Tax Considerations for 2015
As the year comes to an end, it is a good time to review taxable deductions and find ways to minimize your tax liability so that you are prepared for tax season. Many expenses, like property taxes, must be paid for by December 31 in order to deduct them for this calendar year. If you pay them in January, they cannot be deducted until the following year.
The Affordable Care Act has instituted mandatory medical insurance be carried by everyone. If you do not carry insurance, or qualify for an exception, you will begin paying an annual tax which increases each year. The 2015 penalty for lack of insurance for each adult is either $325 or 2% of income, whichever is larger. This amount increases in 2016 to $695 for each adult or 2.5% of income.
Along with the new annual tax for the ACA, there are also a range of new forms: those with an exemption must fill out one form, and those receiving a subsidy will complete another form. There is also the subsidy calculation which considers both income and household size. A family of four can gain an insurance subsidy even with income up to $95,000.
At the beginning of each year you must estimate your income for the upcoming year. If you underestimate you could owe more in taxes and possibly have to pay a penalty for underpayment. However, if your income is expected to change in 2016, your insurance agent can adjust your numbers to ensure your subsidy is in line with your income.
Charitable Deductions. Any donations made to charities must be made by December 31 in order to be counted for the current year. Donating an unused vehicle, boat or other personal property for larger deductions could reduce tax liability. Receipts should be maintained for cash donations. With the holidays arriving this is a great time to clean out the closet, increase your tax deductions, and make room for the new things you have purchased for the holidays. Calculators are available for donated items: Goodwill has one that is easy to use and can be found at http://www.thegoodwill.org/taxcalculator.php.
Homeowners get a number of valuable deductibles that can reduce tax liability. Interest, from both first and second mortgages, along with property taxes can reduce taxable income by thousands of dollars. Congress has not yet extended the mortgage insurance premium deduction that expired in 2014, but it is anticipated that this write off will be included in the tax bill that will be passed in the next few weeks.
Bad Debt Might Be Taxable. Being prepared is always best. You may receive a 1099K if you settled debt or had a home foreclosed. Not all companies mail such forms, however, if you receive one it must be included on your tax return.
Student Loan Interest may also be tax deductible. Whether the loan is for you or for your child, interest is generally deductible if the loan is in your name. Typically, you can deduct up to $2,500 in interest on these loans. Click on https://www.irs.gov/taxtopics/tc456.html for the specific IRS guidelines.
Credit Card Debt or Interest is typically not deductible for personal debt. Business debt may be deductible if the purchases were considered business expenses.
No one likes to think about taxes, but with a little planning you might be able to reduce your tax liability and eliminate any surprises that can through off your finances in the New Year.