As you enter 2016, tax law changes are going to become an
increasingly big issue when filing your Federal tax return. Federal taxes and
laws change every year, but it pays to pay attention to those changes to maximize
refunds and minimize payments. Here are six of the biggest tax law changes that
will affect you in 2016.
1. New 2016 Filing
Dates
For 2016, the first major change to be aware of is the date
of the deadline for filing Federal tax returns. Typically, taxes are due on
April 15 of each year; but this year, the Washington D.C. holiday of
Emancipation Day is on Friday, April 15. As a result, the tax deadline is
extended by Federal law through the weekend until April 18 for most filers.
However, it’s extended until April 19 if you live in parts of New England —
like Massachusetts — where Patriot’s Day is a holiday.
2. Rising Obamacare
Penalties
Another major issue filers should be aware of is the
increasing penalties related to Obamacare. Obamacare penalties rise this year
based on the schedule established under the law. The changes to Obamacare this
year are significant especially on the penalties side.
Those penalties started at $95 per adult or 1 percent of
income above the filing threshold in 2014, then rose to $285 per adult or 2
percent of income above the filing limit for the filing year 2015. Now, in
2016, those penalties will rise again to $695 per adult or 2.5 percent of
income. There is a family maximum in place for 2016, however, of $2,085 per person.
3. Tax Brackets and
Deductions
Tax brackets and deductions are also going up again for
filers this year. The average bracket is set to rise by about 0.5 percent this
year which is consistent with some estimates for rough inflation. Standard
deductions are also set to rise, but only in the head of household category.
The filing statuses of single, married filing jointly and
married filing separately are not seeing any change in standard deductions
because the inflation rate was very low for 2015. Head of household filers get
a $50 bump to $9,300. On the positive side, personal exemptions are rising for
all tax payers by $50 to a rate of $4,050.
4. Health Savings
Account Contribution Limits
Tax payers should also be aware of — and take advantage of —
the increasing contribution limits on health savings accounts (HSAs). HSAs are some of the greatest options for long term
savings that are available to tax payers. The accounts let individuals set
aside money on a pre-tax basis which can then be used to pay for qualified
expenses. Money that is not spent can be rolled over into future years until it
is spent.
This is great for most tax payers since they will end up
facing significantly more in healthcare expenses later in life. For 2016, the
contribution limit on individual HSAs is $3,350 and the contribution limit for
families rises to $6,750 with an available catch-up contribution of $1,000 for
those 55 and older.
5. Estate Tax
Exemption Increases
Estate tax exemptions are also increasing this year. For
2016, estate tax exemptions are rising to $10.9 million per married couple and
$5.45 million per individual. At this level, only about 0.1 percent of estates
in 2016 will be affected.
Given this slow rise of the last few years, individuals
working on estate planning should be less concerned with Federal estate taxes
and more concerned with state level estate taxes and with minimizing capital
gains taxes. Both of these can take a significant chunk out of the wealth
passed onto heirs.
6. Higher Earned
Income Tax Credit
Finally, the Earned Income Tax Credit (EITC) is also
increasing this year. The EITC is designed to help lower income individuals and
families by providing money to them. For 2016, the maximum EITC ranges from as
little as $506 for a single individual with no children to $6,269 for
individuals with three or more children. The phase out thresholds for the EITC
are also higher so for instance single individuals with one child earning as
much as $39,295 are eligible for at least part of the EITC.
In 2016, you should be aware of these tax law changes as
you’re filing federal tax returns. As a tax payer, you should take advantage of
these changes to choose the optimal filing status for you. Carefully decide how
to approach Obamacare taxes, estate taxes and more while doing your taxes this
year.
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