Tax season comes with array of changes

Affordable Care Act, expired tax breaks among 240 code changes

Bill Price, right, one of several volunteers from the Jefferson City Chapter of the AARP, helps Cynthia Buser with her income tax paperwork Friday. AARP is offering their services for free to seniors from 9 a.m. to noon, each Tuesday and Friday until April 14. They will be located in the back building at Faith Lutheran Church on Industrial Drive.
Bill Price, right, one of several volunteers from the Jefferson City Chapter of the AARP, helps Cynthia Buser with her income tax paperwork Friday. AARP is offering their services for free to seniors from 9 a.m. to noon, each Tuesday and Friday until April 14. They will be located in the back building at Faith Lutheran Church on Industrial Drive.

It's the year of changes when it comes to paying taxes - 240 federal tax code changes, to be exact, for the current filing season.

"This will be the most difficult tax season we've ever been through," said Jeff Krieger, president of Krieger and Krieger Accountants and Tax Consultants.

Likely the most significant changes involve health insurance and the Affordable Care Act.

"The minute we pull up a tax return, it automatically hits them with that tax if we don't go in and say they've been covered by health insurance all year long," said certified public accountant Lorelei Schwartz of Schwartz & LeCure LLC. "Those people who weren't, they're going to need to be prepared to fill out additional forms to figure out what that penalty is going to be. I think it's going to be a little messy for those people who weren't covered all year."

During the current filing season, the penalty for taxpayers who did not have health insurance during tax year 2014 will be the higher of these two amounts: 1 percent of the person's yearly household income above the tax filing threshold (maximum penalty is the national average premium for a bronze plan), or $95 per uninsured adult and $47.50 per uninsured child for the year (family maximum $285).

The deadline for obtaining 2015 coverage through the Health Insurance Marketplace's open enrollment is today.

This is the first tax filing season during which penalties will be incurred for uninsured taxpayers. The penalty amount will either be deducted from the taxpayer's refund or tack on additional balance due. Those who enrolled through the Health Insurance Marketplace in 2014 should receive a Form 1095-A from the Marketplace as proof of coverage.

The penalty will increase next filing season for people without health insurance during the current tax year 2015 to the higher of these two options: 2 percent of the person's yearly household income above the tax filing threshold, or $325 per uninsured adult and $162.50 per uninsured child for the year (family maximum $975).

After that, the penalty will be 2.5 percent of income or $695 per person for tax year 2016.

For taxpayers already planning for how to maximize returns for the current tax year, here are a few more considerations:

• Inflation adjustments: The Internal Revenue Service has raised the maximum contribution an employee can make to an employer-sponsored flexible spending account by $50, from $2,500 in 2014 to $2,550 in 2015. The annual contribution limit for 401(k) plans has also been raised by $500 to $18,000.

• Retirement accounts: People saving for retirement should look into any changes that might affect their retirement account planning. For example, the number of times a person can roll over money from an IRA tax-free has been limited to one in a 12-month period, regardless of how many IRAs that person has. (Formerly the limit was per IRA.)

• Expired tax breaks: While Congress extended a group of deductions and credits last December for tax year 2014, those expired again Dec. 31. So while they're still valid for the current filing season, you can't plan on them for the coming year. The expired tax breaks include the higher education tuition deduction, state and local sales tax deduction, private mortgage insurance premium deduction, credit for teachers' out-of-pocket expenses, home energy improvements credit, and income tax exemption for IRA rollovers to charity, among others. These may be renewed sometime this year, but there's no guarantee.

Expired tax breaks also affect business owners - most significantly in Section 179 of the federal tax code, which deals with equipment expenses. In previous years, including 2014, owners of small companies could deduct up to $500,000 of qualifying equipment purchases for the year. Without another extension, that deduction drops to $25,000.

"Twenty-five thousand dollars is not a lot to be able to write off for equipment in today's market. Twenty-five thousand dollars won't buy a farmer a bat-wing brush hog, and he's got to have a $90,000 tractor to pull it," Krieger said. "A $65,000 pickup truck under the wide-open Section 179 could save you $32,500 in income tax. The same $65,000 pickup truck under this administration saves you $12,500."

The expired deductions also included a 50 percent bonus depreciation clause that allowed business owners to deduct half the cost of those purchases the first year, rather than deducting their depreciation more gradually over several years.

The business tax deductions also have a no-guarantee potential for extension during 2015.

"I feel that it will go back. When, we don't know. And will it go to the $500,000? Historically, it typically has," Krieger said. "I can't tell you as a small-business client now to go out and spend $600,000 on a new combine, a header and a trailer and only get $25,000, as that is the maximum write-off that is allowed for 2015."