Close
Close

2014–15 tax guide: Income taxes

RFP
Tax-guide2014-15 tax guide
Download the PDF to view the whole guide.
See other sections of the guide.

Business owners and executives are trained to put their businesses first, but tax planning should always start at the individual level. No matter where your business or employment income is earned, it will eventually be taxed on an individual return. Your individual income is taxed at different rates and in different ways depending on the type of income. The key to tax planning is to understand how your various streams of income will be treated.

Ordinary income includes items like salary, wages, bonuses, self-employment income, interest and retirement plan distributions. The tax rates on ordinary income rise as your income increases. These tax brackets received only modest bumps for 2015, because the IRS used an approximate inflation rate of just 1.7% to make its annual adjustments.

Investment income
With income rolling in and taxes sky-high, tax planning on your investment income is especially crucial. Where do you start? First, you need to understand how different investment income is taxed. Investment income such as rents, royalties, interest and short-term capital gains is taxed as ordinary income. Qualified dividends and capital gains from the sale of property held more than a year are taxed at preferential rates. These rates can make owning stock or a business interest a rewarding investment.

Long-term capital gains and qualified dividends

This does not include 3.8% Medicare tax on net investment income.
Income amounts refer to taxpayer total taxable income including ordinary income.

Looking beyond the tax brackets
The tax code is loaded with special provisions that, with careful planning, can lower your tax burden. Many of these benefits, like the standard deduction and personal exemption, were adjusted very modestly this year. Unfortunately, many targeted benefits that lawmakers have added to the tax code are designed to phase out at upper income levels. It’s important to understand how these phaseouts will affect your tax bill so you can plan accordingly and pay enough in estimated and withholding taxes.

Planning tip: Bunch itemized deductions
Timing significantly affects your itemized deductions, because many of those deductions have adjusted gross income (AGI) floors. For instance, miscellaneous expenses are deductible only to the extent they exceed 2% of your AGI, and medical expenses are deductible only to the extent they exceed 10% of your AGI (7.5% for taxpayers 65 and older). Bunching these deductions into a single year may allow you to exceed these floors and save. Miscellaneous expenses you may be able to accelerate and pay now include:

  • Deductible investment expenses such as investment advisory fees, custodial fees, safe deposit box rentals and investment publications
  • Professional fees such as tax planning and preparation, accounting and certain legal fees
  • Unreimbursed employee business expenses such as travel, meals, entertainment, vehicle costs and publications — all exclusive of personal use
Bunching medical expenses is often easier than bunching miscellaneous itemized deductions. Consider scheduling your nonurgent medical procedures and other controllable expenses in one year to take advantage of the deductions. Deductible medical expenses include:
  • Health insurance premiums
  • Medical and dental costs and services, including elective surgical procedures that are not purely cosmetic

General tax benefits

Tax reference guide
Tax reference guide
Contacts

David Walser
+1 602 474 3410
david.walser@us.gt.com

Dustin Stamper
+1 202 861 4144
dustin.stamper@us.gt.com

Tax professional standards statement
This document supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the subject of this document, we encourage you to contact us or an independent tax adviser to discuss the potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this document may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this document is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.