Monday, December 12, 2016

Here's How Your Taxes May Have Changed in 2016

FROM http://www.foxbusiness.com/

Believe it or not, it's just about time to start thinking about tax season again. Now's not too early to plan about what you'll need in order to prepare and get your 2016 tax return filed. Every year, you can count on some tax law changes affecting you and your return, and some of them typically aren't known until the very end of the year. Let's take a closer look at the ways that your taxes might have changed in 2016 and what you should look out for in doing your tax preparation for the coming filing season.



Some small changes for 2016
Inflation produces adjustments to many tax laws every year. However, inflation levels recently have been extremely low, and that kept inflation-related changes to a minimum. Here are some of the most important changes that affect the millions of taxpayers who will file returns in the coming months:

The personal exemption amount rose $50 to $4,050.
The standard deduction for those filing as head of household rose $50 to $9,300.
The maximum earned income credit for families with three or more children rose $27 to $6,269. Those for smaller families saw more modest increases.
Tax bracket income levels rose very slightly, by not quite 0.5% compared to what the 2015 tax brackets looked like.

What stayed the same in 2016
However, the relative lack of inflation kept many provision unchanged from last year. Below are some of the most common provisions that didn't have any changes:

IRA contribution maximums remained at $5,500, with the same $1,000 catch-up contribution available for those 50 or older.
401(k) employee contribution maximums also stayed the same, at $18,000 for those under 50 and $24,000 for older participants.
Standard deductions for single filers and for married couples filing either jointly or separately were unchanged.
Tax Day stays the same for the 2016 tax year
Most taxpayers know quite well that April 15 is the typical deadline for getting your tax returns filed. However, this tax season will be the second straight year in which taxes aren't due until April 18.

The reason for the change in Tax Day has to do with the calendar. April 15 is the tax deadline unless it falls on a weekend or a holiday. This year, April 15 is a Saturday, and so the natural day for taxes to be due would be the following Monday, April 17. However, April 17 is the day on which the District of Columbia observes Emancipation Day, and so the IRS will make returns due on Tuesday, April 18, instead. A similar calendar effect happened last year, with the only difference being that taxpayers in Massachusetts and Maine won't get the additional day they got last tax season from the Patriots' Day holiday.

The big change: Obamacare penalties
The biggest change for 2016 is that the penalties are going up again for those who don't have qualifying healthcare coverage under the Affordable Care Act. Now, you'll have to pay the greater of 2.5% of your income above the filing limit, or a per-person amount equal to $695 per adult and $347.50 per child, with a maximum for families of $2,085. That compares to the 2% income limit and per-person amounts of $325 and $162.50, respectively, for adults and children, and the family maximum more than doubles from the $975 figure for the 2015 tax year.

Watch out for tax extenders
Finally, Congress typically waits until the last minute each year to decide whether to extend some popular tax breaks. Last year's legislation actually made several key provisions permanent, including permanent expansion to the Child Tax Credit, Earned Income Tax Credit, and American Opportunity Tax Credit. Smaller provisions were also extended permanently, including deductions for educators for out-of-pocket expenses and the ability to distribute IRA money to charity in a tax-advantaged way.

That leaves only a few key provisions left up for grabs. Tax credits for renewable energy are still in question, and homeowner tax breaks for mortgage loan forgiveness and mortgage insurance premium deductions haven't yet been renewed. However, with major items already taken care of, most taxpayers won't have to watch Congress closely in the last days of the year.

This article doesn't include every single tax provision that changed in 2016, so you'll still have to look closely at your own individual situation. Nevertheless, by seeing the major areas in which tax changes occurred, you can plan in advance for what your return will look like.