Bloomberg BNA has given tax practitioners and taxpayers a head start on their 2015 tax year planning, releasing a detailed projection of inflation-adjusted tax items for next year on Wednesday.
The report, available online here, includes projections for income tax brackets, personal exemptions, standard deductions, adoption credits, estate tax exclusions, the alternative minimum tax and many other amounts to help taxpayers and tax planners get an early look at the information they will need to save tax dollars in 2015. The report includes more than 250 figures contained in over 50 tax code sections.
“The good news is that people whose income is the same compared to last year may enjoy a lower effective tax rate—and a lower tax bill—because of the inflation adjustments,” said Bloomberg BNA Tax & Accounting executive editor George Farrah in a statement. “The higher consumer price index will impact next year’s tax brackets, standard deductions, and other inflation-adjusted elements of the tax code. The insights and analysis in this report are indicative of the wealth of products and solutions from Bloomberg BNA that help tax professionals provide exceptional guidance.”
The IRS is expected to publish its official statement of 2015 inflation adjustments in a revenue procedure later this year. The Internal Revenue Code contains numerous deduction, credit, exclusion and limitation amounts that are adjusted each year for inflation, Bloomberg BNA noted.
The final data required to make many of these inflation adjustments were published Wednesday by the Bureau of Labor Statistics.
Items Adjusted for the First Time
A few amounts are particularly noteworthy because they are subject to inflation adjustments for the first time in 2015, so tax planners should be aware of and prepare their clients for these items, Bloomberg BNA noted.
One amount that will affect many taxpayers is the cap on contributions to health flexible spending accounts. Prior to 2013, there was no limit at all on health FSA contributions. A $2,500 cap was instituted in 2013, and in 2015, the cap will be adjusted upward for inflation for the first time to $2,550.
Two other amounts subject to inflation adjustment for the first time are related to the Affordable Care Act. Bloomberg BNA’s report includes projections of the penalty imposed on employers failing to offer minimum essential coverage to their employees and the penalty on employers who offer coverage but have employees who qualify for premium tax credits.
Individual Income Tax Brackets
Because the higher Consumer Price Index pushes the definition of the brackets upward and also increases the standard deduction and exemption amounts, the taxes due will decrease from year to year. For example, suppose married taxpayers filing jointly figure tax on $150,000. In 2014, they were in the 28 percent bracket and paid $29,247 in tax. In 2015, the brackets are adjusted for inflation, and they are now in the lower 25 percent bracket and will pay $29,087.50 in tax, “saving” $159.50 compared to 2014.
High-income taxpayers will enjoy a measure of relief in 2015 as well, because the top 39.6 percent tax bracket is projected to begin at $464,850 for married taxpayers filing joint returns and at $413,200 for unmarried taxpayers. This represents an increase from $457,600 for married taxpayers filing jointly and $406,750 for unmarried individuals in 2014.
Bloomberg BNA has projected the 2015 income tax rate tables, shown below. The tables for other filing situations are included in Bloomberg BNA’s full report.
Personal Exemption and Standard Deduction
Most taxpayers are entitled to claim a personal exemption deduction for each member of their household. For 2015, the personal exemption amount is projected to be $4,000, up from $3,950 in 2014. For high-income taxpayers, the personal exemption deduction is phased out. The projected phaseout levels are available in the full report.
When calculating their deductions, taxpayers may choose to take the higher of their itemized deductions or the standard deduction. The standard deduction amount varies depending on filing status. The standard deduction amounts are shown below.
Alternative Minimum Tax
For some taxpayers, inflation adjustments can make the difference between having to pay AMT or not. The AMT exemption was automatically adjusted for inflation for the first time in 2013.
“A feature unique to these projections is that Bloomberg BNA highlights several adjustments that can be slightly different, depending on how the Code is applied,” said Farrah. “In most cases, the differences result from the rounding convention used in the calculation. The Code requires one of two conventions. In some cases, the sum of the base amount and increase is rounded. In other cases, the increase amount is rounded before being added to the base amount. Often, the result is the same under either rounding convention, but Bloomberg BNA highlights each item where the rounding convention makes a difference.”
One example is the AMT exemption amounts, shown below. Where two numbers are listed, the first results from applying the rounding convention Bloomberg BNA believes is required by the Code. The amount in parenthesis is calculated using the same rounding convention the IRS has applied in past years.
Estate and Gift Tax Exclusions
Bloomberg BNA projects that the estate tax basic exclusion for decedents dying in 2015 will be $5.43 million. The exclusion amount originally was $5 million in 2011, and has been adjusted for inflation since 2012. The basic exclusion was $5.34 million in 2014. The annual gift tax exclusion remains $14,000 in 2015.
The complete report is available online here.
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