Karl W. Blovet & Associates


Tax planning is an ongoing process. Your situation can change during the course of a year and you should react accordingly. Implementing mid-year strategies now may help you lessen the taxes you face for the entire year of 2015.

Life changes

Marriage, divorce, the birth of a child, death, a change in job, or loss of a job, and retirement are just some of the life events that trigger a special urgency for tax planning. Your marital status is determined on December 31. If you are married on December 31, you are considered married the entire year. If you were divorced on December 31, you will be considered single for the entire year.

The rules regarding IRA rollovers have changed

Beginning in 2015, taxpayers may only make one IRA-to-IRA transfer in any twelve month period. However, trustee-to-trustee transfers between IRAs are not subject to this limitation. Rollovers from traditional IRAs to Roth IRAs are not limited.

Minimize tax on Social Security benefits

When Social Security recipient’s modified adjusted gross income (MAGI) plus 50% of Social Security benefits exceed certain base amounts, the benefits can be taxable. The MAGI thresholds are $25,000 for singles and $32,000 for marrieds filing jointly. If your income will be close to these thresholds you should consider deferring income, if possible, to avoid tax on the benefits.

Roth conversions

If you have not yet made a Roth conversion, doing so prior to year-end 2015 might be an opportunity worth serious consideration. Variables include your present income tax bracket, how close you are to retirement, and your access to other funds both to pay the conversion tax and to delay distributions from your Roth account later.

Health care reform

Many individuals and their dependents without qualifying health insurance will owe a tax in 2015. Several exceptions apply, particularly for lower income families. The penalty is the greater of $325 for each adult and $162.50 for each family member under age 18 (but not to exceed $975) or 2% of household income less the amount of the taxpayer’s tax filing threshold.

Maximize retirement plan opportunities

In 2015 you can contribute up to $18,000 to your 401(k), 403(b), or 457 plans if you are under age 50. If you will be age 50 by year end 2015 you can add an additional $6,000. If you are already on track to max out your contribution for the year, you may also qualify for a contribution to a traditional IRA or Roth IRA. The maximum contribution is $5,500, plus another $1,000 if you are age 50 or older by year end. If you are no longer contributing to a retirement account and instead getting ready to transition from working to retirement, mid-year is an opportune time to determine which assets and benefits you will be drawing from, including establishing the timing of your distributions and determining when to begin receiving Social Security benefits.

Alternative Minimum Tax (AMT)

For 2015 the exemption amount for couples increased to $83,400 and $53,600 for singles and heads of household. The phase-out zones for the exemptions start at $158,900 for couples and $119,200 for singles and household heads. The exemption amounts and phase-out levels are now permanently adjusted for inflation.

Capital gain rates

Your capital gain rate depends on your tax bracket and the character of the gain. Therefore, the rate can be 0%, 15%, 20%, 25%, or 28%. There may also be a 3.8% net investment income (NII) tax levied on top of those rates. Mid-year is a good time to review the current status of your capital assets (not exclusively, but primarily investable assets that would subject to taxation if sold at a gain). Time the recognition of capital gains and losses during the year to minimize your net capital gains tax and maximize deductible capital losses. Many investors still have excess capital losses from past stock market declines that they may now “carry over” to offset capital gains that would otherwise be taxable.

Payroll taxes

For calendar year 2015, the employee-share of OASDI tax is 6.2 percent up to the Social Security wage base of $118,500 and the Medicare tax is 1.45% with an unlimited wage base.

Also, beginning on January 1, 2013 there is a 0.9% Medicare surtax on earned income and remains in effect for 2015. The surtax applies to wages and self-employment income. It applies to single filers and heads of household when total earnings exceed $200,000 and $250,000 for married filing jointly taxpayers. For earnings over the thresh-hold, the effective Medicare tax will be 3.8%, the usual 2.9% tax rate, plus an extra 0.9%. The surtax only applies to the employee’s share of tax, employers do not owe the tax.

Casualty losses

Taxpayers in many states have already experienced natural disasters in 2015. A casualty loss can result from the damage, destruction or loss to your property from any sudden, unexpected or unusual event, such as a hurricane, tornado, earthquake, wildfire, or flood. Casualty losses are generally deductible in the year the casualty occurred, less ten percent of your adjusted gross income and a $100 per casualty deductible.

However, if you have a casualty loss from a federally declared disaster, you can elect to treat the loss as having occurred in the year immediately preceding the tax year in which the disaster happened, and you can deduct the loss on your return or amended return for that preceding tax year. The election gives taxpayers the opportunity to maximize their tax savings in the year in which the savings will be greatest.

Payroll withholding

If you have significant income, or will have, not subject to withholding in 2015 you should increase your payroll withholding for the remainder of the year to ensure that it covers the required estimated payments in order to avoid underpayment penalties.

Gift/estate tax

The current estate tax is set at a maximum 40 percent rate and a $5.43 million exemption amount, indexed for inflation. Lifetime gift-giving, ideally on an annual basis, should continue to form part of a master estate plan. The annual gift tax exclusion per donee on which no gift tax is due is $14,000 for 2015 with $28,000 allowed to each donee by married couples. Making a gift in 2015 to take advantage of this annual, per-donee exclusion should be considered by anyone with even modest wealth.