Caraker Law Firm Blog

2015 Inflation Adjustments on Several Tax Benefits and Retirement Adjustments

Posted by Chad Caraker on Mon, Dec 08, 2014 @ 01:42 PM

 

 

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IRS Announces 2015 Inflation Adjustments on Several Tax Benefits and Retirement Adjustments

The IRS recently announced annual inflation adjustments for several tax provisions, which will apply to the 2015 tax year. Some of the affected provisions include: income tax rate schedules, the estate tax exemption, long-term care adjustments, and retirement adjustments. Below is a summary of those adjustments.

Tax Rates. Beginning in the 2015 tax year, the following tax rates will apply:

If the Taxable Income Is:

The Tax for Married Individuals Filing Jointly is:

Less than or equal to $18,450

 

10% of the taxable income

Over $18,450 but not over $74,900

 

$1,845 plus 15% of the excess over $18,450

Over $74,900 but not over $151, 200

 

$10,312.50 plus 25% of the excess over $74,900

Over $151,200 but not over $230,450

 

$29,387.50 plus 28% of the excess over $151,200

Over $230,450 but not over $411,500

 

$51,566.50 plus 33% of the excess over $230,450

Over $411,500 but not over $464,850

 

$111,324 plus 35% of the excess over $411,500

Over $464,850

$129,996.50 plus 39.6% of the excess over $464,850

 

If the Taxable Income Is:

 

The Tax for Heads of Households is:

Not over $13,150

 

10% of the taxable income

Over $13,150 but not over $50,200

 

$1,315 plus 15% of the excess over $13,150

Over $50,200 but not over $129,600

 

$6,872.50 plus 25% of the excess over $50,200

Over $129,600 but not over $209,850

 

$26,722.50 plus 28% of the excess over $129,600

Over $209,850 but not over $411,500

$49,192.50 plus 33% of the excess over $209,850

Over $411,500 but not over $439,000

$115,737 plus 35% of the excess over $411,500

Over $439,000

$125,362 plus 39.6% of the excess over $439,000

 

If the Taxable Income Is:

The Tax for Unmarried Individuals is:

Not over $9,225

 

10% of the taxable income

Over $9,225 but not over $37,450

 

$922.50 plus 15% of the excess over $9,225

Over $37,450 but not over $90, 750

 

$5,156.25 plus 25% of the excess over $37,450

Over $90,750 but not over $189,300

 

 

$18,481.25 plus 28% of the excess over $90,750

Over $189,300 but not over $411,500

 

 

$46,075.25 plus 33% of the excess over $189,300

Over $411,500 but not over $413,200

 

 

$119,401.25 plus 35% of the excess over $411,500

Over $413,200

 

 

$119,996.25 plus 39.9% of the excess over $413,200

 

If the Taxable Income Is:

The Tax for Married Individuals Filing Separate Returns is:

Not over $9,225

 

10% of the taxable income

Over $9,225 but not over $37,450

 

$922.50 plus 15% of the excess over $9,225

Over $37, 450 but not over $75,600

 

$5,156.25 plus 25% of the excess over $37,450

Over $75,600 but not over $115,225

 

 

$14,693.75 plus 28% of the excess over $75,600

Over $115,225 but not over $205,750

 

$25,788.75 plus 33% of the excess over $115,225

 

Over $205,750 but not over $232,425

$55,662 plus 35% of the excess over $205,750

 

Over $232,425

$64,989.25 plus 39.6% of the excess over $232,425

 

 

If the Taxable Income Is:

The Tax for Estates and Trusts is:

Not over $2,500

 

15% of the taxable income

Over $2,500 but not over $5,900

 

$375 plus 25% of the excess over $2,500

Over $5,900 but not over $9,050

 

$1,225 plus 28% of the excess over $5,900

Over $9,050 but not over $12,300

 

 

$2,107 plus 33% of the excess over $9,050

Over $12,300

 

$3,179.50 plus 39.6% of the excess over $12,300

 

 

Estate Tax Exemption. The Estate Tax is a tax imposed on the transfer of property at a person’s death, for any portion of the decedent’s gross estate that exceeds the Federal Estate Tax Exemption. This year the estate tax exclusion has increased from a total of $5,340,000 to $5,430,000. This means that decedents who die in 2015 have an estate tax exclusion that has increased by $90,000 from the previous year.

Long-term Care. Deductions for Long Term Care Insurance Premiums have increased slightly from 2014. The 2015 deductible limits under §213(d)(10) for eligible long-term care premiums are as follows:

Attained Age Before Close of Taxable Year

Limitation on Premiums

40 or less

$380

More than 40 but not more than 50

$710

More than 50 but not more than 60

$1,430

More than 60 but not more than 70

$3,800

More than 70

$4,750

 

Retirement Adjustments. The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the government’s Thrift Savings Plan has increased from $17,500 to $18,000. In addition, if you are 50 or over you can contribute an additional $6,000 as a catch-up contribution. However, the limit on annual contributions to IRA accounts remains unchanged at $5,500 with the catch-up contribution limit remaining $1,000.

