Lawmakers like to keep taxpayers on their toes. Image: Wikimedia Commons.
Tax season is right around the corner, and it's almost time to start preparing to file your 2015 tax return. Each year, key aspects of your taxes change, but other provisions often take effect at the last minute or even after the tax year has officially ended. Let's take a look at how your taxes might have changed this year and how they'll affect your return.
A long list of inflation-related changesMany tax provisions are indexed to inflation and therefore change from year to year. Below, you'll find some of the most common changes that millions of taxpayers will see:
- Maximum participant contributions to 401(k) plans rose $500 to $18,000, with catch-up contributions for those 50 or older also having risen $500 to $6,000.
- The standard deduction for single filers rose $100 to $6,300. For joint filers, a $200 increase brings the standard deduction to $12,600.
- Personal exemptions are up $50 to $4,000.
- The maximum earned income credit for families with three or more children rose $99 to $6,242. Those for smaller families saw more modest increases.
- The income levels for each tax bracket rose by roughly 1.6% from 2014 levels.
You can find a full list of inflation-related changes at this link [opens PDF].
New limits on IRA rollovers Beginning in 2015, the IRS imposed new limits on rollovers between IRAs. Under the new rule, you're only allowed to do a single rollover in any 12-month period, no matter how many different IRAs you own. Before this rule took effect, some taxpayers did multiple rollovers within a 12-month period, arguing that doing so with different IRAs was permissible. A Tax Court ruling in 2014 found against a taxpayer taking that position, and so new tax regulations mimic the court's findings.
To be clear, you can still do direct transfers involving multiple IRAs within a given year. The rollover rules only come into play when you take temporary possession of your IRA funds, leaving you responsible for redepositing them into an IRA within a 60-day period to avoid trigger a taxable distribution.
Obamacare penalties are on the riseThe penalties for not having qualifying healthcare coverage under the Affordable Care Act rose in 2015. The new penalties are the greater of 2% of your income above the filing limit, or a per-person amount equal to $325 per adult and $162.50 per child up to $975 per family. The income-based penalty is double the 1% that was in effect for 2014, while the per-person amounts are more than triple their 2014 levels.
Tax extenders are still in doubtEvery year, many provisions aren't renewed until the end of the tax year to which they apply. Coming into the last two weeks of the tax year, the following were among the many "tax extenders" that technically expired at the end of 2014 and hadn't yet been renewed:
- Deductions for educators of up to $250 for expenses they pay out-of-pocket for classroom materials.
- Deductions for state and local sales tax instead of income tax.
- Credits for various business research and experimentation expenses.
- Tax-free distributions from IRAs to charity.
- A number of favorable tax provisions related to renewable energy.
Lawmakers have traditionally worked hard to try to get these measures renewed, occasionally running into the following year before legislation retroactively restores lost tax breaks. Sometimes, lawmakers make certain provisions permanent, as they did with the exemption amount for the Alternative Minimum Tax at the beginning of 2013. Taxpayers can hope for such relief this year, but in all likelihood, most of these provisions will probably get their traditional one-year extension at best.
This article can't cover all the tax provisions that changed in 2015, but these are some of the most important for you to keep in mind as you do your return in the coming months. In addition, being aware of new tax changes for 2016 will be important as you start to do your early tax planning for next year.
The article Here's How Your Taxes May Have Changed in 2015 originally appeared on Fool.com.
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