Your guide to the income tax changes for 2016 and beyond!

Welcome to your life, fellow Americans. It is now 2017 and that means we need to get you up to speed on all those little annoying tweaks and turns in this crazy little thing called income taxes.

First, let me be the bearer of some good news. Unlike in years past, this year’s changes are minimal comparatively and some of the better benefits have become permanent. We had become so used to the IRS waiting longer and longer to release updated tax laws and all the infighting that caused unnecessary delays that it just seemed like an annual ritual. Somehow, someway, the IRS and the states have managed to get their act together for a couple of years in a row now and that’s a good thing. My clients who like to get an early start (yes, people like this do exist, just in small numbers) are coming to the office sooner and sooner in January.  I was starting to think that processing taxes in January had become a thing of the past.

Another thing to point out is that this is the year of Due Diligence. Tax fraud has dominated the landscape in the last few years and the IRS is taking important steps to crack down on the perpetrators. If you are claiming the Earned Income Credit, the Child Tax Credit, the Additional Child Tax Credit or the American Opportunity Credit, expect your tax preparer to request all types of documentation to be able to get you the credits you are entitled to. Having said that, here’s some news you’re not going to like. If you are claiming these credits, the IRS is not going to give you those refunds until February 15th, at the earliest. More like February 27th to be honest. While they are doing an honorable job going after these scoundrels and making some headway, the honest taxpayer who needs that money and does everything right has to sit on their thumbs while the IRS makes sure you’re legit. Well, take it from my experience, better to have the refund come a little later than have the IRS not accept your tax return because some hooligan already used your social security number and cashed you out. What a nightmare!

Now, without further adieu, let’s talk 2016 taxes and YOU!

  • Ladies and gentlemen, your 2016 personal exemption is now $4,050.

Your standard deduction is as follows;

  • Joint filers or Qualified widows are $12,600.
  • Head of Household is $9300
  • Single or Married Filing Separate gets you $6300
  • The Dependent Standard deduction stays the same this year at $1050

How about a little Earned Income Credit anyone? Again, right from the IRS website;

 

If filing…

Qualifying Children Claimed

Zero

One

Two

Three or more

Single, Head of Household or Widowed

$14,880

$39,296

$44,648

$47,955

Married Filing Jointly

$20,430

$44,846

$50,198

$53,505

Be prepared to show the tax preparer your license or ID cards, social security cards, medical records, school records, utility bills, grocery bills, landlord statements, placement agency statements, bank statements/ledgers, receipts, last year’s adjusted gross income, your kindergarten diploma, whatever you can get your hands on to prove your claims. There is no such thing as bringing in too much documentation. The IRS demands it.

The maximum amount of Earned Income Credit for Tax Year 2016 is:

  • $6,269 with three or more qualifying children

  • $5,572 with two qualifying children

  • $3,373 with one qualifying child

  • $506 with no qualifying children

Get your red hot Obamacare shared responsibility penalties while you still can.

If you didn’t have health care coverage in 2016, the IRS would like to present you with this…

A $695 penalty for each adult and $347.50 for each child. 347.50? Where did the 50 cents come from? Anyway, the penalty is per person or a percentage of household income, whichever is higher. Exemptions still exist if you had a bad year income wise.

Teacher, teacher, can you teach me?

Remember that song? I’m still trying to forget it but the IRS hasn’t forgotten to extend the $250 above the line deduction for teachers. Congrats, you deserve it and now it’s become permanent.

We gotta get outta this place!

If you owe the IRS more than $50,000, you will be denied a passport.

Somebody’s knocking at the door, somebody’s ringing the bell…

Starting this year, the IRS is using private debt collectors. Ugh! I hope they have manners.

Tax Brackets anyone? Right from the IRS website. You know this because it’s filled with a lot of…stuff.

