As the new year begins there are many financial changes we must focus on…
At the start of the new year we begin to think ahead and focus on various components of our income taxes. Deductions, deadlines, exceptions, and bracket changes. We review the prior year’s books and begin to organize our information in preparation for filing our return. The more organized our data is the easier our return preparation is, whether we file ourselves or have an accountant file for us.
Here are the top 10 tax changes you should know!!!
Tax Day- When is it?
Normally tax day occurs on April 15th, but can change upon exception. This year Emancipation Day- a Washington, D.C. holiday falls on April 15th. When tax day falls on a holiday or weekend it is extended to the following Monday. So in turn tax day will occur on April 18th. For those in the New England states who celebrate Patriot Day their tax day deadline will be April 19th.
Obamacare is striking again
The tax penalties imposed by the Affordable Care Act are increasing one again for those that do not have qualifying health care coverage. This year the penalties will be 2.5% of income or $695 per adult. This is an increase of $410 per adult and 0.5% of income from 2015’s penalties. Additionally, the family maximum will apply to the per-person amount of $2,085. The per-person amount is also a $1,110 increase from 2015. (In my opinion, there is nothing affordable about Obamacare!)
Will your tax bracket be the same?
Due to inflation many of the tax brackets adjust and this year is no different. They are rising by roughly 0.4%. This means your income could increase but not throw you into a higher bracket.
Standard deductions will increase for head-of-household filers. The standard deduction will rise $50 to $9,300 this year for those who qualify as the heads of households.
Who doesn’t love an increase in personal exemptions?
This year everyone will be able to take a total personal exemption amount of $4,050. This is a $50 increase.
Do you have health savings accounts?
Contribution limits are going up. the contribution limit for individual policies will stay $3,350, but the maximum contribution for family policies will increase to $6,750 ($100 increase). For those 55 or older the catch-up contribution of $1,000 will still apply.
Earned Income Credit rise- big or small?
The maximum allowable credit will have a modest increase. The maximum credit will be $6,269 for those with three or more qualifying children. Those with two children will get a maximum of $5,572 and families with one child will get up to $3,373. Those without children can claim a maximum of $506. For all these scenarios that is a total increase of $68.
Do you use the AMT exemption?
A growing number of taxpayers have been impacted by the alternative minimum tax. The AMT can cause you to pay more in taxes than if you didn’t have to figure it in. This makes the exemption amount more important. The AMT exemptions for single taxpayers will go up $300 to $53,900 and joint filers will have a $500 increase to $83,800.
Estate tax exemption- you can die richer
Citizens of the USA can die richer and avoid estate taxes. The lifetime exemption amount will rise by $20,000 to $5.45 million. This applies to the estates of those who pass away in 2016.
What happened if other tax provisions are not renewed?
Yearly we see our lawmakers wait until the last minute to renew common tax breaks. It is likely that the lawmakers will renew them retroactively unless an extension provides for two years of relief instead of one. These common breaks pertain to charitable distributions from IRAs, state sales tax deductions, teachers’ write-offs for classroom supplies, deductions for private mortgage insurance, and many more.
With multiple changes it is even more important to not put off planning and stay up-to-date. Preparing and watching for updates is a smart Financial Strategy For Life! Happy New Year 2016!