, then there are no limitations on how many times this can occur. As long as your retirement balance stays out of your hands during the transfer (i.e., direct rollover), you can perform this process as many times as you like. Learn more of the IRS Guidelines here.

  • The Saver’s Credit (Retirement Savings Contributions Credit) - Low- and moderate-income workers are provided an additional tax credit to help them save for retirement. According to the IRS, the saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to IRAs and 401(k) plans and similar workplace retirement programs.

    In 2015, the saver’s credit increased by $1,000 for married-filing-jointly couples who make less than $61,000. The credit was also increased by $500 for individual taxpayers with incomes less than $30,500. Learn more from the IRS Guidelines here.

Miscellaneous 2015 tax changes

Here are a few other tax changes that were released by the IRS for the 2015 tax year:

  • The personal exemption for Tax Year 2015 rises to $4,000, up from the 2014 exemption of $3,950.

  • The 2015 maximum Earned Income Credit amount is $6,242 for taxpayers filing jointly who have three or more qualifying children, up from a total of $6,143 for Tax Year 2014.

  • Estates of decedents who die during 2015 have a basic exclusion amount of $5,430,000, up from a total of $5,340,000 for estates of decedents who died in 2014.

  • Under the small business healthcare tax credit, the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,800 for Tax Year 2015, up from $25,400 for 2014.

This is a lot of tax information to digest in a quick post. To help sort through your taxes and make sure you are minimizing your overall tax liability as much as possible, it is highly recommended that you consult a qualified tax professional on your personal and business taxes.

Plus, if you are a tax geek like me, you can check out the full listing of the summarized IRS 2015 tax changes.

[Note: This material does not constitute any specific legal, tax or accounting advice. Please consult with qualified professionals for this type of advice.]

[Editor's note: An earlier version of this article included student loan debt interest with the discussion on itemized deductions. However, according to IRS.gov, "The student loan interest deduction is claimed as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040)."]

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