The Individual Investor’s Guide to Personal Tax Planning 2014

The Individual Investor’s Guide To Personal Tax Planning 2014 Splash image

We start this year’s tax guide with some good news: You may have a smaller federal tax bill in 2015.

The Internal Revenue Service (IRS) adjusted several line items to account for inflation. This indexing increases the dollar amounts defining each tax bracket and the dollar amounts for various exemptions and deductions. The net result is that less of your income may be taxed. Plus, if you are just above the breakpoint for a tax bracket this year, the adjustments could potentially put you into a lower tax bracket in 2015.

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The amount of any federal tax savings will vary by taxpayer. Some of you may actually pay more, particularly if your income is higher in 2015 or if there are certain exemptions or deductions that you no longer qualify for. A new penalty for not having health insurance is now in effect as well. Still, many taxpayers will get a savings next year. Wolters Kluwer, CCH estimates that a married couple with total taxable income of $100,000 will pay $125.50 less in income taxes in 2015 than they will on the same income in 2014, assuming they file a joint return. An unmarried person with income of $50,000 will pay $62.50 less in 2015 than he or she will in 2014. Keep in mind that these are just estimates. The numbers also exclude the impact of state and local taxes.

Most of the inflation adjustments for 2015 are included in this guide. In a welcome change, the Internal Revenue Service published much of the index adjustments before we went to press. This has recently not been the case because of the fiscal cliff situation in 2012 and the government shutdown in 2013. There were a few line items yet to be adjusted for 2015, such as the mileage deductions, and we’ll update them on after the information becomes available.

We’re also waiting to hear about the final fate of tax extenders. More than 50 tax breaks for individuals and businesses expired at the end of 2013 and were never renewed. They include the deduction for state and local sales taxes, tax-free distributions from an individual retirement account to a charity, the mortgage insurance deduction, and parity for employer-provided mass transit and parking benefits. There is scuttlebutt about a compromise being reached to renew at least some of these breaks during the lame duck session of Congress. If the extenders actually are renewed, and it’s not certain that they will be, we’ll post an update on

Some of the changes in the tax code occurred outside of the legislative branch. The IRS published new rules regarding the disbursement of pretax and aftertax contributions to defined-contribution retirement plans (e.g., 401(k) plans). A tax court ruling led to a new rule limiting IRS rollovers to one per year. The implementation of floating net asset values for money market funds prompted a proposed rule change sparing individuals from incurring the wash-sale rule. We’ll cover all of these changes in this guide.

This year, we’ve also added a new section discussing the tax impact of investing for and in retirement (here). This section is intended to add some clarity to the rules. It also lists milestone birthdays to be aware of both before and during retirement.

There is some speculation that progress could be made on comprehensive tax reform in 2015. It’s a difficult task complicated by politics, ideological differences and special interest influences. Regardless of what does or does not happen on the legislative front, one thing will be constant: You will still have to pay taxes. Furthermore, even a simplified tax code is still likely to be too complex; hence the need for tax guides. As has been the case in years past, our tax guide provides an overview of the tax rates and deductions likely to impact the majority of AAII members. Since there are many details, loopholes and pitfalls within the tax code, it is impossible for this guide to provide enough details to cover specific tax situations. If you have questions, consult a tax professional. It is your tax return, and the IRS will hold you responsible for any errors made on it.

  2014 2015 2016
Long-Term Capital Gains Rate
Tax Bracket Equals 39.6%* 20% 20% 20%
Tax Brackets 25%–35%* 15% 15% 15%
Tax Bracket 15% or Below 0% 0% 0%
Qualified Dividends Rate
Tax Bracket Equals 39.6%* 20% 20% 20%
Tax Brackets 25%–35%* 15% 15% 15%
Tax Bracket 15% or Below 0% 0% 0%
Marginal Income Tax Rates
Top Bracket 39.6% 39.6% 39.6%
Sixth Bracket 35% 35% 35%
Fifth Bracket 33% 33% 33%
Fourth Bracket 28% 28% 28%
Third Bracket 25% 25% 25%
Second Bracket 15% 15% 15%
First Bracket 10% 10% 10%
Child Tax Credit $1,000 $1,000 $1,000
Marriage Penalty Relief
Standard Deduction (% of S.D. for singles) 200% 200% 200%
15% Tax Bracket (% of bracket for singles) 200% 200% 200%
Personal Exemption Phase-outs $305,050 $309,900 $309,900**
Limitation on Itemized Deductions $305,050 $309,900 $309,900**
AMT Exemption
Single $52,800 $53,600 $53,600**
Married Filing Joint $82,100 $83,400 $83,400**
Head of Household $52,800 $53,600 $53,600**
Estate Tax
Exemption $5.34 million $5.43 million $5.43  million**
Maximum Rate 40% 40% 40%
*3.8% net investment income tax (NII) surtax applies when AGI is above $250,000/$200,000.
**Subject to change based on inflation.

