The deadline to file your tax returns is still a few months off, but it’s time to begin gathering documents and figuring out what you need to pay –and, more importantly, what you can write off. To help you fill out your 2014 returns and plan for 2015, here are few tax changes, big and small, for 2015. Plus, as a bonus, we've included nine of the most peculiar deductions allowed by the US tax code.
1. Affordable Care Act: Increased penalty, PTC credit
Compared with last year, when the Affordable Care Act took effect, there are relatively few major changes to income taxes this year. But like 2014, the two biggest changes for 2015 tax filing come thanks to Obamacare. The first is an increase in the penalty for not having health insurance. When they file returns this year, taxpayers who didn’t have proper insurance coverage in 2014 will pay a fine of 1 percent of their household income or $95 per household member (whichever was higher). If you aren’t insured for 2015, the fine on your 2015 returns will jump up to 2 percent of household income, or $325 per person. If you want to avoid getting socked with serious fines in the future (over $1,200 for a family of four) the deadline to sign up for coverage this year is February 2015.
If you have coverage, all you have to do is check a box on your tax return. You may also qualify for an exemption to the penalty: the list of exemptions from the IRS can be found here.
The second big change is the debut of the premium tax credit (PTC), a refund available to families who get their health coverage through state-run exchanges. You qualify, generally, if your household income is between 100 and 400 percent of the federal poverty line and you don’t have access to an employee-sponsored health plan. The amount of the credit varies, but you can either claim it with your insurance company to lower your monthly premiums, or you can claim it on your yearly tax return.
2. FSA limits
If you use an employee-sponsored flexible spending account (FSA) for setting aside pretax money to pay for certain medical and care expenses (examples: eyeglasses, day-care for a child, certain forms of physical therapy), the maximum amount you could contribute in 2014 was $2,500. For the 2015 tax year, it has gone up $50 for a total $2,550. There’s also been a change in rollovers for FSAs. Beginning in 2013, over $500 of a previous year’s FSA could be rolled into the next year. But beginning in 2015, if you carry over $500 of an FSA into the next year, you are ineligible to participate in a general services Health Savings Account (HSA). These are slightly different from FSAs, so you would still be able to carry over money for specific expenses, like at-home care for a relative.
3. Bitcoin
Last year, the Treasury Department declared that Bitcoin, the wildly volatile virtual currency, doesn’t qualify as an official currency, but rather as a tradable good. But it still counts as payment, as far as the IRS is concerned. If you received any income in bitcoins in 2014, include the estimated market value in your taxable income.
4. 401(k) limits increase
The maximum annual amount employees under age 50 can contribute to a 401(k) or 403(b) retirement savings account for the 2014 tax year is $17,500. Workers over age 50 can contribute an additional $5,500 or a maximum of $23,000. In the 2015 tax year, those annual limits rise $500 to $18,000 –with an additional $6,000 contribution for workers over 50. So if you’re a few years away from retirement, you can boost those savings a little more than before.
5. Adjusted tax brackets
As they often are, income tax benchmarks have been adjusted for inflation. For example, married couples filing jointly with a 2014 household income of under $18,150 will qualify for a 10 percent tax rate when they file their 2014 returns. For the 2015 tax year, the tax bracket will rise to $18,450. For the full table, see page 5 of the IRS’ revenue procedure document.
6. IRA rollovers: One per year
An IRA rollover involves taking money from an individual retirement account, receiving a check from your IRA custodian, and putting it into either another IRA or back into the same account. The process is tax-free if the money is deposited back within 60 days, and it’s popular to use such withdrawals as short-term personal loans, without any interest or tax consequences. But in the 2015 tax year, the IRS will only allow one such rollover every 12 months, starting from the date of the rollover. Direct transfers aren’t affected by this rule, so IRA holders can move their savings straight from account to account as many times as they like.
7. Standard deductions rise
The standard deduction is the flat amount that filers can subtract from their income. For the 2014 tax year, it's $6,200 for single filers and $12,400 for married couples filing jointly. For the 2015 tax year, it goes up $100 for single filers and $200 for married couples filing jointly –to $6,300 and $12,600, respectively.
