Instead of having to wait for last minute extensions to certain tax provisions or having to retroactively adjust your tax return in 2016 you will have the benefit of knowing the tax rule changes before you have to submit your return. Before the end of 2015, Congress enacted several permanent tax extensions on previous provisions and made a number of changes for 2016. Here is a list of the most prominent changes that may affect you.
Affordable Care Act Penalties
Those without health insurance
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Tax Bracket Creep
The good news is there were no increases for federal income taxes this year, unfortunately the tax bracket goal posts have moved upwards again. This means if you were at the upper cusp of a tax bracket you may have been automatically moved into a higher tax bracket because of this. As the US tax system is progressive, meaning those that earn more also pay a higher percentage of tax. The tax brackets are pegged to inflationary indexes and this year will increase by about 0.4%. The top statutory tax rate of 39.6% starts at $466,950 for married couples filing jointly and $415,050 for singles. Check your tax bracket before doing your filing to ensure it has not changed.
Investment Bracket Creep
Similar to income taxes, investment capital gains taxes have not changed this year, yet again inflation adjustments have lifted the brackets. The bottom capital gains tax bracket is 0% up to $37,650 for singles and $75,300 for couples and $466,951 is the top bracket start for a 20% tax.
If you have a significant investment portfolio this could mean a higher tax bill. If your adjusted gross income before expense deductions, is greater than $250,000 or $200,000 for singles you will also have to pay a 3.8% surtax on your capital gains. The thresholds for this surtax are not indexed for inflation and could catch more filers every year.
Estate and Gift Taxes
The dreaded Estate Tax actually rose this year to $5.45 million per person, allowing a couple a whopping $11 million exemption for their estate. According to estimates with this increase only about 4000 estates in the US this year will owe this death tax.
The annual gift exemption from one person to another is not changing and remains at $14,000 per recipient. A person in a married couple can claim the exemption for both people making it possible for a $28,000 gift exemption.
Other Small Changes
You should note that if you have a HSA (Health Savings Account) the max contribution limit was increased by $100 to $6,750 for families but remains the same for individuals. Also the Earned Income Credit is also increasing, but by paltry amounts including $27 for 3 children, $24 for 2 children, $14 for one child and only $3 if you have no children.
Probably the best news for some people is that the deadline for filing your tax return is delayed because it falls on a Federal holiday this year so it falls to the next business day, offering 3 extra days of filing time. The new tax filing deadline is April 18th for 2016.
