5 Big Tax Changes in 2015

“Ambition in America is still rewarded… with high taxes.”

Sadly, as the above quote would indicate, many Americans will be paying higher taxes in 2015 than they paid in 2014. Here are five of the biggest tax changes.

1. Affordable Care Act (ACA)

As a result of the Affordable Care Act, otherwise known as Obamacare, you need to be aware of two potential bombs that could affect you. First, you are required to have compliant health insurance. If you don’t have insurance or if you have a plan that is not compliant, you will have to pay a penalty, which is more than double that of 2014.

Failing to meet the Obamacare requirements will result in the lesser of the following two amounts:

  • 2% of household income, which is assessed above the tax filing threshold of approximately $10,000 for most individuals
  • $325 per adult and $162.50 for children under age 18. The maximum penalty is $975 per family.
    If this isn’t high enough, in 2016, the penalties are scheduled to increase again, to $695 per adult or 2.5% of household income!

The second potential bomb with Obamacare involves the tax credit that many Americans are receiving in order to make the health insurance affordable.

The ACA provides higher stop losses and higher premiums over what was normally paid for private insurance. In order to make these premiums seem affordable, Americans are eligible for tax credits, which can be used in advance to reduce the overall cost. To be eligible, however, people need to earn between two–four times the federal poverty level.

The problem, though, is that if the actual earnings tend to be significantly more than what was estimated by you for the exchange when you purchased your health insurance, you could be subject to a possible recapture of the credit (which is in addition to the tax that you would normally pay).

2. Elimination of $500,000 Expensing for Business Equipment

In 2014, if you had a business, you were allowed to elect to deduct up to $500,000 of business expenses for any qualified equipment that you used. But in 2015, this amount drops to only $25,000. Thus, if you purchase $100,000 of equipment in 2015, the most you can generally deduct in the first year the equipment is used is $25,000.

3. Certain Qualified Trucks and SUVs Will Get Shafted

In 2014, you were eligible to write off 100% of the business cost of any truck that met IRS requirements.

Sport utility vehicle (SUV) rules were different. In 2014, if you had a qualified SUV, you could claim first-year depreciation on business use up to $25,000. You also got bonus depreciation of 50% of what is left over, plus regular depreciation over the next six years.

Here’s an example: You purchase a qualified SUV, such as a Cadillac Escalade, for $60,000. Your business use is 90%, which results in a business use of $54,000. Here is the calculation for 2014:

  • $25,000 expense election for the SUV
  • $14,500 in bonus depreciation, which is 50% of what was not written off the $54,000 in business cost
  • Regular depreciation, which depends on the month the vehicle was purchased.

Thus, you can write off almost 80% of the business use in the first year. Not bad!

But starting in 2015, you are limited to a $25,000 write-off in the first year, plus regular depreciation. The bonus depreciation, in other words, is getting eliminated. Moreover, trucks are now treated as sport utility vehicles, which also have a $25,000 maximum deduction limit in the first year.

4. Many Extenders Were Eliminated

There were a number of deductions that were eliminated in 2015, such as:

  • The $250 deduction for supplies that teachers could take right off their gross income without having to itemize
  • Energy credits, like those for energy-efficient home improvements, such as heating and cooling systems, insulation, and windows
  • The higher education tuition deduction, which allowed taxpayers to deduct between $2,000–4,000 of qualified tuition expenses.

5. ABLE Savings Plans

Although most of the changes in 2015 were not beneficial to taxpayers, one little-known change will be for those who are eligible.

Starting in 2015, special savings accounts known as ABLE accounts can be set up for dependents who have a significant enough handicap as to be eligible for Social Security disability. The disability, however, must be diagnosed before these dependents reach age 26.

The maximum yearly contribution is $14,000 per year per parent, but the maximum balance varies by state. The income earned on these accounts is tax-free if used for the health, maintenance, education, or support of the handicapped or disabled individual.


Sandy Botkin
for The Daily Reckoning

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