IRS Tax Bracket for 2015 and Standard Deduction

The IRS Tax Bracket for 2015 tax is different, yet similar to the tax bracket for 2014. Every year, the IRS adjusts more than 40 tax provisions for inflation to make sure the numbers do not get out of whack with what is going on in the economy.

 

 

IRS Tax Bracket for 2015 and Standard Deduction

This is done to prevent what is called “bracket creep.” and occurs when people are pushed into higher income tax brackets or have reduced value from credits or deductions due to inflation. Tax rates often vary by tax year and may be different for each filing status.

 

Choosing Correct Tax Filing Status for 2015

It is very important to accurately identify your filing status in order to ensure you are using the right IRS tax bracket for 2015. Specifically,  for tax year 2015, the IRS announced annual inflation adjustments for more than 40 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2014-61 provides details about these annual adjustments and some of the most important changes to the tax brackets for 2015 are addressed below beginning more importantly with the tax bracket for single, married join, and head of household tax filers.

 

IRS Tax Bracket for 2015

Tax Rate Single Married/Joint
& Widow(er)
Married/Separate Head of Household
10% $1 – $9,075 $1 – $18,150 $1 – $9,075 $1 – $12,950
15% $9,076-$36,900 $18,151 to $73,800 $9,076 to $36,900 $12,951 to $49,400
25% $36,901 to $89,350 $73,801 to $148,850 $36,901 to $74,425 $49,401 to $127,550
28% $89,351 to $186,350 $148,851 to $226,850 $74,426 to $113,425 $127,551 to $206,600
33% $186,351 to $405,100 $226,851 to $405,100 $113,426 to $202,550 $206,601 to $405,100
35% $405,101 to $406,750 $405,101 to $457,600 $202,551 to $228,800 $405,101 to $432,200
39.6% over $406,750 over $457,600 over $228,800 over $432,200

 

3.8% federal Medicare tax

Furthermore, Additional 3.8% federal Medicare tax applies to individuals on the lesser of net investment income or modified AGI in excess of $200,000 (single) or $250,000 (married/filing jointly and qualifying widow(er)s). Also applies to any trust or estate on the lesser of undistributed net income or AGI in excess of the dollar amount at which the estate/trust pays income taxes at the highest rate.

 

IRS Standard Deduction for 2015

In addition to changes in the tax brackets for 2015, all taxpayers will see a slight bump in the standard deduction which is also adjusted for inflation. The standard deduction in 2015 rises to $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly, up from $6,200 and $12,400, respectively, for tax year 2014. The standard deduction for heads of household rises to $9,250, up from $9,100 in tax year 2015. Remember, that with all these values, this will be for taxes in 2015 and not for taxes in 2014. Furthermore, the personal exemption rose by $50 in 2015 to $4,000. The personal exemption is subject to a phase-out that begins with AGI of $258,250 ($309,900 for married couples filing jointly). It phases out completely at $380,750 ($432,400 for married couples filing jointly). This means that couples above these income limits will start seeing a reduction in their personal exemptions.

 

2015 Personal Exemption Amounts

You are allowed to claim one personal exemption for yourself and one for your spouse (if married). However, if somebody else can list you as a dependent on their tax return, you are not permitted to claim a personal exemption for yourself. For tax year 2015, the personal exemption amount is $4,000 (up from $3,950 in 2014).

The personal exemption amount “phases out” for taxpayers with higher incomes. The Personal Exemption Phaseout (PEP) thresholds are as follows:

Filing Status PEP Threshold Starts PEP Threshold Ends
Single $258,250 $380,750
Married Filing Jointly $309,900 $432,400
Married Filing Separately $154,950 $216,200
Head of Hosuehold $284,050 $406,550

 

2015 Limitation on Itemized Deductions

As in 2013 and 2014, the amount of itemized deductions which you are allowed to claim is reduced  by 3% of the amount by which your adjusted gross income exceeds certain threshold amounts. These threshold amounts are the same as the lower threshold amounts listed above for the personal exemption phaseout (e.g., $258,250 for single taxpayers). However:

  1. Your itemized deductions cannot be reduced by more than 80% as a result of this limitation, and
  2. Your itemized deductions for medical expenses, investment interest expense, casualty/theft losses, and gambling losses are not reduced as a result of this limitation.

 

Other Important Tax Increases for 2015

In addition the changes in the 2015 tax bracket, there are also several other important tax increases that occurred in 2015.

