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.