Estimate Your Taxes on

We are continuing to give you the ability to estimate your 2014 and 2015 tax liabilities on Our Tax Forecasting Worksheet allows you to enter your data on our website. The fillable PDF document will calculate the results.

Once you are finished, you can print a copy for your records. (Be sure to print the document if you want to preserve your work, since the document cannot be saved to

What’s New?

Most individuals will continue to fall into the long-standing tax brackets of 10%, 15%, 25%, 28%, 33% and 35%. High-income earners will pay a 39.6% marginal tax rate on income. The dollar amounts defining each brackets have been revised upward to account for inflation.

Social Security is taxed at 6.2% for employees and 12.4% for those working in self-employed positions on the first $117,000 of wages. In 2015, this limit will rise to $118,500.

The alternative minimum tax (AMT) exemption is $82,100 for married couples filing jointly and $52,800 for single filers in 2014. In 2015, the exemption will rise to $83,400 and $53,600, respectively. The exemptions are indexed to the rate of inflation and will continue be raised accordingly in the future barring any new legislation. This automatic increase is important because previously the AMT exemption was not indexed to inflation. New legislation had to be passed to prevent the AMT from ensnaring an ever-larger number of taxpayers.

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P Rathinasamy Pa from FL posted 2 months ago:

" This is a per-spouse exclusion and it is portable, meaning if one spouse passes away, the surviving spouse can claim the exclusion, resulting in a total effective exclusion of $10.68 million in 2014 and $10.86 million in 2015. The large figures will prevent most families from having to pay estate taxes." Please explain by giving examples.- Excellent & exhaustive article. Thanks.

Charles Rotblut from IL posted 2 months ago:

The IRS has a question and answer section on their website regarding estate taxes that you may find to be helpful.


James Kim from FL posted 2 months ago:

How you handle spousal death in the middle of the year and is there special provision for that kind of situation for tax preparation? Any help would be appreciated.

Charles Rotblut from IL posted 2 months ago:

James, IRS Publication 17 discusses the topic. My sympathies for the loss.


Robert Mellon from florida posted 2 months ago:

standard deductions. you have no figures for those over 65 or legally blind.have these been taken away or not.

Charles Rotblut from IL posted 2 months ago:


The standard deduction figures are listed in the 2014 Allowable Tax Benefits and the 2015 Allowable Tax Benefits tables. It's additional $1,200/$1,550 for married and singles over 65 and blind.


Harry Mccullough from PA posted 2 months ago:

Excellent and exhaustive...yet.
I don't usually see this considered tax planning, but if you keep your adjusted gross income under 85K (170K for joint) you can avoid increased medicare premiums.If it's this article, and I missed it, I apologize.
Thank you.

David Lillard from KS posted 2 months ago:

Medicare recipients are taxed significantly for tax-exempt interest income in premium surcharges.

Richard O from CA posted 2 months ago:

Harry McCullough has an excellent point that is important for retired seniors to do their tax planning. It is also useful for adult children who are either doing of helping their senior parent or parents do their tax planning.

Both Part B premiums and Part D premiums are incrementally affected at various income levels.

Suggest that going forward that AAII add this information to your year end Tax planning information. Not all seniors are internet savvy and know to go to the website and find the relevant information and then to use it.

If one is doing yearly incremental IRA to ROTH conversions, considering the MAGI impact of the $170,000 threshold, or the other rate thresholds that apply to Part B and Part D premiums can be critical to tax and expense planning.

Sj Muse from OH posted 2 months ago:

How do you go about gift ting cash to an adult child ? What are the steps ?
Thanks in advance for response/s

Charles Rotblut from IL posted 2 months ago:


See the IRS's FAQ on the Gift Tax.


Charles Rotblut from IL posted 2 months ago:

Answers to many tax questions can be found by simply typing "[tax subject] IRS" into Google. Google will generally call up the appropriate page on the IRS' website with information.


Kimland from KY posted 2 months ago:

I am curious about asset candidates for an IRA account, to avoid occupying it with assets that are already tax efficient.

