It’s time for the annual inundation of tax forms including the 1098, which is used for reporting a mortgage. The Senate recently expanded several tax provisions which include mortgage debt forgiveness and credits for energy-efficient home development.
While documents for the previous year’s taxes are valuable, adjusting the budget may be needed to account for the changes in the tax code. The key to executing a better strategy is to budget and plan ahead of time estimating the amount you owe to the Internal Revenue Service.
In spite of how your financial situation looked like in 2014, here are the 7 major changes that will hit a large volume of taxpayers in 2015.
- Health Care Savings
Traditionally, Health Flexible Spending Accounts (FSA) have use-it or lose-it plans. You are allowed to save pre-tax dollars to pay for your health care expenses, but it is consumable within the plan year. In 2013, you had the right to roll over up to $500 from a FSA into the plan for the upcoming year. For this year, expect some changes.
If you have carried over $500 and have a FSA this year, you may be ineligible to partake in a Health Savings Account (HSA) for the entire year. This will only apply to general purpose FSAs, not specific use like dental expenses or dependent care. Planning ahead based on this new restriction is highly recommended.
- Living Expenses, Pell Grants and Education Credits
By default, most students calculate their Pell Grant funds to pay for qualified education expenses, since their college applies the grant for tuition. The calculated amount will decrease the stated expenses that are eligible to be used to claim an education credit like the American Opportunity Credit.
Alternately, Pell Grants is now allowed to be allocated for living expenses, up to the full balance of actual living expenses. It is applicable if a student’s college obtained the Pell Grant to his tuition and fees. The balance will be counted as taxable income, but it may be sufficient to maximize the education credit. This intricacy may affect up to 9 million students. While resources on this are available directly from the IRS, you may also consider consulting with a tax professional to talk about your specific situation.
- Bitcoin
This isn’t good news for Bitcoin users. Apparently, if you received payments this year in virtual currency, then you must include the market value of it with your annual income because it is now taxable. Various calculations will now be applied if you invest, if you receive it as compensation for services or in virtual currency.
- Unemployment Benefits
Just the thought of being unemployed is mentally and financially stressful. Unemployment benefits for job seekers give a valuable connection between their contemporary situation and a new position. Unfortunately, these benefits are now taxable. You will be given a Form W-2 and/or Form 1099-G with the total amount of benefits reported. This information is required to file your tax return.
Furthermore, the latest U.S Supreme Court resolution clarified that any supplemental unemployment indemnity that isn’t tied to state unemployment benefits that was paid by a former employer to a laid-off employee will be taxable as salary. Hence, social security taxes are needed to be withheld from them.
- IRA Rollover Limits
This tax change is applicable starting this year, skipping 2014’s return, but it might affect your savings for next year. This year, you are only allowed to make one rollover in a 12 month period, from an IRA to another IRA.
A rollover is usually labeled as funds withdrawn from one IRA, holding them for less than 60 days and then deposited it to another IRA account.
Moreover, taxpayers can still make create numerous trustee-to-trustee transfers over the course of a year. Meaning, you can advise Bank A to send your IRA funds to Bank B. Keep in mind that the money is never withdrawn and is still in your possession. If at some point you roll over more than one IRA, withdrawals after the first will be taxed to you at a regular rate. Potentially, there would be an additional of 10 percent early withdrawal tax. The disallowed rollover is subjected to the regular IRA contribution limits. Meaning, if the rolled over balance exceeds your allowable IRA contribution, it will automatically treated as an excess contribution which is subject to a 6 percent excise tax.
- Inflation
There are some adjustments in the fundamental parts of tax filing that have went through inflation adjustments for 2014. Currently, you are now included in the highest tax bracket of 39.6 percent if your adjusted gross income is more than:
- $406,750 for single
- $228,800 for married couples filing separately
- $457,600 for married couples filing jointly
- $432,200 for head of household
The deduction to file as Single or Married, filing separately increased to $6,200, a $100 increase from 2013. In addition, the standard deduction rates have also ballooned a bit – Head of Household is now $9,100, a $150 increase and Married filing jointly or a qualifying widow(er) is now $12,400, a $200 increase. These rates are expected to be higher if you are over 65 years old or if you are blind. Every exemption claimed in 2014 is $3,950, a $50 increase.
- Extenders
A total of 55 tax benefits were extended in the American Taxpayer Relief Act of 2012 that expired on December 31, 2013. It is possible that Congress will choose to extend some or all of the tax breaks from ATRA 2012. Regarding the expired benefits, the following changes may impact you:
- The deduction of tuition for higher education, which allowed taxpayers to decrease the fee between $2,000 and $4,000 of all qualified tuition expense.
- The educator expense deduction that allows teachers to claim up to $250 of the unreimbursed classroom expenses.
- The energy credits that are included credits for home improvements that are beneficial for energy efficiency like heating and cooling systems, windows and insulation.
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