Key Numbers for 2015 Taxes

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Alternative minimum tax (AMT) 2014 2015
Maximum AMT exemption amount $82,100 (MFJ) $52,800 (Single/HOH) $41,050 (MFS) $83,400 (MFJ) $53,600 (Single/HOH) $41,700 (MFS)
Exemption phaseout threshold $156,500 (MFJ) $117,300 (Single/HOH) $78,250 (MFS) $158,900 (MFJ) $119,200 (Single/HOH) $79,450 (MFS)
26% rate applies to AMT income (AMTI) at or below this amount (28% rate applies to AMTI above this amount) $182,500 ($91,250 if MFS) $185,400 ($92,700 if MFS)


Exemptions/itemized deductions 2014 2015
Personal & dependency exemptions $3,950 $4,000
Phaseout threshold for exemptions and itemized deductions $305,050 (MFJ) $279,650 (HOH) $254,200 (Single) $152,525 (MFS) $309,900 (MFJ) $284,050 (HOH) $258,250 (Single) $154,950 (MFS)


Standard deduction 2014 2015
Standard deduction amount $12,400 (MFJ) $9,100 (HOH) $6,200 (Single) $6,200 (MFS) $12,600 (MFJ) $9,250 (HOH) $6,300 (Single) $6,300 (MFS)
Standard deduction for dependent Greater of $1,000 or $350 + earned income Greater of $1,050 or $350 + earned income
Additional deduction for aged/blind $1,550 (single or head of household) $1,200 (all other filing statuses) $1,550 (single or head of household) $1,250 (all other filing statuses)

QCDs for 2014. Absent new legislation, however, QCDs cannot be made for 2015.

Top tax brackets 2014 2015
Single 39.6% of taxable income exceeding $406,750 + $118,118.75 39.6% of taxable income exceeding $413,200 + $119,996.25
MFJ 39.6% of taxable income exceeding $457,600 + $127,962.50 39.6% of taxable income exceeding $464,850 + $129,996.50
MFS 39.6% of taxable income exceeding $228,800 + $63,981.25 39.6% of taxable income exceeding $232,425 + $64,998.25
HOH 39.6% of taxable income exceeding $432,200 + $123,424 39.6% of taxable income exceeding $439,000 + $125,362



Long-term capital gains andqualifying dividends1 generallytaxed at maximum rate of: 2014 2015
Taxpayers in top (39.6%) tax bracket 20% 20%
Taxpayers in 25%, 28%, 33%, and 35% tax rate brackets 15% 15%
Taxpayers in tax rate bracket 15% or less 0% 0%

1 Generally, qualifying dividends are dividends received by an individual shareholder from domestic and qualified foreign corporations

Unearned income Medicare contribution tax (Net investmentincome tax) 2014 2015
Amount of tax 3.80% 3.80%
Applies to lesser of (a) net investment income or (b) modified adjusted gross income exceeding:
Individuals $200,000 $200,000
Married filing jointly $250,000 $250,000
Married filing separately $125,000 $125,000


Standard mileage rates 2014 2015
Use of auto for business purposes (cents per mile) $0.56 $0.575
Use of auto for medical purposes (cents per mile) $0.235 $0.23
Use of auto for moving purposes (cents per mile) $0.235 $0.23
Use of auto for charitable purposes (cents per mile) $0.14 $0.14
Qualified charitable distributions (QCDs) Qualified charitable distributions (QCDs) are distributions made directly from an IRA to a qualified charity. Such distributions may be excluded from income and count toward satisfying any required minimum distributions (RMDs) you would otherwise have to receive from your IRA. Individuals age 70½ and older could make up to $100,000 in 

Provisions that are extended through 2014and then expire

  • Increased Internal Revenue Code (IRC) Section 179 expense limits ($500,000 maximum amount decreases to $25,000 in 2015) and “bonus” depreciation provisions
  • The $250 above-the-line tax deduction for educator classroom expenses
  • The ability to deduct mortgage insurance premiums as qualified residence interest
  • The ability to deduct state and local sales tax in lieu of the itemized deduction for state and local income tax
  • The deduction for qualified higher education expenses


