New Accounts for the Disabled. The general information in this publication is not intended to be nor should it be treated as tax, legal, investment, accounting, or other professional advice. Before making any decision or taking any action, you should consult a qualified professional advisor who has been provided with all pertinent facts relevant to your particular situation. The Achieving a Better Life Experience (ABLE) Act of 2014, enacted last December, introduces a new type of tax-favored account. The ABLE Act authorizes states to set up programs that will allow qualifying disabled individuals to have accounts to help them cover certain living expenses.
ABLE accounts will combine attributes of both Section 529 college savings accounts and special needs trusts. Contributions will be nondeductible, but earnings on the contributions will be tax deferred. Moreover, distributions from the accounts will be nontaxable to the extent they are used to pay "qualified disability expenses," which are broadly defined.
Generally, distributions from the ABLE accounts will not affect the disabled beneficiary's right to certain meanstested benefits, such as Medicaid or Supplemental Security Income (SSI), provided the distributions are used for qualified disability expenses. There are two exceptions: (1) distributions for housing will he included in income in SSI calculations and (2) account balances exceeding $100,000 will also be considered an available resource for SSI purposes.
Only individuals who became blind or disabled before age 26 may qualify for an ABLE account. Also, total contributions from all contributors to an ABLE account for the tax year cannot exceed the federal gift-tax annual exclusion for that tax year ($14,000 for 2015). •
What Taxes Are Deductible?
Individual taxpayers may choose between claiming a standard deduction* or itemizing their deductions for specified actual expenses. One potentially valuable source of itemized deductions is state and local taxes.
State income or sales taxes.
A deduction is available for any state or local income taxes paid during the year, whether through payroll deductions, estimated payments, or amounts paid with a state return. Note, however, that certain states don't have an individual income tax. If extended through 2015, an alternative election permits a deduction for general state and local sales taxes instead of state and local income taxes.** Taxpayers may choose between deducting the actual sales taxes they paid (by accumulating receipts) or deducting an amount provided in IRS tables, plus the actual amount of sales taxes paid on purchases of motor vehicles, boats, and certain other items specified by the IRS.
Real estate taxes.
Real estate taxes are generally deductible in the year paid. However, homeowners who pay taxes to their mortgage lender with their mortgage payments may deduct the taxes only in the year the lender actually pays them.
Personal property taxes. To qualify for deduction, the taxes must be charged annually and be based on the property's value.
Limitations. Be aware that for computing alternative minimum taxable income, state and local taxes are generally not deductible. Also, taxes are among the itemized deductions that are subject to reduction once adjusted gross income exceeds a specified threshold. •
More Investment Direction for 529 Plans
Congress has authorized an increase in the number of times individuals may direct investments in qualified tuition programs (529 plans), which provide tax-advantaged savings accounts for college expenses. Beginning with the 2015 tax year, account contributors and designated beneficiaries may direct their investments as often as twice per year. Previously, investment changes were generally allowed only once in a calendar year.
Health Care Penalty Increases for 2015
The "shared responsibility payment" applicable to individuals without qualified health care coverage in 2015 has increased, according to www.healthcare.gov. Generally, such individuals will have to pay the higher of either (1) $325 per person ($162.50 per child under 18) up to a maximum penalty per family of $975 or (2) 2% of household income over a specific threshold (maximum penalty equal to the national average premium for a bronze plan).
Projected Decrease in Retirement Health Costs
The Employee Benefit Research Institute recently reported a decline in the projected savings needed to cover health care costs in retirement. The decline was partly the result of the enhanced prescription drug coverage provided by the Patient Protection and Affordable Care Act.
The general information in this publication is not intended to be nor should it be treated as tax, legal, investment, accounting, or other professional advice. Before making any decision or taking any action, you should consult a qualified professional advisor who has been provided with all pertinent facts relevant to your particular situation.
For 2015, the basic standard deduction is $6,300 for single and married-separate filers, $9,250 for heads of household, and $12,600 for married taxpayers filing jointly. An additional standard deduction is available to elderly and blind taxpayers. ** Currently, the sales tax election is available only through 2014. The election expired at the end of 2011 and 2013 and was later retroactively extended each time.