  • The 2015 maximum Earned Income Credit (EIC Credit) amount is $6,242 for taxpayers filing jointly who have 3 or more qualifying children that are eligible for the EITC, This is up from a total of $6,143 for tax year 2014. The IRS has information on the earned income credit and a table providing maximum credit amounts for other categories, income thresholds and phaseouts.
  • The small business health care tax credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,800 for tax year 2015, up from $25,400 for 2014.
  • Lastly, the Alternative Minimum Tax (AMT) exemption amount for tax year 2015 is $53,600 ($83,400, for married couples filing jointly). The 2014 exemption amount was $52,800 ($82,100 for married couples filing jointly). The AMT is something that taxpayers in certain taxpayers must pay. Online tax preparation software will have all the information needed to calculate returns using the updated tax bracket information for 2015.

 

2015 IRA and 401(k) Contribution Limits

For 2015, the contribution limit to Roth and traditional IRAs is unchanged at $5,500, with an additional catch-up contribution of $1,000 for people age 50 or older.

The contribution limit for 401(k), 403(b), and most 457 plans, however, is increased to $18,000, with an additional catch-up contribution of $6,000 for people age 50 or older. The maximum possible contribution for defined contribution plans is increased from $52,000 to $53,000.

 

More Information about 2015 and 2016 Earned Income Tax credit (2015 EIC)

Overview of Alternative Minimum Tax AMT for Individuals

Understanding the Alternative Minimum Tax AMT is very important for higher income taxpayers and other taxpayers who might fund themselves in situations where the AMT might apply. The tax law gives special treatment to certain kinds of income and allows special deductions for certain kinds of expenses. Congress eventually determined that not all taxpayers are situated equally and that certain taxpayers should be denied this deduction. Depending on the amount of your “taxable excess,” AMT rates ranging from 26 to 28 percent may be imposed on tax preference and adjustment items. In view of the serious risk of AMT exposure, careful planning to reduce your overall tax bill is critical.

 

What is the Alternative Minimum Tax (AMT)?

The Alternative Minimum Tax (AMT) was designed to increase the tax bill of taxpayers who take undue advantage of these tax benefits to lower their tax bills. The basic mechanism by which the AMT accomplishes its objective is by treating certain items less favorably than they are treated for purposes of the regular tax. In the AMT legislation, These items are referred to as “tax preferences” or “adjustments.” The AMT operates parallel to the regular tax and sets a floor on total tax liability. Taxpayers whose income exceeds the AMT exemption must calculate both regular tax and AMT liabilities and pay the larger amount.

 

Overview of Alternative Minimum Tax AMT for Individuals

Adjustments differ from preferences only in that adjustments involve a substitution of a special AMT treatment of an item for the regular tax treatment (for example, no deduction is allowed for personal and dependency exemptions), while a preference generally involves the addition of the difference between the special AMT treatment and the regular tax treatment (for example, depletion is limited to the adjusted basis of the property).

 

Tax deductions and exemptions disallowed with AMT

Under AMT rules, you still start with your gross income, but many of the usual deductions and exemptions are disallowed. Suddenly, your taxable income is a lot higher. The AMT starts with your regular taxable income and, in general, makes you “give back” the tax preferences and adjustments until you arrive at “alternative minimum taxable income” (AMTI). Then, after subtracting an exemption amount (discussed below), a tax rate of 26% applies to the first $182,500 in 2014 (and the first $179,500 in 2013) of this income and 28% to amounts above $182,500 in 2014 (and above $179,500 in 2013). For married taxpayers who file separately, the rate changes at $91,250 in 2014 (and $89,750 in 2013). However, the AMT rates for long-term capital gains, as well as dividends that qualify to be taxed at long-term capital gain rates, are the same favorable rates that apply for regular tax purposes.

 

Who Pays the Alternative Minimum AMT Tax?

The number of taxpayers owing the AMT grew from about 20,000 in 1970 to roughly 4.3 million in 2011. TPC projects that there will be 3.9 million AMT taxpayers in 2013. Taxpayers do not owe AMT if their AMTI is less than the relevant AMT exemption ($51,900 for single taxpayers and $80,800 for married taxpayers in 2013). If AMTI exceeds those amounts, taxpayers must calculate their tentative AMT liability to see if they owe the additional tax.

 

What to do if subjected to the AMT?

You may be subjected to the AMT even if you have no tax preferences. For example, if you have a large family, elimination of the personal and dependency exemptions to which you are entitled for regular tax purposes may cause you to be subject to the AMT. You compute the AMT on a special IRS form (Form 6251) that must be attached to your Form 1040. Adjustments and preferences.