Key Numbers for 2014 Taxes

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Standard Deductions

Married Filing Joint- $12,400

Married Filing Seperately- $6,200

Head of Household- $9,100

Single – $$6,200


Personal Exemptions are now $3,950 (up from $3,900 in 2013)


Qualified Plans:

Maximum elective deferral

401k, 403b, etc – $17,500

SIMPLE IRA – $12,000

Keogh and SEP IRAs – $52,000

Catch up contributions (individuals who will be at least age 50 by the end of the year)

401k, 403b, and 457 plans- $5,500

SIMPLE IRA – $2,500

ROTH IRA and Traditional IRA Contribution Limits:

Regular- $5,500

Catch Up- $1,000


Mileage Rates:

Business = 56 cents per mile

Medical = 23.5 cents per mile

Charitable = 14 cents per mile

Moving = 24 cents per mile

Looking Forward to 2014 Tax Laws

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The last few years have featured so many tax changes that it is hard to keep them straight. For some help, here’s a quick summary of some of the most important federal tax changes that will affect individual taxpayers in 2014.

Penalty for failure to comply with individual health insurance mandate:

Starting this year, the Obamacare law says individuals who fail to carry “adequate” health insurance will face a penalty. More specifically, nonexempt U.S. citizens and legal residents will owe the penalty if they don’t have so-called minimum essential coverage. There are a number of exceptions to the penalty, such as the one for eligible lower-income individuals and the one for certain folks whose existing health insurance plans were canceled. More details to follow.

New tax credit for buying health insurance:

For 2014, a so-called premium assistance credit is available to eligible taxpayers who obtain qualifying health insurance by enrolling through a state exchange or an exchange operated in partnership between a state and the federal government. This is the health insurance subsidy that you’ve probably heard or read a lot about. You are potentially eligible if your household income is between 100% and 400% of the federal poverty line and you don’t have access to employer-sponsored affordable coverage. The allowable credit can vary widely depending on your specific circumstances.

The credit can be paid by the government directly to your insurance company to lower your monthly premiums or it can be claimed when you file your federal income tax return. You may not know the exact amount of your allowable credit until you file your return. Any differences between what you receive in the form of reduced insurance premiums and the credit you’re actually entitled to for the year will be reconciled when you file your 2014 return sometime next year. In other words, if you collect more than you’re entitled to, you’ll have to pay back the excess with your return.

On the plus side, the credit is refundable. That means you can collect the full credit even if it exceeds your federal income tax liability for this year. More specifically, the credit is first used to reduce your 2014 federal income tax bill. After your tax bill has been reduced to zero, any remaining credit can be either refunded to you in cash or used to make estimated tax payments for 2015.

New $500 carry-over deal for health care FSAs:

Late last year, the IRS announced a new exception to the dreaded “use-or-lose” rule for health care flexible spending accounts (FSAs). Under the exception, employers can allow you to carry over to the following year up to $500 of any unused balance from the previous year. The new carry-over deal is in lieu of allowing a grace period through March 15 of the following year to incur enough expenses to use up your unused balance from the previous year. In other words, your company’s health care FSA plan can allow either the $500 carry-over deal or the grace period deal but not both. Contact your employee benefits department to see what your company plan allows, because it may affect what you need to do between now and March 15 if you have an unused balance left over from last year.

Key individual tax breaks that expired at the end of last year:

Some or all of these may be retroactively reinstated, but that may not happen until after the November elections.