8. Deduction: Pet moving
The most-tax savvy are probably already aware that you can often deduct moving expenses, but did you know that includes shipping your pet?
Yes, Fido and Whiskers can each deduct a sum from your taxes if you choose to move your animals across the country, as they are considered personal effects. Just be sure to throw your pets an extra bone as a thanks for saving you a couple of bucks on your taxes.
9. Deduction: clarinet lessons
Famed English clarinet player Acker Bilk once said, “I look at my clarinet sometimes and I think, I wonder what's going to come out of there tonight? You never know.” Though this may be true for the sound of this reedy instrument, you can now know for sure that a clarinet can yield surprising financial and dental benefits.
A clarinet and lessons can be considered tax deductible if a doctor has recommended playing the instrument as a method of correcting an overbite.
This isn’t the only strange medical write-off however: others include support stockings, wigs for those who have lost hair due to a disease, and many more, according to IRS publication 502.
Not tax deductible: earplugs for parents of children taking clarinet lessons.
10. Deduction: whaling equipment
Whale hunting is essentially banned in the United States, but it remains a protected trade for a small group of indigenous Alaskans. After 2004, that protection extended to taxes: Whale hunters can write-off up to $10,000 on whale-related expenses, including boat repairs, equipment, harpoons, and crew food.
Though you would think this would inspire an uptick in indigenous Alaskans pursuing bowhead whales in freezing waters, whale hunting is still limited to a seasonal, sacred tradition in which only a few whales are killed.
11. Deduction: deer donation
South Carolina may be the only place where “meat processing plants” and “charity donations” occupy the same tax form. Any meat packer, butcher, or processing plant in the state can get a $50 rebate by donating a processed deer carcass to a charity, which will use it to feed the hungry.
None of the meat may have been used previously for commercial purposes, and meat providers must “skin, cut, bone, grind, package, or perform any butchering tasks necessary to prepare the meat for distribution and consumption” before it can be donated. This deduction is only available to professional meat processors.
So if you’re in the venison business, want to do a good deed, and get a break on your taxes, it looks like South Carolina is your state.
12. Deduction: bingo
Yes, bingo can be deducted from your tax bill: Bingo-playing taxpayers can deduct the amount lost in a given year, up to the amount that was won. This deduction requires a detailed diary of winnings and losses.
The Internal Revenue Service allows taxpayers to deduct losses for other types of wagering, too. They must keep a detailed diary of the kind of wager, where they placed it, who they were with, and how much they won or lost.
13. Deductions: uniforms
Work clothing must meet two conditions to qualify as deductible: It must be worn as a condition of employment, and it must not be a suitable substitute for everyday clothing. Examples cited by the IRS include the garb of delivery workers, firefighters, health care workers, police, transportation workers, letter carriers, and professional athletes. But this isn't a LeBron James tax break –high profile professional athletes generally have their uniforms paid for by team owners and sponsorship deals.
14. Deduction: business gifts (under $25)
The IRS is fine with giving gifts, as long as they aren't too lavish.
You’re allowed to deduct up to $25 in costs spent on business gifts for any individual person. You can also widely distribute gifts under $4 that have your name on them –examples listed by the IRS include pens, desk sets, and bags– the sum total can be deducted, even if it's over the $25 limit.
15. Deduction: wigs (but not hair transplants)
Don’t like that widening bald spot? The good news is it may lead to a tax deduction. The IRS allows patients with hair loss traced traced to a disease to write off the cost of a wig, if a doctor recommends buying one.
The bad news: Deductions for hair transplants are a lot harder to get. Regardless of the reason for the hair loss –age, illness. etc.– the IRS categorizes hair transplants as cosmetic surgery, which is usually nondeductible. Taxpayers can only write off cosmetic surgery if it is directly related to certain circumstances, such as injuries.
16. Deduction: weight-loss programs
Some people who enrolled in weight-loss programs last year can deduct the money they paid in fees, according to the IRS. But not everyone qualifies: to be eligible, taxpayers must have enrolled to treat specific conditions diagnosed by doctors. Even when recommended by a health care professional, the cost of dance lessons, swim lessons, and health-club dues are not deductible, according to the IRS.
Except in very limited cases, diet foods are also non-deductible.
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