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Personal Tax Tips

6 MAJOR CHANGES FOR 2016 RETURNS 

 Here are some basics:

  • Personal & Dependent Exemptions up from $4,000 in 2015 to $4,050 for 2016.
  • Standard Deductions 
    • 6300 (singles) (married filing separately)--no change from 2015
    • $12,600 (married filing joint)--no change from 2015
    • Up from $9,250 to $9,300 (head of household)-a $50 increase.
  • Increases in the Earned Income Credit (EIC) tables in both income limits and maximum credit amounts-- see below from the IRS tables:
       

     Earned Income and AGI Limits

      Earned income and adjusted gross income (AGI) must each be less than:

If filing...Qualifying Children Claimed
ZeroOneTwoThree or more
Single, Head of Household or Widowed$14,880$39,296$44,648$47,955
Married Filing Jointly$20,430$44,846$50,198$53,505

   

  Note:  Investment income must be $3,400 or less for the year.


  Maximum Credit Amounts for Tax Year 2016 is:    

  • $6,269 with three or more qualifying children
  • $5,572 with two qualifying children
  • $3,373 with one qualifying child
  • $506 with no qualifying children

 For more information on whether a child qualifies you for EIC, see:


Federal long-term capital gains tax rates for 2016 (same as 2015)

The chart below may help you if you are concerned about long term capital gains (investments held over 1 year).

The long-term capital gains rate is based on the tax bracket you fall into. Note that your tax bracket is also the rate at which your short-term capital gains are taxed.

Tax Bracket

Long-Term Capital Gains Rate

10%-15%

0%

25%-35%

15%

39.6%

20%

Source: IRS.


Please note the following:

First, if your long-term capital gains take you into a higher tax bracket, only the gains above that threshold will be taxed at the higher rate. In other words, if your long-term capital gains bring your taxable income $1 over the level for the 25%-35% bracket, only $1 will be taxed at 15%, and the rest of your long-term capital gains will be taxed at 0%.

Second, for single taxpayers who make more than $200,000 per year and married taxpayers who file jointly and earn more than $250,000, there is an additional 3.8% tax on investment income, including capital gains, above a certain level because of the net investment income tax.


DELINQUENT TAXPAYERS--THE IRS IS GETTING SERIOUS ABOUT YOU!!

According to an article by Michael Cohn in Accounting Today News, there has been a bill passed in Congress and signed by Obama in December 2015  that will allow the State Department to revoke the passports of long-term tax delinquents who owe the IRS over $50,000 in tax debts.  I know to most of us $50K is a lot of money, but this amount could be an accumulation of several years, so it really would not take many years to owe this kind of money.  Okay, you say," no problem, I don't travel overseas", BUT there is another sneaky provision...they are gonna hire PRIVATE TAX COLLECTORS!!  Be sure your tax returns are current--of course MTL is ready and able to help you do just that. 
 
Note: Please be aware that criminals are posing as IRS agents trying to get you to pay PHONY tax debts.  DO NOT answer any questions to someone calling you.  The IRS ALWAYS writes, they do not call or email.  

However, now that this law has passed, I'm not sure what the protocol for the tax collectors will be.  IF YOU OWE THE IRS BACK TAXES OR HAVE NOT FILED, CONTACT ME SO WE CAN GET THIS TAKEN CARE OF!!!

I can give you a copy of this entire article if you wish, or you can download it at http://www.accountingtoday.com/news/tax-practice/highway-bill-revoke-passports-tax-delinquents-private-debt-collectors-76612-1.html.  Be sure to note the "continue to site" click on top right of page so that you don't buy or get signed up for something you may not want.  Yes, they are calling this a HIGHWAY BILL!!!  

Obamacare will take a larger bite 

If you do not have health insurance in 2016, you will have to pay $695 per person ($347.50 for each dependent child) with a ceiling of $2,085 OR 2.5 percent of your income over the filing threshold--whichever of these is greater.  The health premium credit income levels increase also, therefore the credit is available only to singles making under $47,520 and marrieds making under $97,200 for a family of four.  Folks that are eligible for Medicaid or other federal insurance don't qualify.  Like last year, if you do not report a change in your status (got married, divorced, a better paying job, etc) to the marketplace, then you will have to repay any excess when you file your return.  

Backdoor Roth IRA (for marrieds making more than $184K or singles over $117K)

This tip came from a savvy client. Normally the income of marrieds making approximately $184,000 ($117,000 if single) does not allow them to make a full Roth contribution.  A Roth IRA is desirable for those making money in taxable accounts (interest, dividends).  If the money is instead in a Roth IRA, the interest, dividends, and proceeds of any sales of the asset are not taxable.  For those of you that make over the above amounts and would like to make a ROTH contribution if you could, I highly suggest that you read the article written by Harry Sit at http://thefinancebuff.com/the-backdoor-roth-ira-a-complete-how-to.html.  

Other Miscellaneous Information:

Social Security wage base does not increase in 2016, (its now $118,500 but does increase to $127,200 for 2017.  Under age 66, the amount you can make is $15,720 before you start to lose a portion of your social security benefits in 2016. However, if you are over age 66, you can earn any amount of money and still draw your full social security benefits.  


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