 

Common Adjustments or Preferences for AMTI

  • Tax-exempt interest. Tax-exempt interest from certain private activity bonds (other than qualifying bonds issued in 2009 or 2010) isn’t exempt for AMT purposes. Thus, although you exclude this interest from your regular taxable income, you must include it in AMTI.
  • Interest deduction. For AMT purposes you can only deduct mortgage or home equity loan interest on funds you borrowed to buy, build, or substantially improve your home or a second residence (or on the refinancing of that debt). An adjustment may have to be made to your investment interest deduction in some cases for AMT purposes.
  • State and local tax deduction. For AMT purposes, you get no deduction for state and local income taxes, or real estate or other property taxes, although a deduction is allowed for regular tax purposes.
  • Medical expenses. If you are deducting any medical expense for regular tax purposes, some of the deduction may be lost for AMT purposes. For regular tax purposes, for taxpayers age 65 or older, medical expenses are deductible to the extent they exceed 7.5% of adjusted gross income (AGI) for taxpayers. For AMT purposes, however, medical expenses are only deductible to the extent they exceed 10% of AGI. Thus, these taxpayers would compute their reduced deduction amount and add the difference back to taxable income in determining AMTI. (For example, if your “regular” medical deduction was $8,000 and your AMT medical deduction is $6,000, you would add back $2,000 to taxable income.)
  • Miscellaneous itemized deductions. If you are entitled to a regular tax deduction for any miscellaneous itemized expenses (these are deductions that are limited, even for regular tax purposes, to the excess over 2% of your AGI), you would not get any deduction for them for AMT purposes, regardless of what they are comprised of.
  • Personal and dependency exemptions. You must add them back to your regular taxable income in determining AMTI.
  • Standard deduction. If you take the standard deduction instead of itemizing, you must add back the deduction to determine AMTI.
  • Incentive stock options (ISOs). The favorable tax treatment allowed for ISOs isn’t allowed for AMT purposes. This means that although you don’t pay any regular tax when you exercise an ISO, you may have to pay AMT on the value of the stock you receive (minus what you paid for it) in the year you exercise the ISO unless you sell the stock that year.
  • Depreciation deductions. For certain depreciable property, the depreciation schedules are slower for AMT purposes than for regular tax purposes. Therefore, some adjustments may have to be made in your depreciation deductions, and in the gain or loss on the sale of this property.

 

Preparing IRS Form 6251

Study Form 6251 each time you prepare your tax return to see how close you are to paying the AMT. Evaluate how close your Tentative Minimum Tax (line 34) was to your regular tax (line 35). For information on Form 6251, see the Instructions. In general, the best way to handle AMT liability is careful planning involving the coordination of future regular income tax and AMT, using accurate projections of income, expenses, and deductions over multiple years with several alternative scenarios. An overall plan must then be devised to manage your AMT liability without raising regular tax liability.

Basic AMT Explanation and Information

The purpose of the AMT is to make sure that really rich people can’t just give all their money to charity instead of paying taxes. So if your income is high enough, you have to calculate your taxes twice — once the normal way, and once a second time to make sure you are paying “minimum” taxes for your income level.

 

Basic AMT Explanation and Information

Then you have to pay the higher amount. This is very burdensome if you have to do it by hand, but if you use a computer program, it’s a relatively simple step. If your income is less than the low six-figures, it will probably not apply to you. The people most commonly affected are those with lots of exclusions and deductions (e.g. many children, church donations, mortgage, etc. etc.) and a relatively high income.

 

Why was AMT Created?

The AMT was created because during the early 1960s a small number of households with really high incomes paid virtually no income tax. There are ways to generate income without paying tax. The easiest way is to purchase “tax free municipal bonds”. These are bonds issued by cities and the interest is not taxed.

Other ways include offsetting capital gains with capital losses, maximizing deductions, including donating to charities, etc.

The AMT is a parallel, essentially “flat” tax system. It uses a different set of calculations for deductions and tax exemptions. It was designed to catch those households that had gamed the system so that they paid no tax, and tax them. The problem is that it was not indexed for inflation.

 

How does AMT tax Change Each Year?

As inflation increased the earnings of households, the point where a taxpayer becomes obligated to pay it became relatively lower and lower. Today, hundreds of thousands of people pay this tax, usually because they had a one-time special windfall related to the purchase or public offering of a company that they held stock in (or stock options like a lot of employees at high tech companies). For people who live in really high cost of living places like San Francisco or New York City, the gap between their incomes and the AMT threshold has become quite narrow.