  • Option to deduct state and local sales taxes: Last year, you had the choice of claiming an itemized deduction for state and local sales taxes instead of an itemized deduction for state and local income taxes. This option was beneficial if you lived in a state with no personal income taxes or if you paid only a minimal state income tax bill.
  • Deduction for higher education tuition and related fees: This write-off was up to $4,000, or up to $2,000 for higher-income folks.
  • Tax-free treatment for forgiven mortgage debt: Canceled debts generally count as taxable cancellation of debt (COD) income. A temporary exception applied to COD income from canceled mortgage debt that was used to acquire a principal residence: up to $2 million that was canceled in 2007-2013 was treated as a federal-income-tax-free item.
  • Charitable donations from IRAs: Last year, IRA owners who had reached age 70½ by Dec. 12, 2013 were allowed to make charitable donations of up to $100,000 directly out of their IRAs. The donations counted as IRA required minimum distributions. So well-off seniors could reduce their taxes by arranging for charitable donations from their IRAs to replace taxable IRA required minimum distributions. Unless Congress takes action, this tax-smart deal won’t be available this year.
  • Larger tax break for transit passes: Your employer may allow you to reduce your taxable salary to pay for transit passes to get to and from work. In 2013, the maximum monthly amount you could set aside was $245. Unless Congress takes action, the monthly maximum for this year will be only $130.
  • $500 credit for energy-efficient home improvements: Under this break, you could claim a tax credit of up to $500 for certain energy-saving improvements to your principal residence.
  • $250 deduction for teacher school expenses: Teachers and other personnel at K-12 schools could deduct up to $250 of school-related expenses paid out of their own pockets.

What the Fiscal Cliff Deal Really Means

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The agreement means an increased tax bill for married couples earning more than $450,000—$400,000 for single filers—as the current top rate of 35 percent rises to 39.6 percent. Americans earning at this level will also experience a change in the taxes they pay on dividends and capital gains, with these rates increasing from 15 percent to 20 percent—an amount far less than the 40 percent originally sought by the Administration.
The tax measures have angered both liberals —who strongly believe the President should have held his ground on the promise to apply the increases to those earning in excess of $250,000—and conservatives who object to any tax increase whatsoever with equal fervor.
However, not all taxpayers earning less than $450,000 come away unscathed by the deal as the agreement returns to the Clinton era limits on personal exemptions and itemized deductions for couples earning more than $$300,000 and single filers earning in excess of $250,000,
As for estate taxes, the rates will rise from 35 percent to 40 percent for estates valued at over $5 million dollars, however the Republicans did succeed in building in a provision which allows the amount of the exemption (currently five million dollars) to be indexed to the rate of inflation.
But it isn’t all just about taxes as the Senate bill addresses a number of additional and parallel issues that fed into the fiscal cliff fiasco—including passage of a nine month extension of the farm bill, temporarily removing the threat of a radical rise in the price of milk.
Here’s a summary—
• Unemployment benefits are extended for an additional year benefiting approximately 2 million out of work Americans.
• Tax credits for college tuition, created by the 2009 stimulus package, are extended for five year, benefiting some 25 million low income families.
• The “doctor fix” is included meaning that Medicare providers will not face a serious cut in pay.
• The Alternative Minimum Tax problem is permanently fixed removing a potential tax danger for middle class families.
• A number of existing business tax benefits will remain in place for another year, including renewable energy tax credit which is extended for an additional year.
• The $900 per year salary raise recently signed into existence by President Obama for members of Congress is revoked.
Not included in the agreement is an extension of the payroll cut meaning that payroll taxes will rise by for 2 percent for all American wage earners.
Also not included is a rise in the debt ceiling. The nation actually reached its debt ceiling yesterday and, while the Treasury Department says that it can continue to pay outstanding debt obligations and other bills for another two months, there will need to be an all new debt ceiling battle in Congress beginning in February to allow the nation to continuing making payments on its debt obligations.
Which brings us to the sequester—the harsh cuts to the federal budget scheduled to go into effect today. Per the agreement, the cuts have been delayed for two months, with the obvious intent of taking up these cuts as a part of our next fiscal fiasco —the debt ceiling debates coming in February to a Congress near you.
If you’re into picking the winners and the losers, you’ll find that your choices will be guided by those elements of the deal that strike closest to home.
Conservatives, already unhappy with tax increases, are likely to be further displeased that the Senate agreement fails to actually deal with spending—something Minority Leader Mitch McConnell acknowledged yesterday when asking GOP Senators to vote for the bill despite its failure to address spending cuts, noting that the tax portion of the fiscal cliff was the most important component of the deal.
Of course, McConnell knows full well that February is just days away and that he will get another large bite at the spending apple when the battle moves on to the debt ceiling where Congressional Republicans expect to hold better cards than they possessed in the current debate.
Liberals, as noted, are unhappy with lowering the threshold for the income tax increase and are additionally rankled by the estate tax provisions that maintain the $5 million exemption with the potential for the exemption to rise to more than $15 million by 2020. Rep. Chris Van Hollen., ranking Democrat on the House Budget Committee, called the deal a “sweetheart give away to the wealthiest 7,200 estates in the country.”
Centrists will likely view the anger on both sides as an indication that a fair and reasonable compromise has been accomplished.

