The U.S. tax code contains multiple ways to lower the amount of money you owe the government, but it is also constantly changing. We asked our Motley Fool tax experts what they think are the best tax tips for 2015. Here's what they said.
Dan Caplinger: One key thing taxpayers need to be aware of is that the penalties associated with not having sufficient health insurance coverage, either through private means or via the Affordable Care Act, are slated to increase dramatically this year. For 2014, taxpayers had to pay the greater of 1% of income earned above their tax filing threshold or their per-person penalty amount, which was $95 per adult and $47.50 per child to a maximum of $285 per family. Federal officials believe as many as 6 million people might be penalized under Obamacare this year, as they will lack the required coverage and fail to qualify for exemptions from the individual mandate.
In 2015, the penalties jump to $325 per adult and $162.50 per child, with a family maximum of $975. For those with sufficiently high income, a greater amount equal to 2% of their income over their tax filing thresholds will apply.
Higher penalties make it crucial to figure out if you can either obtain qualifying healthcare coverage or qualify for an exemption under the mandate. Otherwise, Obamacare penalties could eat into your entire tax refund next year and make your tax planning a lot more disappointing.
Matt Frankel: One of the best tax benefits available is the deduction for certain types of retirement savings, which can include traditional IRA contributions, 401(k) contributions at work, and several other programs.
You can contribute up to $5,500 to a traditional IRA for both the 2014 and 2015 tax years (plus an extra $1,000 if you're over 50), and you might be able to deduct all of your contributions, depending on how much money you make and whether you can participate in a retirement plan at work. In general, if you aren't eligible for a plan at work, your contributions are deductible no matter how much you make; if your adjusted gross income is less than $61,000 ($98,000 for married couples), you qualify for a deduction whether or not you have an employer-sponsored plan. The full limits are available here.
Contributions to your 401(k) at work are tax-deductible, and the limits are pretty generous. You can contribute up to $18,000 ($24,000 if you're over 50) on a tax-deferred basis. If you are self-employed or run a small business, special retirement account types could be available to you, such as a SEP-IRA, SIMPLE IRA, and individual 401(k).
Thanks to the IRS contribution rules, there is still time to take advantage of this on your 2014 tax return (the return due April 15) if you want to boost your refund. You can make contributions for a tax year until the tax deadline of the following calendar year. So, while there might not be too much you can do to boost your tax return, contributing to your retirement account is one way to put more money in your pocket, both now and in the future.
Dan Dzombak: One of the best tax tips to keep in mind is the benefit of donating appreciated stock to charity.
With the capital gains tax rate at 20%, and an additional 3.8% Net Investment Income Tax for high-income taxpayers, selling stock can mean a lot of money owed to the government. On the other hand, for those already planning on giving to charity, donating that stock has a twofold tax benefit.
First, by donating to a qualified tax-exempt charitable organization, you receive a tax deduction for your donation at the current value of your shares. You can deduct up to 20% of your adjusted gross income in a year without limits. After that point, limits to the size of your tax deduction begin to apply depending on the type of donation, your income, and the type of organization to which you are donating. You can read the IRS' complete guide to limits on charitable donations, but the main point is to avoid the capital gains tax and get the tax deduction from the donation.
Second, by donating appreciated shares you can claim the deduction at the full market value and do not have to worry about the capital gains tax. For example, say you have 1,000 shares of Apple stock that have appreciated from when you bought them at $1 per share. If you sold the shares (for a total of $125,000) and then donated the proceeds to charity, you would owe capital gains tax of $25,000 on the stock. You would only be able to donate $100,000 to charity and get a $100,000 write-off. If instead you donated the shares to the charity outright, you would be able to give the charity $125,000 and get a $125,000 tax deduction. Both you and the charity come out ahead.
