Tax ‘Inflation Adjustments’ To Rise 2% Or Less In 2015


The Internal Revenue Service (IRS) has published its annual “inflation adjustments” for 2015 tax schedules, credits and other tax benefits. This annual event can be useful for advisors in their planning with clients.

For the record, the IRS does not cite the percentage it used for its inflation factors. However, simple computation shows that the increases range from 1.59 percent to 2 percent or so.

Here’s a rundown on the changes of keenest interest to insurance advisors. For the sake of brevity, the numbers shown here are for individuals, not couples.

Heading the group is an increase that may catch the eye of advisors who focus on estate planning for the wealthy. The basic exclusion amount on estates of people who die in 2015 will rise to $5.43 million, up from $5.34 million for estates of those dying in 2014. That’s an increase of 1.69 percent. (The basic exclusion amount is essentially the unified credit for asset transfers made during life as well as at death.) This increase probably won’t make a huge difference for well-heeled tax planning clients (except in extraordinary cases), but the increase will still register as a plus for affected estates.

The annual exclusion from federal taxes for gifts will remain at $14,000 per person for 2015.

The top tax rate (39.6 percent) will apply to singles whose income exceeds $413,200 next year. That is up by about 1.59 percent from this year’s $406,750. The other marginal rates — 10, 15, 25, 28, 33 and 35 percent — and the related income tax thresholds are described in the “revenue procedure,” the IRS said.

The standard deduction will rise to $6,300 for singles (and marrieds filing separately), up from $6,200 — also a 1.59 percent increase.

The annual dollar limit on employee contributions to employer-sponsored flexible spending arrangements for health care will rise to $2,550. That’s up $50 from the amount for 2014, an increase of 2 percent.

For small businesses, IRS said the maximum health care credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,800 (up from $25,400 for 2014).

For “eligible” long-term care insurance premiums, the bump-up in tax deductions is in the neighborhood of 2 percent for limits on premiums includable in the term “medical care.”

These LTC premium limits vary by age. For example, for someone age 40 or younger, the limit will now be $380 — up from the 2014 limit of $370. The limits rise in 10-year age bands, reflecting the fact that long-term care premiums do increase with advancing age. For ages 60 to 70, the 2015 limit is $3,800, up from this year’s $3,720. And for ages 70 and up, the limit rises to $4,750 from this year’s $4,660.

Many of these changes are favorable for consumers, in the sense of helping keep pace with inflation. In performing year-end reviews with clients, advisors might find it worthwhile to point out some of the positives, especially to clients who show strong interest in taxes in general and their own tax situations in particular.

One example is the long-term care premium changes. In commenting on the changes, Jesse Slome, executive director of the American Association for Long Term Care Insurance, noted that “while deductions may not apply for individuals who are still working, they often can be taken during retirement when income stops and medical expenses often occur.” The savings can be “especially meaningful for small business owners.”

If a small business owner doesn’t know that, this might be a good time to do some education on that very point. Some clients might also appreciate receiving a note from their advisor directing them to the IRS tax adjustment summary.

In all, there are 40 tax provisions covered in the update. An IRS summary of changes appears here. Those are changes that the IRS said are of greatest interest to most taxpayers. In addition, you can find a recounting of all 40 tax change categories here.


Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Connect with Linda →

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