I’ve been talking a lot about two big tax changes you’ll need to know about for your 2014 tax return: ACA forms (health care) and Form 3115s (if you have real estate investments or a business). I’ll talk more about that again in Friday’s blog post.
Today, I want to go over five tax changes for 2015 that you might not have heard much about.
1. Pell Grants, Living Expenses & Education Credits
Pell Grants can now be used for living expenses, up to the full amount of actual living expenses, even if a student’s application originally was for tuition and fees. The amount will then count as taxable income, but it can then maximize the education credit.
2. Bitcoin Income
The IRS has made some rulings about bitcoin, although the government seems in general to be way behind the curve on virtual currency.
The fair market value of virtual currency payments you receive should be included as taxable income.
3. Changes to Health Saving Accounts
The Health Flexible Spending Accounts (FSAs) must be used within the year or you’ll lose it, except for $500. Since 2013, you have been able to roll over $500 into the next year.
If you have an FSA this year and carry over $500 into 2015, you will be ineligible to participate in a Health Savings Account (HSA) in 2015.
It’s better to let any extra money in FSA just go this year. The HSA is a much better plan.
4. Unemployment Benefits
Unemployment benefits have always been taxable. But there is a new wrinkle.
A recent U.S. Supreme Court decision stated that any supplemental unemployment compensation (not tied to state unemployment benefits) paid by a former employer to a laid-off employee will be taxable as wages. That means they are both subject to federal and state tax, and social security and Medicare tax.
5. New IRA Rollover Limit Starting in 2015
This one’s a tax change for 2015 — it won’t affect your 2014 return, but will affect your savings next year. Starting Jan. 1, 2015 you can only make one rollover from an IRA to another IRA in a 12-month period. A rollover is described as withdrawing the funds from one IRA, holding them for less than 60 days and then depositing them into another IRA account.
Taxpayers can still make as many trustee-to-trustee transfers as they like over the course of a year. (That means you can tell Bank “A” to send your IRA funds to Bank “B” — the money is never actually withdrawn and in your possession.) If you roll over more than one IRA, the withdrawals after the first will be taxed to you at regular rates, plus potentially a 10 percent early withdrawal tax. In addition, the disallowed rollover will be subject to the regular IRA contribution limits. If the rolled over amount exceeds your allowable IRA contribution, it will be treated as an excess contribution and subject to a 6 percent excise tax. The takeaway: Withdraw IRA funds with great care and attention in 2015 and going forward.
Tax law changes occur every month, sometimes every day. It could be that Congress makes the changes, the IRS issues big new regulations, revenue procedures or revenue rulings or the tax courts make big changes. Sometimes the U S Supreme Court weighs in. It’s a lot to keep up with, and that’s assuming you don’t have any other business or job.
If you’ve got a business or real estate investments, this is the year you don’t want to try to do it yourself. There are a lot of changes that have the most experienced CPAs caught off guard. If you make a mistake, the penalties can be huge.