Key Numbers for 2013

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401k, 403b, 457 Plan Maximum Contributions: $17,500 ($17,000 in 2012)
Catch up Contributions (for age 50 and older) $5,500 ($5,500 in 2012)

ROTH IRA Maximum Contributions: $5,500 ($5,000 in 2012)

ROTH Income Thresholds: Married- $178,000-$188,000
Single- $110,000-$125,000

SIMPLE IRA Maximum Contributions: $12,000 ($11,500 in 2012)

Maximum Taxable Wage Base for Social Security Taxes: $113,700 ($110,100 in 2012)

Should I Pay Off My Debt Or Should I Invest For My Retirement

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The answers to the questions you have always had about your personal finances.


We will frequently address a personal finance, tax, or investment topic that personally affects you and your overall financial well-being.  These articles will be laid out in a way that everybody can understand and apply to their own real life finances.  We at Bergerson Tax Services, Inc can help you with all of your personal finance and tax related needs. Please fell free to contact us anytime. This month’s topic is

Should I Pay off My Debt Or Should I Invest For My Retirement?


By Jeff Bergerson, Bergerson Tax Services, Inc

In a perfect world you would be able to pay off all of your debt and also invest for your retirement.  Unfortunately, like most of us you probably do not have enough money to pay off all of your debt and invest for your retirement at the same time.  So what is the most financially savvy strategy to help you pay off your debt and fully fund a retirement account? Should you pay off all your debt before contributing to a retirement account; or should you keep certain debt and contribute to your retirement account.  In this article I will address the different types of debt that you might have, which debt is the best and worst to keep, and walk you through an illustration.

First of all, lets address the type of debt that you might currently have: Home mortgage, student loan, car loan, and credit card debt.  As I wrote in January’s article, To Pay Off My Home or Not to Pay of My Home, That is the Question, a home mortgage can be considered reasonably good debt to maintain.  Interest rates on home mortgages are generally lower than car loans or credit cards, plus the interest you pay is tax deductible. For example, if you have a interest rate of 6% on your mortgage and are in the 35% tax bracket, the after tax cost of your loan is only 3.9%.  Student loan interest is very similar in that the interest rates are reasonably low and the interest is tax deductible.  Up to $2,500 of student loan interest is deductible as long as your modified adjusted gross income is below $70,000 for single filers and under $140,000 for married filers. 

Car loans are a different story; depending on the terms of your car loan your interest rate may or may not be as low as your home mortgage or your student loan, but the interest you pay on it is not tax deductible.  Finally, the worst kind of debt that you can have is credit card debt.  The national average interest rate on credit cards is a staggering 15%, plus the interest you pay is not tax deductible.

When determining what debt to pay off first, it is clear that credit card debt and possibly car loans need to be paid off before your home mortgage and any student loans. The question of whether to even try to pay off your home mortgage or keep it is answered in January’s issue, To Pay Off My Home or Not to Pay of My Home, that is the Question.

It has been determined that credit card debt is the first debt that you should attempt to pay off, but what about investing for retirement? Should you pay off your credit card first, and then save for retirement, or should you just pay the minimum on your credit card and invest the rest into your retirement account?

Lets look at an example to help you decide.

Lets say you have a $5,000 credit card balance of which the interest rate is 14%.  At the same time your employer has a 401K plan and offers a 50% match (50 cents per every dollar you contribute) up to 6% of your salary.  At first glance it looks like a no-brainer, 50% vs.14% returns.  But consider the fact that the 50% match is a one-time gift while the 14% compounds yearly and eventually will overtake the 50%.  Now lets say you have $250 every month of which you have to pay your minimum credit card payment of $125, so you have $125 to either put toward the balance of your credit card or invest in your 401K. 

