The new year brings with it many tax changes that affect individual filers, businesses and estates. Some of the highlights include:
·The 2016 standard deductions increase – Married filers can take $12,600 plus $1,250 for each spouse age 65 or older. Single filers get $6,300, plus $1,550 more for filers age 65 or older in 2016.
·Filers with high income lose itemized deductions starting at a higher level in 2016 – their write-offs are cut by 3% of the excess adjusted gross income (AGI) over $259,400 for single filers, and $311,300 for married filers, but the total reduction can’t exceed 80% of the itemizations. Medical expenses, investment interest, casualty losses, and gambling losses are exempted from this cutback.
·Personal exemptions increase to $4,050 for filers and their dependents, but this tax break is phased out for upper-income earners.
·The 20% top rate on dividends and long-term gains starts at a higher amount – single filers with taxable income above $415,050, and joint filers above $466,950.
·Alternate minimum tax (AMT) exemptions increase to $83,800 for couples and $53,900 for single filers and household heads. The phaseouts for the exemptions also start at higher income levels – above $159,700 for couples and $119,700 for single filers and household heads. The 28% AMT tax bracket also kicks in a little later starting this year – above $186,300 of alternate minimum taxable income.
·The lifetime learning credit also starts phasing out at higher AGI levels – $131,000 for couples (up from $111,000) and $55,000-$65,000 for single filers.
·The 401(k) contribution limit remains at $18,000, but taxpayers born before 1967 can put in an additional $6,000. The cap on SIMPLEs also stays at $12,500 ($15,500 for individuals age 50 and up).
·The pay-in limits for IRAs and Roth IRAs also remain at $5,500, plus $1,000 as an additional catch-up contribution for taxpayers age 50 and older. But the income ceilings on pay-ins tick upward – they phase out at AGIs of $184,000 to $194,000 for couples and $117,000 to $132,000 for single filers.
·The partial credit for retirement plan pay-ins phases out at higher levels – AGIs over $61,500 for couples; $46,125 for heads of household; and $30,750 for single filers.
ESTATE AND GIFT TAX:
·The estate and gift tax exemption increases to $5,450,000 in 2016. The tax rate remains at 40%.
·The gift tax annual exclusion remains the same – $14,000 per donee.
·More estate tax liability qualifies for an installment payment tax break – if one or more closely held businesses make up greater than 35% of an estate, as much as $592,000 of tax can be deferred, and the IRS will only charge 2% interest.
·Executors of taxable estates have a new reporting requirement – executors are now required to report to heirs and the IRS about the basis of inherited assets within 30 days of filing the Estate Tax Return (Form 706).
·The 2016 standard mileage rate for business driving decreases to 54 cents a mile, and drops to 19 cents a mile for medical related travel.