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Employees May Contribute up to $18,000 to their 401(k) plans in 2015

The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $17,500 to $18,000.

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $5,500 to $6,000

Employees may contribute up to $12500 to their SIMPLE retirement account

SIMPLE account salary deferrals for 2015 have increased from $12,000 to $12,500. The additional "catch-up" contribution for people age 50 and older has increased from $2500 to $3000 bringing the total SIMPLE contribution possible to $15500.

SEP (Simplified Employee Pension) plans continue to be limited to 25% of compensation (or self employment earnings).

The maximum amount that may be contributed to a SEP or other defined contribution plan has increased from $52,000 in 2014 to $53000 for 2015.

Annual IRA contribution limits remain unchanged at $5500 ($6500 for individuals age 50 or older)

Individual who have earned income (compensation or self-employment income) may contribute and deduct up to $5500 ($6500 over age 50).  The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000, up from $60,000 and $70,000 in 2014.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $98,000 to $118,000, up from $96,000 to $116,000.  For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $183,000 and $193,000, up from $181,000 and $191,000.  For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Individuals who exceed these deduction phase out amounts may still contribute to their IRA but the contribution will not be deductible.

Single individual with total income under $129000 and married individuals with total income below $183000 may qualify to make ROTH IRA contributions

Like traditional IRA's, ROTH IRA contributions are limited to $5500/6500 and contributors must have earned income at least equal to the contribution amount.  

Unlike traditional IRA's, Roth IRA's have an income test for eligibility.  Individuals with income exceeding certain levels may not contribute to a ROTH IRA.  The AGI phase-out range for taxpayers making contributions to a Roth IRA is $183,000 to $193,000 for married couples filing jointly, up from $181,000 to $191,000 in 2014.  Folks in this range will have their maximum contribution amount "phased out" with the amount at the lower end being close to the maximum allowed contribution and the amount at the upper end being close to zero.  Once income exceeds this upper limit no ROTH IRA contribution is allowed for the year.  For singles and heads of household, the income phase-out range is $116,000 to $131,000, up from $114,000 to $129,000.  For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Here are some typical Itemized deductions that you may be qualified for:

Medical expenses - Medical expenses in excess of 10% of AGI are deductible as itemized deductions. If you or your spouse is age 65 or older by year end, you may deduct medical expenses in excess of 7.5% of AGI. Medical expenses are deductible in the year paid.  

Taxes - State and local income taxes as well as real estate taxes for all property owned are deductible in the year paid.  In years past you could deduct the larger of state income taxes or sales taxes.  The sales tax deduction provision expired at the end of 2013 but there may be some changes to this  as congress is expected to pass a last minute extender bill which MAY address this issue.  Most income taxes paid to a foreign country or US possession are either deductible as an itemized deduction or can be taken as a credit against tax.

Mortgage interest - Mortgage interest paid is deductible, with limitations.  Mortgage interest is deductible on up to two homes with a combined secured acquisition debt of $1.1 million.  Home equity debt is generally limited to $100,000. Points on the purchase or a refinance to make major improvements are deductible, but they may need to be amortized over the life of the loan.

The second home for purposes of this deduction can be a vacation home or even a motor home or boat.  To qualify as a home it must have sleeping, cooking and toileting facilities.  Interest on a home that you rent out, well, that’s a whole different story and will require a separate blog entry.

Charitable contributions - Generally you may deduct amounts given to qualifying charities with certain limitations. Qualifying organizations have tax exempt status granted by the IRS under section 501(c)(3).  Gifts to individuals are never deductible.  If your contribution entitles you to merchandise, goods, or services, including admission to a charity ball, banquet, theatrical performance, or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received.  Most contributions will be limited to 50% of your AGI.  Non cash contributions will generally be limited to the fair market value of the item donated.  In some instances they may be limited to your cost.  Be sure to provide your preparer sufficient detail to determine the type of asset donated so that they can apply the proper limitations. (See our Resources page for a tool to help you value your non-cash charitable contributions).

It’s important that you have the proper documentation to support your charitable contributions as the IRS has strict rules in this area. You must have written substantiation for all contributions. If less than $250 is given at one time, a bank draft is sufficient. If the gift is $250 or greater, a written acknowledgement of receipt from the charity is required. 

Casualty and theft losses - A casualty is defined as damage, destruction, or loss of property resulting from an identifiable event that was sudden, unexpected, or unusual.  Casualty and theft losses can be deductible if they are not reimbursed by insurance.  However, because of the following limitations, we do not see a lot of them.  The losses are subject to a $100 "floor" amount and are further reduced by 10% of your AGI per  loss.

Miscellaneous deductions - Miscellaneous itemized deductions include expenses incurred for generating or protecting income, investment advisory fees, unreimbursed employee business and other job related expenses to name a few.  Expenses in this category are deductible only to the extent that they exceed of 2% of your AGI. 

Other miscellaneous deductions - There are some miscellaneous itemized deductions that are not subject to the 2% of AGI reduction. Some examples are gambling losses up to the amount of gambling winnings, and special job-related expenses of the disabled.

Be sure to let your tax advisor know if you feel you could be eligible for any of these deductions. There are sections for these expenses on our tax organizer.  If you do not see your particular section, please attach a note