Example 1.  You pay just the minimum of $125 and invest the $125 (which is actually $174 because it will be contributed pre-tax) every month.  You will need 55 months to wipe out your credit card debt.  During that time if you earn 8% in your 401K and receive a 50% match you will accumulate $17,271 in your 401K.

Example 2.  You choose to put the entire $250 toward your credit card debt and hold off entirely on contributing to your 401K.  You will pay off your credit card in 23 months.  At that point you can begin contributing all $250 to your 401K.  By the end of 55 months you would have $18,515 in your 401K plan.

By focusing on paying off your credit card completely and then funding your 401K rather than splitting your money between the two you will have $18,515 rather than $17,271 over that 55- month period. You can see that paying off your credit card completely before funding your retirement plan is a more effective strategy. 

There are a couple caveats to the idea that paying off your credit card will produce more money in your pocket overall.  First, if you just have a small amount of credit card debt and would be able to pay off that debt in under a year’s time, go ahead and fund your retirement account and take advantage of that employer match.  In instances where you do not have any credit card debt I would always advise to contribute the maximum amount to your 401K up to your company match, its free money!  The other time where I would advise to contribute to your retirement account before paying off your credit card debt completely is if you do not contribute to your 401K at first it meant you never ended up doing it.  In this case I would say start contributing and get the ball rolling and then pay off your credit card.

Ideally the best financial strategy for most people who have credit card debt is to focus on paying off your entire credit card balance first before you begin investing into your retirement account. Once you pay off your credit card balance, begin investing into your retirement account.

Now that we have determined paying off your entire credit card balance is the most financially savvy strategy, I will give you a couple of strategies to help you pay off your credit card debt in the most effective way. 

If you have more than one credit card and cannot pay them all off, the best bet is to try to consolidate all of your cards into the one that offers the lowest rate.  Most credit card companies make offers of lower interest rates, called balance transfer credit cards, in an attempt to attract you to consolidate your debt with their company.  Be careful, as sometimes there is small print that can boost up your rate after a certain period of time.  Read all the small print and research the credit cards thoroughly before making your decision where to transfer your debt.

If you own a home and have built up equity, it would be a good idea to take out a home equity loan to pay off your credit card debt.  You will get a much better interest rate and the interest you pay on a home equity loan is tax deductible.  Whichever route you choose the most important thing to do is pay off your credit card and the sooner you begin, the better.

Jeff Bergerson founded Bergerson Tax Services, Inc (BTS) eight years ago and pilots a rapidly growing practice in St. Paul, Minnesota. Jeff has written many articles offering tax related strategies, financial strategies, and business guidance. Bergerson Tax Services, Inc. provides individuals and small business tax preparation services, small business consulting, and tax planning.  He can be reached on the web at or by email at

To pay off my home, or not to pay off my home, that is the question.

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The answers to the questions you have always had about your personal finances.

Throughout the year we will address a personal finance, tax, or investment topic that personally affects you and your overall financial well-being. These articles will be laid out in a way that everybody can understand and apply to their own real life finances.  We at Bergerson Tax Services, Inc can help you with all of your personal finance and tax related needs. Please fell free to contact us anytime.  This month’s topic is

To pay off my home, or not to pay off my home, that is the question.


By Jeff Bergerson, Bergerson Tax Services, Inc

This question is asked more than any other personal finance question.  You have probably heard a million different theories from a million different people.  But what is the right answer?  The simple truth is it depends upon your situation.  This article will clearly lay out all of the factors to help you decide which would be best for you.

Your home is one of the biggest investment decisions you will ever make.  Deciding to keep a mortgage or pay it off could affect your whole financial life and might mean earning or costing yourself hundreds of thousands of dollars. 

With extra money should you put it toward your mortgage or invest the money?  Or, if you had enough money to pay off your mortgage should you?

There are several factors that need to be considered:

  1. Your time until retirement.
  2. Your mortgage rate.
  3. The rate of return you can achieve on your money invested rather than being put into your mortgage.
  4. Your psychological capabilities and your self-disciple.

To start lets take a look at a real life example and assume the following:  You have just inherited $250,000 that you can use to either pay off your home or invest into an investment account. You have just purchased a house with a 6% 30-year mortgage with a balance of $250,000 and you are in the 25% tax bracket. 

