Tax changes for 2015: What to expect

The New Year brings with it changes to tax rates that are indexed for inflation or otherwise set to adjust each year. Many estate planning clients will want to consider adjusting their plans based on the shifts in the tax rates. And all of them will appreciate knowing what changes the IRS has in store for them.

For 2015, the watchword is “minimal;” with inflation remaining at historically low rates, many of the tax rates are little changed for the New Year. In fact, the new tax rates look so much like the old tax rates that some people may not notice they’ve changed. Some of the new rates to consider:

• The $5.43 million federal estate tax exemption is up from $5.34 million in 2014. Those may look like the same two figures, but note that the 3 and 4 have been reversed. The 40 percent top federal estate tax rate remains the same.  

• The increases for the lifetime gift tax exemption and the generation-skipping trust tax exemption are the same: up to $5.43 million from $5.34 million in 2014, and a 40 percent top federal tax rate.   

• The annual gift tax exclusion remains at $14,000, with no increase from 2014.

• Income tax rates are unchanged. Individual ordinary income tax rates will remain the same in 2015, with a maximum rate of 39.6 percent.

• Taxpayers whose ordinary income is taxed at that 39.6 percent level will pay long-term capital gains of 20 percent.

• Taxpayers in lower tax brackets will continue to see their long-term capital gains taxed at no more than 15 percent.

• There is one minor change to the Medicare surtax rates: The threshold for the 3.8 percent Medicare surtax on investment income and the 0.9 percent Medicare surtax on earned income will remain at $200,000 for single filers, $250,000 for married filing jointly, but for trusts and estates, the threshold rises to $12,300.

So there’s not much going on here, which isn’t necessarily a good thing. In times when the exemptions are increasing significantly, clients have the opportunity to make larger lifetime gifts, or to make use of tactics such as grantor trusts.

Or they can transfer assets to their children or grandchildren who may be in lower income tax brackets or in states with no income tax. When the rates and exemptions aren’t moving very much, that limits what an estate planner can do for his or her clients.

President Obama’s budget contains several proposals that could impact estate planning and tax issues in 2015. The most important to estate planners is a call for exclusion amounts to roll back to their 2009 levels, which would mean GST applicable exclusion amounts of $3.5 million and a gift tax applicable exclusion amount of only $1 million. Obama also called for no inflation indexing to any of the exclusion amounts. But with a Republican-controlled House and Senate in place for the remainder of the president’s term, it’s safe to assume these proposals are dead in the water.