Single

Taxable Income

Tax Rate

$0—$9,275

10%

$9,276—$37,650

$927.50 plus 15% of the amount over $9,275

$37,651—$91,150

$5,183.75 plus 25% of the amount over $37,650

$91,151—$190,150

$18,558.75 plus 28% of the amount over $91,150

$190,151—$ 413,350

$46,278.75 plus 33% of the amount over $190,150

$413,351—$415,050

$119,934.75 plus 35% of the amount over $413,350

$415,051 or more

$120,529.75 plus 39.6% of the amount over $415,050

Married Filing Jointly or Qualifying Widow(er)

Taxable Income

Tax Rate

$0—$18,550

10%

$18,551—$75,300

$1,855 plus 15% of the amount over $18,550

$75,301—$151,900

$10,367.50 plus 25% of the amount over $75,300

$151,901—$231,450

$29,517.50 plus 28% of the amount over $151,900

$231,451—$413,350

$51,791.50 plus 33% of the amount over $231,450

$413,351—$466,950

$111,818.50 plus 35% of the amount over $413,350

$466,951 or more

$130,578.50 plus 39.6% of the amount over $466,950

Married Filing Separately

Taxable Income

Tax Rate

$0—$9,275

10%

$9,276—$37,650

$927.50 plus 15% of the amount over $9,275

$37,651—$75,950

$5,183.75 plus 25% of the amount over $37,650

$75,951—$115,725

$14,758.75 plus 28% of the amount over $75,950

$115,726—$206,675

$25,895.75 plus 33% of the amount over $115,725

$206,676—$233,475

$55,909.25 plus 35% of the amount over $206,675

$233,476 or more

$65,289.25 plus 39.6% of the amount over $233,475

Head of Household

Taxable Income

Tax Rate

$0—$13,250

10%

$13,251—$50,400

$1,325 plus 15% of the amount over $13,250

$50,401—$130,150

$6,897.50 plus 25% of the amount over $50,400

$130,151—$210,800

$26,835 plus 28% of the amount over $130,150

$210,801—$413,350

$49,417 plus 33% of the amount over $210,800

$413,351—$441,000

$116,258.50 plus 35% of the amount over $413,350

$441,001 or more

$125,936 plus 39.6% of the amount over $441,000

Your Traditional or Roth IRA contribution still maxes out at $5,500, your SEP IRA contribution still maxes out at $53,000 and your 401k, 403b and other elective deferral qualified retirement plan contributions remain at $18,000.

The personal exemption amount “phases out” for taxpayers with higher incomes. The Personal Exemption Phaseout (PEP) thresholds are as follows:

Filing Status

PEP Threshold Starts

PEP Threshold Ends

Single

$259,400

$381,900

Married Filing Jointly

$311,300

$433,800

Married Filing Separately

$155,650

$216,900

Head of Household

$285,350

$407,850

 

The itemized deduction phase out looks like this;

  • Single $259,400
  • Head of Household $285,350
  • Married filing joint, surviving spouse $311,300
  • Married filing separate $154,950

The beast known as the Alternative Minimum Tax has increased its exemption amounts to;

  • $53,900 for single filers
  • $83,000 for married filing jointly
  • $41,900 for married filing separately

The deadlines are a changing, the deadlines are a changing!

Y’all ready for this? Strap in!

  • January 31st is the deadline to get your 1099s and W2s out to your peeps and 1096s and W3s out to the IRS. I say Amen to this. Employers were taking longer and longer with these and now the IRS is making them pay if they don’t meet this deadline.
  • March 15th is the deadline to file your S Corp and Partnership tax returns or request an extension.
  • April 15th means your personal tax return, LLC or C Corp tax returns are due or to request an extension. This year, it’s actually April 17, but don’t sleep on it, the penalties are NASTY!
  • September 15th is the due date for an entity that requested an extension. We’re talking S or C Corp, LLC, Partnership…get it done and over with!
  • October 15th is the last day to get that personal return in. Whew! You waited this long, you actually had the nerve to ask your preparer if there are any more extensions, but you got it done!

Now enjoy the holidays…

Happy Tax Season Charlie Brown!