Now that 2014 is almost over, tax season is right around the corner. While this hasn't been the most eventful year for tax changes, there are a few you should be aware of.
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Here is some information on the tax changes you'll face in 2015 and how they might affect your bottom line. What can you do to make sure your wallet doesn't take a big hit?
The big one: health insuranceThe health insurance tax penalty actually kicked in during the 2014 tax year, but it was a drop in the bucket compared to what's coming next.
For 2014, the penalty for not having "minimum essential coverage" is either 1% of your annual income above the tax filing threshold or $95 per adult and $47.50 per child, whichever produces the higher amount. The penalty is capped at $285 per family, or the average national premium for a "bronze" health plan, depending on what method determines your penalty.
In 2015, the penalties will rise significantly. The payment for not having adequate coverage will be either 2% of your income above the tax filing threshold or $325 per adult and $162.50 per child, up to a maximum of $975 per family. We'll see even stiffer penalties in 2016.
Even if you didn't have coverage in 2014 and are OK with paying the penalty this year, you might want to obtain coverage for next year, or have a qualifying exemption. It's not going to get any cheaper, and regardless of how you feel about the Affordable Care Act, it seems like a better deal to at least get something for your money (health insurance) than simply to throw it away in the form of penalties.
You can save more for retirementFor 2015, the maximum elective deferral to a 401(k) plan will rise to $18,000 (from $17,500), with an extra $6,000 (up from $5,500) allowed if you're over 50. Other retirement plans, such as the SIMPLE IRA and SEP-IRA, are also raising contribution limits.
If you contribute the maximum amount, this can mean some serious tax savings. If you don't contribute the maximum, now might be a good time to increase your contributions, even beyond the amount your employer is willing to match. This is an excellent tax break, and you'll be glad you took advantage of it when the time comes to retire.
55 deductions are expiringA bunch of deductions that were included in the American Taxpayer Relief Act of 2012 are set to expire at the end of the year. Actually, they expired at the end of 2013, but Congress recently extended most of these deductions through the end of 2014. That means you can claim them on this year's tax return, but not on your 2015 taxes (which you'll file in early 2016).
One example of this is the teacher's deduction for classroom expenses, which provides for an above-the-line deduction of up to $250 per year. Also expiring is the tuition deduction (not the credits), which allows for a deduction of up to $4,000 in qualified education expenses.
Congress might again extend these deductions, but for the moment they are a thing of the past. If any of these apply to you, it will definitely be worth keeping an eye on in the coming months, but be prepared to file your taxes in 2016 without them if no action is taken.
Higher deductions and exemptions may save you some moneyFor the 2015 tax year, the standard deduction and personal exemption amounts have both increased. These are the numbers you'll use when filing taxes in 2016.
The standard deduction for 2015 has been raised to $6,300 for single taxpayers and $12,600 for married couples filing jointly, up from $6,200 and $12,400, respectively. The personal exemption amount is going up by $50 per person to $4,000. Effectively, this could save a married couple in the 28% tax bracket about $84 all by itself.
Tax brackets have been adjustedAll the tax brackets will adjust higher for 2015.
Combined with the higher standard deduction and exemption amounts, this could produce hundreds of dollars in tax savings for many people. Of course, the whole point of these adjustments is to account for inflation and (hopefully) rising incomes, but if your income stays the same in 2015 you'll pay a little less in taxes.
You really don't need to do anything to "prepare" for rising tax brackets, deductions, and exemptions, but it's definitely good to have an idea of where you stand.
What does it all mean to you?Worrying about your 2015 taxes might seem like something you're going to do in the very distant future. After all, you haven't even filed your 2014 return yet.
However, the point of this is that tax planning should be a year-round activity, not just something you do each April. Thinking about the deductions, credits, and exemptions you'll have (or might not have), will give you a better idea of what to expect and how to plan for it.
The article Tax Changes in 2015: What to Expect and How to Prepare originally appeared on Fool.com.
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