Changes to the 2016 Tax Code

A variety of United States tax forms with a pencil

 

We all start getting tense and tight as we get close to tax time, worrying about whether we will owe and if so how much, or worrying about whether we will get enough back to do the things we want and need to do.  One way to have some control over the outcome is to be so familiar with the tax changes that are in effect for  2016 that we make maximum use of any opportunity to minimize the pain and maximize a positive outcome.

Although you should not wait until the last minute to file (the more time you give yourself the better the outcome), you should know that one change in 2016 is the tax filing deadline.  The deadline this year will be April 18th instead of April 15th.  April 15 will be a legal holiday in Washington D.C. because of Emancipation Day (anniversary of the abolition of slavery).  Exceptions to this are Maine and Massachusetts, where  the deadline  will be April 19th, because  April 18th in those two states is Patriot’s Day, a state-wide holiday. Municipal, state, and county offices will be closed as they celebrate the battles of Lexington and Concord  which took place in Boston, and also the hero Paul Revere’s famous midnight ride in 1775.

There is more good news for 2016.  The standard deduction for Heads of Household   is $9300.  All other standard deductions remain the same.

The Earned Income Tax Credit (wage supplement for low income workers)  increases to $6269.00  for those with three dependents who qualify.   FileYourTaxesNow.com states “Some taxpayers may not owe any tax because of the credit and receive a very large refund.”  Be sure to claim it if you’re eligible!

The refundable Child Tax Credit is up to a maximum amount of $3,000, and there is  a $50.00 increase in personal and dependent exemptions to $4050 per person.

The limit will be higher for the Lifetime Learning Credit (for educational expenses).The adjusted gross income determining the reduction is $111,000 for 2016—a $1000 increase.

Not so good news is that the penalty  for not having health insurance that meets the requirements of the Affordable Health Care Act will increase. The penalty for an adult is $325 and the penalty per child is $162.50—or 2% of income if that is greater.  Be sure, however, to research ObamaCare exemptions from the fee. These exemptions  can be claimed on the 8965 exemptions form.  You can use that form if you were denied Medicaid, if your coverage would be more than 8% per person of household income, if your income is below the threshold for tax filing,  if you were without coverage for less than three months, or if you purchased coverage in the open enrollment period.

Also in the health arena, the dollar range deductible for Medical Savings Accounts has risen for the minimum ($2,250)  and also the maximum ($3,350). For families the maximum deductible is $6,700.

The income limit is  higher for those itemizing (using Schedule A).  For single filers it’s $381,900 and for the married filing jointly category  it’s $311,300.  If your income is higher you cannot itemize.

The Alternative Minimum Tax Threshold is increased  for  married filing jointly, married filing separately, and all other filing statuses.

The Gift Tax Exclusion for 2016 is $14,000.  You can give that much without having to file a special form.

The Adoption credit is $13,640 for a child with special needs. If your adjusted gross income is above $241,920, however, you cannot claim it.

In the transportation arena, the benefit for qualified parking  will be $255.  That’s only a five-dollar increase, but every little bit helps.

The Foreign Earned Income Exclusion is up to $101,300—a $500 increase.

Changes in your personal status may also affect your filing.  If your address has changed, or if you have moved, if you have changed jobs mid-year, or your marital status has changed, or you’ve had a child, or someone is deceased, these changes should all be reflected in your filing.  The exclusion amount for deceased taxpayers is up to $5,430,000—a $20,000 increase.

Even if you are getting your taxes done by someone else, you need to be aware of the 2016  tax changes.You don’t want to just turn everything over to the professional and follow blindly.You need to be aware of all the changes so you can be sure you’re getting the best outcome.  Make sure you take advantage of the changes that affect you positively and don’t miss out!