The problem with “fixing” this tax so that it would be indexed for inflation is that the way Congress scores tax and spending bills assumes that all current legislation remains in place. There are estimates of how household incomes will continue to rise, and therefore the Congressional budget scoring assumes that those incomes start paying AMT at some point. Indexing the AMT for inflation would stop that from happening, and suddenly BOOM a lot of tax revenue that the model predicts will be received isn’t.

 

Future of AMT Tax

Of course, everyone knows that Congress isn’t going to let this happen anyway. There is a zero point zero zero percentage chance that Congress is going to allow millions of middle-class taxpayers to suddenly get trapped by the AMT. If you thought the Tea Party outrage over bank bailouts had an effect on Congressional elections, wait until you see how a few percentage points of income tax increases goes over with middle America. So every couple of years Congress passes a stopgap law that “patches” the AMT – but only a little bit and only for a short while. That way they can game their own budget scoring system while they kick the can down the road a few more years.

Like other similar problems like the “Doc Fix” for Medicare, eventually Congress will have to reconcile these insanities. When that happens, there will be a sudden expansion of projected future deficits, a lot of finger pointing, calls to tax rich people, and claims that it’s all a surprise (and that we knew all along).

The Alternative Minimum Tax: 7 Quick Tips

The Alternative Minimum Tax attempts to ensure that anyone who benefits from certain tax advantages pays at least a minimum amount of tax.

 

Here are seven facts the Internal Revenue Service wants you to know about the AMT

1. Tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain expenses. These benefits can drastically reduce some taxpayers’ tax obligations. Congress created the AMT in 1969, targeting taxpayers who could claim so many deductions they owed little or no income tax.

2. Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.

3. You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount.

4. The AMT exemption amounts are set by law for each filing status.

5. For tax year 2009, Congress raised the AMT exemption amounts to the following levels:

  • $70,950 for a married couple filing a joint return and qualifying widows and widowers;
  • $46,700 for singles and heads of household;
  • $35,475 for a married person filing separately.

6. The minimum AMT exemption amount for a child whose unearned income is taxed at the parents’ tax rate has increased to $6,700 for 2009.

7. If you claim a regular tax deduction on your 2009 tax return for any state or local sales or excise tax on the purchase of a new motor vehicle, that tax is also allowed as a deduction for the AMT.

 

The Alternative Minimum Tax: 7 Quick Tips

Taxpayers can find more information about the Alternative Minimum Tax and how it impacts them by accessing IRS Form 6251, Alternative Minimum Tax —Individuals, and its instructions below or by calling 800-TAX-FORM (800-829-3676).

 

Links:

Seven Facts to Help You Understand the Alternative Minimum Tax AMT

Individuals with a higher income may be subject to the Alternative Minimum Tax. Under the tax law, certain tax benefits can significantly reduce a taxpayer’s regular tax amount. The AMT sets a limit on those benefits. If the tax benefits would reduce total tax below the AMT limit, the taxpayer must pay the higher Alternative Minimum Tax amount. The AMT system comes with a completely different set of rates and deduction rules. People pay it only if their AMT tax amount is higher than their traditional taxes. Translation: If you’re paying the AMT, you are by definition paying higher taxes.

The fiscal cliff deal also raised tax rates for higher-income earners. Couples making more than $450,000 a year and singles earning $400,000 or more now face a “marginal rate” of 39.6 percent rather than 35 percent on income above those levels. Because the maximum AMT rate is 28 percent, these well-to-do taxpayers will typically be charged more on their regular returns so they won’t face the AMT.

 

  1. Tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain expenses. These benefits can drastically reduce some taxpayers’ tax obligations. The Alternative Minimum Tax attempts to ensure that anyone who benefits from these tax advantages pays at least a minimum amount of tax.
  2. Congress created the AMT in 1969, targeting a small number of high-income taxpayers who could claim so many deductions they owed little or no income tax.
  3. Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.
  4. You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount.
  5. The AMT exemption amounts are set by law for each filing status.
  6. For tax-year 2008, Congress raised the alternative minimum tax exemption to the following levels:
    • $69,950 for a married couple filing a joint return and qualifying widows and widowers
    • $46,200 for singles and heads of household
    • $34,975 for a married person filing separately
  7. Taxpayers may find more information about the Alternative Minimum Tax and how it impacts them by referring to IRS Form 6251, Alternative Minimum Tax Individuals, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Even if you’ve been paying the reviled alternative minimum tax known as the AMT for years, your status can change. It all hinges on how much you make, where your money comes from and the deductions you can claim.

 

Seven Facts to Help You Understand the Alternative Minimum Tax AMT

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