Interest on your $250,000 mortgage is $15,000 of which you can deduct $3,750 on your taxes because your taxable income goes down $15,000 (your mortgage interest paid deduction).  Your after tax interest cost therefore is $11,250.

Lets say you use the $250,000 to pay off your mortgage.  You no longer have any debt and have saved $11,250 after taxes.  In comparison if you keep the mortgage and invest your $250,000, the rate of return (the 3rd factor needed to consider) will be dependent on the type of investment you choose to put your money into and the amount of risk involved.  Historically a portfolio consisting of 80% stocks and 20% bonds has returned between 8-10%.  Lets assume an 8% return; you would gain $20,000 in the first year. You have to factor in taxes on that gain and the long-term capital gains and dividend rate is currently at a maximum 15%.  If you sold the investments after one year, that would leave you with after tax gains of $17,000.  We will use a taxable investment account for our purposes, but if you are able to invest your money in a tax deferred account such as a 401K, IRA, SEP, etc, your returns will be even greater.  By comparing what you save ($11,250) and what you would have earned had you invested the money ($17,000) you can see the difference for you is $5,750.

What makes this example even more powerful is when you factor in the power of compound interest over time on the money you invest.  Borrowing money at simple interest (as with your mortgage at 6%) and locking in the amount owed at today’s value can never balance with investing your present dollars to receive compounding returns for up to 30 years into the future.  The invested side of your balance sheet pulls ahead and leaves the debt side far behind.  Even if the interest rate paid on your mortgage and the interest rate received from your investment account are equal you are going to come out better financially with the investment.

To demonstrate the power of compounding, follow the example below:

There are two women, age 30, who both inherited $250,000 and they both decide to buy new homes priced at $250,000.  Both woman have full time jobs and have a steady salary.  The first woman, Priscilla Payoff has always been told that paying off your mortgage is the best solution so she did just that and paid cash for her home and does not have a mortgage.  She uses her salary to buy luxuries like an SUV and speedboat.

The next woman, Samantha Savvy has been talking with her financial and tax advisors and decides to invest her money rather than paying off her mortgage immediately.  Samantha put $50,000 down on the house and invested $200,000 in an investment account. Samantha uses her salary to make her interest only payments and lets her investment account appreciate in value.  At the time of purchase:


Now that you can see the power of compounding and the power of investing money as opposed to paying off your mortgage, you will probably conclude that the no-brainer choice is to maintain a mortgage and invest your money.  I would like to touch up on a couple of factors that I mentioned earlier that may argue for paying off your mortgage.  Factor #1, Your time until retirement. If you are approaching retirement (5-10 years) you will most likely not be able to invest your money where you can achieve 8-10% Typically 8-10% gains come from stocks, which should not be the majority of your portfolio if the money will be needed in the short run.  The types of investments more reasonable for individuals near retirement would usually only yield between 4-5% (treasury bonds, money market, etc) making the strategy not as effective.  Also in the short run the power of compounding interest is not nearly as powerful as if you have a thirty-year time frame.

As for Factor #2 your mortgage rate and Factor #3 the rate of return on your investment account, if your rate of return that you achieve on your investment account is significantly lower than the rate you pay on your mortgage, this strategy will not be successful.

The other factor is Factor #4, which are your psychological capabilities and your self- discipline.  If you cannot sleep at night and you are completely stressed out by the idea of having your money invested in the stock market and more specifically in the types of investments needed to yield 8-10% you should not be in it.  If you cannot tolerate the sometimes-large fluctuations that the stock market sometimes produces go ahead and put your money into your house. If you constantly worry about debt on your house or think not having a monthly mortgage bill is your personal heaven, then pay off your mortgage.

Do consider a couple of additional things. Over time the stock market has proven to produce positive gains near 8-10%, but you need to wait out the bad times and just let the market work for you.  Next consider that home equity is relatively illiquid meaning if you suddenly need money for unforeseen circumstances and emergencies it is easier to sell a mutual fund in your investment account than it is to pull cash out of your home.

