Selected 2015 Inflation-Indexed Figures

Many contribution and deduction amounts in the tax law are indexed for inflation.  Many also have statutory adjustments.  While there remains substantial uncertainty about whether the “lame duck” Congress will enact any new tax laws before the end of 2014, some important 2015 inflation-adjusted figures have been released and are as follows:

1.     The top 39.6% ordinary income and 20% long-term capital gain tax rates apply when taxable income exceeds $464,850 for joint filers (up from $457,600 in 2014) and $413,200 for single filers (up from $406,750 in 2014).  For trusts and estates, the top rates apply when taxable income exceeds $12,300 (up from $12,150 in 2014).

2.     Itemized deductions and personal exemptions begin to “phase-out” once adjusted gross income exceeds $309,900 for joint filers (up from $305,050 in 2014) and $258,250 for single filers (up from $254,200 in 2014).  These phase-outs do not apply to trusts and estates.

3.     The personal exemption is $4,000 (up from $3,950 in 2014).

4.     The contribution amount for traditional and Roth IRAs remains $5,500 (the same as in 2014).  For those who are age 50 and older, the additional “catch-up” contribution is $1,000 and is not indexed for inflation.

5.     The modified adjusted gross income phase-out range for contributions to Roth IRAs is from $183,000 to $193,000 for joint filers (up from between $181,000 and $191,000 in 2014); and from $116,000 to $131,000 for single filers (up from $114,000 and $129,000 in 2014).

6.     The contribution amount for traditional and Roth 401(k) accounts is $18,000 (up from $17,500 in 2014).  For those who are age 50 and older, the additional “catch-up” contribution is $6,000 (up from $5,500 in 2014).

7.     The limit on the annual additions to a participant's defined contribution account is $53,000 (up from $52,000 in 2014).

8.     The annual exclusion from gift tax remains $14,000 per donee (the same as in 2014).

9.     The lifetime exemption from estate, gift, and generation-skipping transfer taxes increases to $5,430,000 (up from $5,340,000 in 2014).

10.  The Social Security tax wage base is $118,500 (up from $117,000 in 2014).

11.  The maximum annual contribution to a health savings account is $3,350 (up from $3,300 in 2014) for an individual-coverage-only health plan, and $6,650 (up from $6,550 in 2014) for a family-coverage health plan.  For employees age 55 and older, the additional HSA "catch-up" contribution is $1,000 and is not indexed for inflation.

Update
The business mileage rate increases to 57.5 cents per mile in 2015 (up from 56.0 cents in 2014).  The depreciation component in the business mileage rate is 24 cents per mile in 2015 (up from 22 cents in 2014.  However, the medical care and the moving mileage rates decrease to 23.0 cents per mile in 2015 (down from 23.5 cents in 2014).  The charitable mileage rate remains 14.0 cents per mile as it is not indexed for inflation.

Checklist of Various Tax Matters to Consider Before Year-End 2014

As the end of 2014 approaches, there are many tax matters to consider, including the following (non-exhaustive) list:

1.     Small estates should consider whether to elect portability of the deceased spouse’s unused exemption amount by the December 31, 2014 special extended deadline.  See my January 28, 2014 post here.

2.     Project your 2014 and 2015 income tax rates to see whether it is beneficial to accelerate deductions into 2014 and defer income to 2015, or to do just the opposite.

3.     Determine whether prepaying state income taxes by December 31^st is beneficial.  If the alternative minimum tax applies, prepaying is generally not beneficial.

4.     Be careful of buying mutual funds before their December ex-dividend dates to avoid inadvertently increasing your taxable income simply from your purchase!

5.     Be sure to receive the required minimum distribution (RMD) from an inherited IRA (traditional or Roth) or an inherited qualified retirement plan by December 31^st to avoid a 50% penalty!

6.     If you are over age 70 ½ in 2014, you must also receive the RMD from your traditional IRA or qualified plan by December 31^st to avoid the 50% penalty.

a.      If you make contributions to public charities, consider waiting until further into December to see if Congress and the President will extend the charitable IRA rollover provision that can count as part of your RMD and save you taxes.  See my January 12, 2013 post here for a discussion of this technique.  If you aren’t sure whether the provision will be extended and the end of the year is approaching, make the charitable IRA rollover anyway in case the provision is retroactively extended.

b.     If you turned age 70 ½ in 2014, then your RMDs must begin.  For the first year that you are subject to the RMD, you can choose whether to receive the RMD by December 31, 2014 or by April 1, 2015.  If you choose April 1, 2015, then two RMDs will occur in 2015 as the 2015 RMD must be received by December 31, 2015.  The choice depends upon your income tax rates and the impact upon adjusted gross income (AGI) based deductions and taxes between the two years.

7.     For those employing a program of making annual exclusion gifts of $14,000 each year as part of their estate planning, be sure the checks are cashed early enough in December so that the funds are removed from your bank account by December 31^st, or else use cashier checks.

 8.    Businesses should be sure that their written capitalization policy for 2015 is in place by December 31, 2014.