The deduction for taxpayers making contributions to traditional IRA accounts is phased out gradually starting at an Adjusted Gross Income (AGI) of $61,000 for single taxpayers and heads of households, $98,000 for married couples filing jointly (when the spouse who makes the IRA contribution is covered by a workplace retirement plan), and $183,000 for an IRA contributor not covered by a workplace retirement plan but who is married to someone who is covered. 

The deduction for taxpayers making contributions to a Roth IRA is phased out gradually starting at an AGI of $183,000 for married couples filing jointly and $116,000 for singles and heads of households.

Lastly, the AGI limit for the saver’s credit (retirement savings contribution credit) for low and moderate income workers has also increased slightly for 2015. The credit is now $61,000 for married couples filing jointly, $45,750 for heads of household, and $30,500 for singles and married couples who file separately.

If you have any questions about how these adjustments might affect your tax situation, please feel free to contact our office for further assistance.

Tags: IRA, Roth IRA, Pension Contribution, Retirement, Financial Planning, Tax, Long-term Care, Thrift Savings Plan, Income Taxes, Tax Planning, Estate Tax Exemption, Tax Adjustments, Wealth Planning, Long Term Care Insurance

How Estate Tax Exemption Portability Provides Relief

Posted by Chad Caraker on Mon, Nov 25, 2013 @ 02:31 PM
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Over the past decade the effective estate tax exemption has risen from $600,000 to $5.340 million for 2014.  Of course, there is an unlimited marital deduction that allows one to transfer as many assets as is desired to their surviving spouse at death.  That actually created a problem, which created common estate tax planning needs.  The problem was that each spouse had an exemption, but if all assets passed to the surviving spouse at death under the unlimited marital deduction, then the effective exemption of the first spouse to die would be unused and lost.
                                        
A common planning technique used by estate planning lawyers for years was to create a “family trust,” also called a “credit shelter trust.”  Assets would be split between spouses so that outright transfer to the surviving spouse would be avoided.  Then assets owned by the first spouse to die would be transferred to a trust for the benefit of the surviving spouse.  The surviving spouse would not have unfettered access to the funds in this trust, however the funds could be used for the health, education, maintenance and support of the surviving spouse.  This was just enough of a limitation to avoid triggering the use of the unlimited marital deduction.  As such, the exemption of the first to die’s estate would be used, rather than lost.  The effect was to basically double the amount of assets shielded from the estate tax.  Additionally, assets held in the credit shelter trust could grow, and even though they might eventually exceed the exemption amount before distribution after the surviving spouse’s death, they would never be subjected to estate tax at that time.

The above was historically very valid planning.  As the estate tax exemption rose from $600,000 to $1.5 million to $3.5 million and now going to $5.34 million, estate planners found it unnecessary to utilize the credit shelter trust technique as often.  If the exemption was $3.5 million and the total estate was $2.0 million, and the clients were elderly, it wouldn’t be worthwhile to separate assets and establish a credit shelter trust as the exemption of even one spouse would adequately shelter the entire estates of both spouses at the survivor’s death.

Even though the exemption rose, many estate plans have not been reviewed to see if the credit shelter technique is necessary.  Further, many practitioners were very hesitant to assume that the exemption would remain as high as it is now.  With the adoption of the American Taxpayer Relief Act of 2012 (the “Act”), we have stability on the exemption amount and it is tied to an inflation adjustment so it will not take an act of Congress to increase it.

Of even greater importance is that the Act adopted “portability” of the exemption between spouses.  Portability is probably one of the most efficient tax tools created in many years, though there is some room for improvement.  The basic concept is that portability allows the surviving spouse to use the deceased spouse’s unused exemption.  It is now no longer necessary to create a credit shelter trust because you can access the first spouse to die’s exemption by timely filing an estate tax return.  This is the only downside, you may have to file a return simply for the sake of portability.  Nevertheless, this is a simpler and cheaper tool than separating assets and administering a trust for the benefit of the survivor’s life.  Ideally, the government would create an easier way to elect portability than filing an estate tax return.  

From a planning perspective, our office is taking advantage of the opportunity to remove the credit shelter provisions from our client’s estate plans.  This allows for a consolidation of assets.  One objective we always have when preparing an estate plan is to seek to reduce the burden of administration at the death of the first spouse.  There is little reason in many cases to preserve the complex credit shelter provisions of an estate plan and the ongoing administration of that plan until the death of the surviving spouse.  A proactive plan is necessary as it is not possible to “un-do” the credit shelter provision after the first spouse dies.  If you have one of these plans, or have a client that has one of these plans, feel free to contact our office for a review to determine if it is possible to amend your documents to streamline estate administration for the surviving spouse and family.

Tags: Family Trusts, Estate Planning, Credit Shelter Trusts, Revocable Living Trusts; Estate Administration, Estate Tax Exemption