That leads me to my final point.  It is absolutely essential that if you choose to not pay off your mortgage and go the route of investing that money, you must, must, must actually invest it.  If you do not have the self-discipline to invest every penny and think your desire to buy a new S.U.V or luxury boat will be to great than you need to put your money into your home.

In summary, if you have a long-term time frame (over ten years) until retirement and you have the psychological capabilities and disciple to invest all of the money that would have gone into your home and your rate of return on your investment account is equal to or greater than your mortgage rate, you will be better off investing your money than paying off your mortgage. You will need that long-term time frame to absorb the market fluctuations and achieve the time tested market yield of 8-10%.  So take all of the previous information, factors, and illustrations and apply them to your situation and decide which avenue is best for you.

Jeff Bergerson founded Bergerson Tax Services, Inc (BTS) eight years ago and pilots a rapidly growing practice in St. Paul, Minnesota. Jeff has written many articles offering tax related strategies, financial strategies, and business guidance. Bergerson Tax Services, Inc. provides individuals and small business tax preparation services, small business consulting, and tax planning. He can be reached on the web at or by email at

The Kiddie Tax

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For 2007 income tax purposes, investment income over $1,700 earned by a child under age 18 is taxed at the child’s parent’s tax rate. The kiddie tax only applies to investment income such as interest, dividends, rents, royalties, and profits on the sale of property. As the child’s parent you generally must use form 8615 to report their income.  On the form 8615, the kiddie tax rules are applied and the tax is reported on the child’s income tax return. The 8615 computation has no effect on the treatment of items on your own return or on your tax computation.

If you use the married filing seperatly filing status, the parent with the larger amount of taxable income is responsible for the kiddie tax computation. If parents are divorced or separated, the parent who has custody of the child for the greater part of the year computes the tax.

Attention: Starting in 2008, the kiddie tax will apply to investment income of over $1,800 for children in the following categories:

1.  children under the age of 18.

2. children who are age 18 who do not have earned income exceeding 50% of their support.

3. children age 19-23 who are full-time students and who do not have earned income exceeding 50% of their support.

The Gift Tax Exclusion

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This is an easy way to reduce your future estate tax bill. You can give up to $12,000 each year free of gift tax to anyone Bergerson Tax Services - Gift Tax Exclusionyou want. If you are married and your spouse concurs, even if the entire amount of the gift comes from your seperate assets. There is also an unlimited break for tuition that donors pay directly to schools. It does not count toward the $12,000. This applies to medical expenses that donors pay for donees.

Sell Your Home – Federal Income Tax Free

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You can sell your primary residence at a tax-free gain of up to $250,000 ($500,000 on a joint return). You just need to have lived in it for 2 of the prior 5 years. These time requirements can be relaxed in certain situations.Bergerson Tax Services - Sell Your Home Income Tax Free

Partial Federal Income Tax Exclusion. If a sale occurs prior to satisfying the two-year test, a partial federal income tax exclusion can be claimed if the sale was because of a change in work, health reasons, or an unforeseen circumstance. For example, a federal taxpayer who sold his home in order to acquire the space needed to care for his disabled mother was entitled to a partial federal income tax exclusion.

The IRS ruled that the sale in this case was because of the health of a qualifying individual. IRS Federal Regulations contain several situations that constitute unforeseen circumstances, including divorce, casualty, or multiple births from the same pregnancy. The IRS continues to expand the definition of unforeseen circumstance in regards to federal income tax exclusion.

More recently, the IRS has held that a move caused by crime in the neighborhood was an unforeseen circumstance, allowing the homeowner to claim a partial federal income tax exclusion. One such case involved a homeowner who was held up at gunpoint while leaving his residence and forced to drive an assailant to ATM machines. The homeowner moved from the residence, renting it out and subsequently selling it, because of the traumatic and violent nature of the crime.

A partial federal income tax exclusion is figured by multiplying the dollar limit (ex:$500,000 for a married couple) by a fraction, the numerator of which is the number of days of ownership and use (ex:365) and the denominator of which is 730 days.

To learn more about federal tax laws with selling your home or federal tax regulation changes, contact the Bergerson Federal Income Tax Preparation Offices at

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