At the same time I take interst in assets like MLPs, REITS and Royalty Trusts, which are treated specially by the taxman. The nature of tax treatment to any of these is rather opaque to me, so I cannont evaluate whether it would be beneficial or redundant to hold them in an IRA. Is there any guide as to what types of investments would not benefit from IRA provisions?

Charles Rotblut from IL posted 2 months ago:


See in the March 2010 AAII Journal.


Raymond Somers from NJ posted 2 months ago:

Obviously a tremendous amount of work was required to produce this well-written article.
A few minor points of clarification/correction:
To determine how much of your Social Security is taxed the Social Security Administration’s “combined income” must be adjusted for the student loan interest deduction, the tuition and fees deduction and several other less common items.
It is not clear what is meant by the amount reported for tax-exempt income on the 1099-INT “is for information only”. It is used in calculating how much Social Security is taxable, in filling out Affordable Care Act tax forms and for Medicare to calculate your monthly Part B premiums.
To say that assets converted into a Roth IRA can be withdrawn tax-free at any time is misleading because a 10% penalty may apply.
Those still working after age 70 1/2, contributing to an employer-sponsored retirement plan and owning less than 5% of the company can delay the first RMD until April 1 of the year AFTER they retire, unless the plan requires all employees to begin taking RMD at age 70 ½.
The maximum tax rate on collectibles for those in the 15% bracket or below is 15%.
Note that to qualify for the safe harbor for underpayment penalty it is necessary to make timely quarterly estimated payments; i.e., one cannot make up for underpayment in the first 3 quarters by making a large estimated payment in the 4th.
For any gift to charity of $250 or more a written acknowledgement from the charity is required.

Roger Grossel from FL posted about 1 month ago:

Great Tax Guide.
Re: Tax extenders bill. My information says that HR5771 became public law 113-295 on Dec 19, 2014. Sec 105 includes the deduction for state & local general sales taxes.
It would be helpful for members if AAII would make important updates such as this widely available to members!

Edward Nieters from NY posted about 1 month ago:

I have been in a high-deductible health plan for a few years now and have contributed to an HSA each year. I now have a decent balance in the account that rolls over each year.

I have two questions about this account:
1. What happens to my ability to use it if I switch to a non-high-deductible health plan?

2. How is that account treated in my estate to my heirs when I die? Do they have to pay a penalty when the estate is settled or do they have to roll it over into an HSA / health-related account of their own?



Charles Rotblut from IL posted about 1 month ago:


I'll going to refer you to IRS Publication 569, which discusses health savings accounts.


Steven Tanimura from NJ posted about 1 month ago:

I may be wrong, but I think there's an error in your discussion on the kiddie tax. Bullets 1 & 2 should read "...if your child's income... is more than half of the child's overall support.", not "...less than half". This is found in the instructions to Form 8615 on page 1 in the section "Who Must File" where (b) and (c) states "...was more than half of the child's support"

Raymond Somers from NJ posted about 1 month ago:

Steve Tanimura:
I believe you missed the "not" in the instructions to Form 8615.

Charles Rotblut from IL posted about 1 month ago:


J.K. Lasser's Your Income Tax says "the kiddie tax applies not only to children under age 18, but also to children who are age 18 or full-time students age 19-23 who do not have earned income exceeding half of their support."


Brian Casiday from CA posted about 1 month ago:

Charles: Thanks for the as-usual impressive and exhaustive Tax Guide. I don't understand p. 27, State Taxes - "If accelerating deductions makes sense for you and you choose to claim a deduction on your state and local income taxes, you may want to prepay the balance on your estimated state tax liability...This secures the deduction on your 2014 return..." I made my fourth estimated tax payment, for tax year 2014, on January 5, 2015, and I don't see how the validity of any deductions I will claim on my 2014 return would have been affected if I had made estimated payment four in December. Would appreciate an explanation. Thanks.

Charles Rotblut from IL posted about 1 month ago:


Depending on your tax situation, it may make more sense to pay as many planned expenses in one tax year over another to boost your deductions for that particular tax year (e.g. 2014 instead of 2015).


Brian Casiday from CA posted about 1 month ago:

Thanks. I do what you suggest - bunch deductions. The misunderstanding was that I thought you were talking about a deduction ON the state return, not a deduction FOR estimated state taxes on the FEDERAL return.

AJ Falk from FL posted 25 days ago:

Purchased an investment property AUG2014 and was wondering what forms are necessary to show income and deductions.

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