While the types of tax deductions and credits remain fairly constant from year to year, the numbers change annually. Dollar limits, eligibility restrictions, and other figures are adjusted annually for inflation. Inflation has been low, so adjustments are modest. Nonetheless, these cost-of-living adjustments (COLAs) are helpful and mean more opportunities for tax savings for businesses in 2015.
1. Tax Brackets
In 2015, you will be able to earn higher profits without falling into a higher tax brackets. For example, if you’re a joint filer, you won’t fall into a tax bracket above 25% as long as taxable income (income after deductions and personal exemptions) does not exceed $151,200; in 2014, you were no longer in the 25 percent tax bracket with taxable income over $148,850. And you’ll pay no tax on long-term capital gains and qualified dividends as long as taxable income on a joint return does not exceed $74,900 (in 2014 the limit was $73,800). Lower taxable income limits apply for singles and heads of households.
2. Business Driving
If you drive your personal car or truck for business, you can deduct the actual expenses related to business driving or rely on an IRS-set rate. For 2015, despite the dramatic drop in prices at the pump, the IRS rate for business driving is 57.5 cents per mile, up from 56 cents per mile in 2014. Caution: Using the IRS rate means you don’t have to keep track of car expenses, but you still need a record of business driving (date of each trip, destination, odometer reading, etc.)
3. Health Savings Accounts
If you have a high deductible health plan (HDHP), which is typically a bronze plan in government marketplace parlance, you can make tax deductible contributions to an IRA-like savings account called a Health Savings Account (HSA). What qualifies as an HDHP and how much you can contribute annually has been adjusted for inflation for 2015. For example, the contribution limit on a self-only plan in 2015 is $3,350. In 2014, it was $3,300. The contribution limit for a family plan in 2015 is $6,650, up from $6,550 in 2014.
4. Small Employer Health Insurance Credit
Small employers who obtain health coverage for employees through a government Small Business Health Insurance Option Plan (SHOP) may qualify for a 50 percent tax credit for the premiums they pay. To be eligible, average annual payroll cannot exceed a set amount. For 2015, this is $25,800. It was $25,400 in 2014.
5. Retirement Plans
The amount that can be contributed on a tax-advantaged basis to qualified retirement plans in 2015 is higher than in 2014, making it possible to save more for retirement. For example, salary reduction contributions to 401(k) plans in 2015 are capped at $18,000 (up from $17,500 in 2014). Those 50 and older can add another $6,000 (up from $5,500 in 2014). The contribution limit on profit-sharing plans and SEPs for 2015 is $53,000, or $1,000 more than in 2014.
IRA contribution limits are unchanged at $5,500, plus $1,000 for those age 50 and older by the end of the year. However eligibility limits to make deductible IRA contributions for those who participate in a qualified retirement plan, as well as the ability to fund a Roth IRA, have been increased. Thus, those who may have been barred from making these contributions in 2014 may be eligible to do so in 2015.
COLAs impact other tax rules that may affect you. Factor them into tax planning for 2015. Links to these and other COLAs can be found here.
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