Tax Information You Need to Know for 2015

by Sophia Bera on December 17, 2014

Editor’s Note: The following is an excerpt from the upcoming Gen Y Planning ebook, What You Should Have Learned About Money But Never Did: A Gen Y Guide to Empowered Personal Finance. You can get updates on when this ebook will be published and available right here.

When you sign up for the ebook updates list, you’ll be automatically entered in the giveaway GYP is doing in conjunction with the ebook launch! One winner will receive a free Quick Start Session with me. Get yourself entered, and get the latest on the ebook!

Tax planning is a really important part of financial planning. Knowing a few key tax tips can actually save you money. (Please note: I’m not a CPA or licensed tax professional, so you should consult with your tax accountant regarding your specific situation.  This information is meant to be educational only.)

Here’s the tax information you need to know for 2015. This does take into account all the recent IRS changes to retirement account contribution limits, too.

Student Loan Interest Deduction

Student loans are a big concern for many Millennials, but did you know that if you have student loans, you might be eligible for the student loan interest deduction?

hether you itemize or not, you can deduct the amount you paid in student loan interest, up to $2,500 per year. This deduction is phased out depending on your income, so check the income restrictions on the IRS.gov website. All the numbers below refer to the 2015 tax year.

Tax Credits and Deductions for Higher Education

If you’re enrolled in college courses, whether for undergrad or a graduate degree, you should be aware that there are two popular tax credits to help pay for higher education: the American Opportunity Credit and the Lifetime Learning Credit.

The American Opportunity Credit replaced the Hope Credit and can now be used for four years instead of two. The maximum amount of the credit is $2,500 per student per year. The full credit is available if your modified adjusted gross income (MAGI) is less than $80,000 for those filing as single, and $160,000 for those who are married filing a joint return.

The Lifetime Learning Credit is limited to $2,000 per year, but does not have a cap on the number of years you can claim it. This may be particularly helpful for those who used up the American Opportunity Credit during their undergrad, and now are enrolled in grad school.

Even if you qualify for both, you cannot claim both credits in the same tax year (unless they are going to benefit two different students). There are income limits on this credit as well.

In addition to the two credits mentioned above, there is also a tax deduction of up to $4,000 in qualified education expenses using the tuition and fees deduction. If you don’t qualify for one of the tax credits, you should see if you’re eligible for this deduction.

Keep in mind you can’t take this deduction in addition to a tax credit for higher education for the same student in the same year. Remember, a tax credit is worth more than a tax deduction because a tax credit reduces your tax bill dollar for dollar, whereas a tax deduction reduces your taxable income.

HSA Contributions

If you have a high deductible health insurance plan that allows you to contribute to a Health Savings Account (HSA), then you should try to make a contribution to your HSA before the end of the year.

In 2014, an individual policyholder can contribute a maximum of $3,300, and a family can contribute $6,550. These numbers increase to $3,350 and $6,650 for the 2015 tax year.

Why not get the tax break now, and then you can use this money to pay for health care expenses later on? (You can even use your HSA to get LASIK eye surgery, like I did!)

And don’t forget, maximizing other company benefits can also result in thousands of dollars in tax savings.

401(k)s and IRAs

Roth IRAs are funded with after tax dollars, which means that when you withdraw the funds in retirement, the withdrawals are tax-free, so you don’t get an upfront tax deduction. However, 401(k)s and traditional IRAs are tax deductible, so any money you contribute results in a tax deduction for the current year, which reduces your taxable income. For 2014, the 401(k) max is $17,500 but it goes up to $18,000 for 2015. The IRA contribution limit remains at $5,500 for both 2014 and 2015.

Take a moment to increase your 401(k) contributions now, so that you receive an even bigger tax break next year.

The Saver’s Tax Credit

Need another incentive to contribute to your retirement accounts? Depending on your income level, you may qualify for the Saver’s credit by contributing to a retirement account. I wrote all about the Saver’s Credit in this article. Income thresholds are changing so make sure you check here to see if you qualify.

Donations to Charity

If you itemize your tax deductions, you may be able to deduct any donations to qualified charities or non-profit organizations on your tax return. However, it’s easy to overlook donations of clothes, furniture, or other household goods, so make sure you get a receipt when you drop off your gently used items to a non-profit.

If you have appreciated investments in a taxable account, you can get a double tax break by donating the asset directly to a qualified charity.

Additional Information and Resources

If you still have tax questions, these resources may be able to help. And of course, if you need help don’t hesitate to reach out and ask! A qualified professional can help you sort through issues you don’t understand or complicated tax situations.

Don’t forget to grab your spot to stay updated on the upcoming ebook from Gen Y Planning! Along with this important tax information for 2015, the ebook contains everything you need to know to get on the right path to empowered personal finances.

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