What should you know about tax law changes as you file your tax return in 2016 and plan for next year?
Tax day in April is not far off and, unlike President’s Day or Valentine’s Day, failure to mark this day could attract the attention of the Internal Revenue Service. Changes in tax laws and regulations that began in 2016 could have an impact on your activities and tax planning this year and beyond. Below are 10 important income tax changes to consider.
1. Tax returns are due on April 18, not April 15. Because Friday, April 15, 2016 is a legal holiday in the District of Columbia (Emancipation Day), the tax filing deadline is postponed until the following Monday. In a few New England states that observe the holiday of Patriots Day, the deadline is April 19.
2. Affordable Care Act tax penalties are bigger.
In 2014, the Obamacare “individual mandate” tax penalty was just $95 per adult or 1 percent of household income above the tax return filing threshold. In 2015, it was $285 or 2 percent above the threshold. Now, in 2016, the amount is $695 or 2.5 percent above the threshold, with a family maximum of $2085.
3. Tax brackets are adjusted upward for inflation.
Regardless of which tax bracket you are in, your bracket amounts this year will rise by approximately 0.4 percent.
4. If you are a head-of-household, you get a higher standard deduction.
For most taxpayers, the standard deduction will not change, whether you are single, married and filing jointly, or married and filing separately. For heads-of-household, however,it rises $50 to $9,300 in 2016.
5. You are entitled to a larger personal exemption.
In 2016, you can take a personal exemption of $4050, $50 more than in 2015.
6. You may be able to put more into a health savings account (HSA).
If you have a high-deductible health care plan that qualifies, you may be able to contribute more pretax dollars to your HSA. The individual annual contribution for 2016 is unchanged, but families can give $6750, a $100 increase.
7. If you are eligible for Earned Income Tax Credit, you may get a slight increase.
Low and moderate income taxpayers who qualify can claim the maximum of$6,269, while those without children get $506 for 2016.
8. The alternative minimum tax (AMT) exemption will go up.
More and more taxpayers find themselves subject to the AMT. In 2016, single taxpayers can claim AMT exemptions to $53,900, a $300 increase, while joint filers can claim $83,800, $500 more than in 2015.
9. Estate and gift tax exemptions continues to rise.
Because they are tied to inflation, the federal tax exemption for lifetime gifts and for estates will be $5.45 million, an increase of $20,000.
10. Qualified Charitable Distributions (QCDs) from your IRA can now be incorporated into long-term planning.
QCDs are no longer a temporary tax provision. Enacted as part of the PATH Act, this exemption lets you transfer $100,000 to a charity from an IRA tax free.
New tax laws and IRS regulations may require new strategies depending on your financial circumstances. You will no doubt want to discuss these changes with your tax attorney or financial advisor before you file your 2015 taxes.
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