Top 7 Tax Rule Updates for 2016
As is usually the case with the start of a new year, 2016 brings several key changes to rules and rates that taxpayers should know about. By learning about them now, you’ll be better able to take all steps necessary to get you prepared for the upcoming year.
- Tax Day for 2016 is April 18
This year, you get three extra days to gather your paperwork and file the federal tax return in 2016. The Washington, D.C. holiday of Emancipation Day is on Friday, April 15, 2016. Under federal law, the tax deadline gets extended when it falls on a holiday or weekend, so the tax deadline for most taxpayers to file their federal income tax return will be the following Monday, April 18, 2016.
- Affordable Care Act Changes for Individuals
The minimum penalty for individual mandate non-compliance is going up substantially. Taxpayers who did not have health insurance in 2014 and who did not qualify for one of more than a dozen exemptions were required to pay the greater of $95 or 1% of their modified adjusted gross income (MAGI). In 2015, this penalty rose to the greater of $325 or 2% of MAGI (maximum amount per family is $975). In 2016, consumers who choose not to purchase health insurance can expect a penalty that’s the greater of $695 or 2.5% of MAGI. For a family, the penalty could top out at $2,085 in 2016. Beyond 2016, the minimum penalty will increase in line with the rate of inflation or it will be 2.5% of MAGI, whichever is greater.
- ACA Provisions’ Impact on Businesses
The “employer mandate” that was delayed in 2014 was made effective for 2015. The employer mandate states that all applicable large employers who have on average 50 or more full-time equivalent employees in the prior calendar year must offer minimum essential coverage that is affordable to their employees and their dependents, or be subject to an employer shared responsibility payment. Transition relief is available to employers transitioning into compliance. Employers with less than 50 full-time equivalent employees are exempt.
- Personal Exemptions are Rising
The personal exemption that taxpayers are entitled to take on their federal tax returns went up in value by $50 for 2016. This gives everyone an exemption amount of $4,050 for 2016.
- The Exemption from AMT will be Higher
The alternative minimum tax (AMT) is an income tax imposed that expands the amount of income that is taxed by disallowing many deductions and adding certain items. AMT was designed to keep wealthy taxpayers from using loopholes to avoid paying taxes. Due to the lack of updates for inflation, a growing number of taxpayers are becoming subject to AMT each year. Single taxpayers will see their AMT exemptions go up $300 in 2016 to $53,900, while joint filers will see a $400 increase to $83,800, and for married filing separate (MFS) the exemption will increase by $200 to $41,900.
- The Estate Tax Exemption Will Increase
The 2016 exemption amount for gift and estate tax was adjusted for inflation and will be $5.45 million in 2016, which has increased by$20,000 from 2015. The limit applies to estates of those who have died in 2016.
- Income Tax Rates Changes
The top tax rate of 39.6% now applies to single taxpayers earning more than $415,050 ($466,950 for married taxpayers filing jointly), up from the 2015 thresholds of $413,200 and $464,850, respectively.
Planning Ahead for These Changes
Most people put off tax planning to the last minute, but knowing about these changes early will enable you to do more comprehensive tax planning that will serve you better in 2016 and beyond.
FF&F conducts periodic meetings to discuss any significant changes to our clients’ lives with regards to their financial situations and tax implications. We believe that transparency and a proactive approach are key components to the value we offer to clients. For more information on any of these changes, please contact us at firstname.lastname@example.org or (212) 245-5900.
Lounise George, MBA, is a Tax Manager who has been with FF&F for 9 years. She has over 15 years of accounting experience, and since joining FF&F has worked with a diverse group of clients. Lounise specializes in High Net Worth Individuals & Non-Profit Organizations.