As the calendar rolls into a new year, accounting professionals gear up to explain, plan for, and implement changes in financial regulation and accounting laws. In 2015, some major changes are expected to impact strategies for IRA contributions and decisions about health savings accounts, and the lack of change in tax breaks could benefit a number of people filing 2014 returns.
Increased Access to IRA Contribution Tax Deduction Benefits
Changes in IRA contribution limits and benefits are important to understand, particularly for accountants or financial advisors assisting clients with either savings strategies or tax returns. The amount of IRA contributions that can be used as a tax deduction at the end of the year helps reduce client tax burden, and starting in 2015, more individuals have access to those benefits.
As in past years, the IRA contribution limit is $5,500 for most people, but the tax deduction benefits phase out at higher income ranges. Single individuals, or those claiming head of household, with a modified AGI of less than or equal to $61,000 can claim a full deduction on the contribution. A modified AGI of $98,000 or less on a married filing jointly return also nets a full deduction. Singles with a modified AGI between $61,000 and $71,000 still benefit from partial deductions, and married filers can take partial deductions if modified AGI ranges between $98,000 and $118,000.
The biggest impact of these changes is that full deduction possibilities are open to a larger group of people, which might encourage more individuals to max out IRA contributions in 2015. Deduction and contribution limits are slightly altered for those over the age of 50 1/2 or those covered by employer-sponsored retirement plans, which means accounting and finance professionals should always reference IRS documentation before advising clients or employers on tax matters or savings strategies.
Restrictions on FSA Rollovers
In a list of five tax law changes everyone should know about in 2015, Investopedia points to new restrictions on Health Flexible Spending Account rollovers. In the past, individuals participating in general FSAs could roll over up to $500 in the account from year to year without penalty. Rollovers allowed individuals to estimate medical or other covered expenses and save for them without losing money if estimates were slightly over.
As of 2015, rolling the $500 over may restrict a person from participating in an FSA in the new calendar year. Restrictions don't apply to specific use FSAs, which are set up to cover particular expenses such as dependent care. When working with clients to develop plans for 2015 and beyond, accountants and advisors should weigh the benefits and disadvantages of a rollover for all situations. Individuals who rely on FSAs for large expenses may end up with more tax savings throughout the year than the amount they would roll over, making it financially logical to lose the rollover.
Extended 2014 Tax Breaks
In the midnight hours of 2014, Congress voted to extend a number of tax breaks to cover businesses and individuals for 2014 filings. It's not clear whether extensions will again be provided to cover 2015 expenses, but many individuals may be able to reduce tax burdens this April by taking advantage of breaks that include deductions for mortgage insurance, tuition and state sales tax payments, commuting costs, and teacher-paid classroom expenses. While they top the list for most industry experts, these three tax-law changes only represent a small portion of differences between 2014 and 2015. Delving deeper into IRS publications is a good idea for anyone advising clients on saving or tax matters.