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2016 Tax Highlights

TAX CHANGES FOR 2016

Below are some of the highlights that may affect the preparation of your tax returns:

1)  PERSONAL EXEMPTIONS - Have been increased to $4,050.  The deduction will be reduced or eliminated for higher income taxpayers.

2)  STANDARD DEDUCTION -

 

2015 2016

Single

$6,300

$6,300

Married – Joint

$12,600

$12,600

Married – Separate

$6,300

$6,300

Head of Household

$9,250

$9,300

3)   PAYROLL TAXES - The wage ceiling on which Social Security is taxed has been increased to $127,200. Medicare tax is unlimited, but workers earning more than $200,000 (or couples earning more than $250,000) will have an additional 0.9 percent withheld.

4)   TAX RATES - Have remained the same, ranging from a low of 10% to a high of 39.6%. If your income is more than $415,050 (single) or $466,950 (married filing jointly) your tax bracket will be 39.6 percent. If you are in the top tax bracket, you will also be subject to a capital gains rate of 20 percent as well as a 3.8 percent surcharge tax on investment income for the Affordable Care Act.

5)  CHILD TAX CREDIT - Remains the same at $1,000 for each qualifying child younger than 17.  The deduction may be reduced or eliminated for higher income taxpayers.

6)  STANDARD BUSINESS MILEAGE RATE - The rate for 2016 was .54 cents per mile. The rate for 2017 is 53.5 cents per mile.

7)  401(K) CONTRIBUTION LIMIT – Was $18,000 for 2016. This will remain the same for 2017. Individuals who attained age 50 by the end of the tax year 2016 are allowed an additional “catch-up” contribution of $6,000 and will remain the same for 2017.

8) SELF-EMPLOYED PLANS (SEPS) - The lesser of 25% of a special computation used in determining the earned income of the self-employed individual or $53,000 for 2016 and for 2017 $54,000.

9) TRADITIONAL & ROTH IRA CONTRIBUTIONS - There is a $5,500 maximum annual contribution.  Individuals 50 or older may contribute $6,500.

10) ALTERNATIVE MINIMUM TAX EXEMPTION -

 

2015 2016

Single

$53,600

$53,900

Married – Joint

$83,400

$83,800

Married – Separate

$41,700

$41,900

 

11) NET CAPITAL GAINS & QUALIFIED DIVIDENDS RATE - The long term capital gains for 2016 are as follows:

Taxpayers in 10% or 15% Income Tax Bracket

0%

Taxpayers in 25%, 28%, 33% or 35% Income Tax Bracket

15%

Taxpayers in 39.6% Income Tax Bracket

20%

12) AMERICAN OPPORTUNITY TAX CREDIT - Has been permanently extended. This credit is for Higher Education Tuition and related expenses paid. The credit is the sum of 100% of first $2,000 plus 25% of the next $2,000 of qualified expenses for a total maximum credit of $2,500 per eligible student. The credit amount phases out at certain income levels.

13) NON-BUSINESS ENERGY PROPERTY CREDIT - A tax credit is available for the installation of exterior doors and windows, insulation, heat pumps, furnaces, central air conditioners and water heaters installed in 2016.  The credit is equal to 10% of the expenditures or a maximum of a total combined credit limit of $500 for all years after 2005.

14) EDUCATOR DEDUCTIONS - A $250 above-the-line deduction for educator expenses to include unreimbursed expenses for books, supplies, computer equipment and supplementary materials used in the classroom.  Any additional costs can be deducted as a miscellaneous deduction if you itemize.

15) CHARITABLE DONATIONS -Record keeping requirements have been made tougher for both cash and non-cash charitable donations. You must have either: 1) a bank record, including a cancelled check, a bank or credit union statement, or a credit card statement; or 2) a receipt, letter, or written communication from the donee, indicating the donee’s name and the contribution date and amount. Non-cash donations such as clothing and household items must be in "good" used condition or better.

16) KIDDIE TAX - In 2016, if your child is under the age of 18, first $2,100 of investment income is tax free.

If you would like more detailed information or have any questions, please feel free to call me.


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