What’s new for 2016:

At the end of December 2016, congress unanimously passed a tax extender bill providing extended relief for taxpayers. See below the extended as well as new elements of tax law for 2016.

  • The tax deadline for 2016 Tax Returns is April 18, 2017.
  • The Affordable Care Act (ACA) as of 2014 required that most individuals have minimum essential coverage, with individual penalties increasing in 2015 and 2016 for non-covered individuals. As of 2015, the ACA requires that employers and/or the State Marketplace provide covered individuals with proof of coverage. For 2016 all individuals covered by the State Marketplace plan will be issued a form 1095-A and all individuals covered by large employer plan will be issued a Form 1095-C. These forms are required for filling the 2016 tax return.
  • If you are a high-income household making more than $415,050 (single) or $466,950 (married filing joint), your tax bracket will be up to 39.6% from 35%. Those in the new high tax bracket will also be subject to a capital gains rate of 20%—up from 15% as well as the 3.8% surcharge from the Affordable Care Act.
  • There have been small changes in the itemized deduction phase-outs and the personal exemption phase-outs. The thresholds are $311,300 for married filing joint, $285,350 for head of household, and $259,400 for single. This means that if you make that kind of money, you will not be allowed to take all of your itemized deductions. Your personal exemptions—another subtraction from your income before taxes are calculated—will be reduced.
  • Divorced or separated parents—Noncustodial parents can´t attach part of the divorce decree anymore. You must attach Form 8332 or a similar document that has all the same information as a Form 8332 that is signed by the custodial parent for the noncustodial parent to be allowed the dependency exemption.
  • Some previous tax benefits that have been continued to tax year 2016 include:
  1. Educators may continue to deduct $250 in related job expenses as an adjustment to income
  2. Mortgage insurance premiums may be deducted as mortgage interest
  3. The $1,000 Child Tax Credit, the Earned Income Tax Credit, and the enhanced American Opportunity Tax Credit have been extended permanently
  4. Tuition costs may be deducted as an adjustment to income
  • Definition of a qualifying child changes:
  1. The child must be younger than you, or permanently and totally disabled.
  2. If the parents could claim the child but don´t, anyone trying to claim the child must have a higher AGI than either parent.
  3. If you don´t claim an exemption for your child, you can´t claim the child tax credit for them.
  4. Child´s investment income tax—The amount of tax-free investment income for a child has increased to $1,900. Amounts in excess of $1,900 require the application of the “kiddie tax”.
  • Retirement Contribution Limits:
  1. Maximum amount for 401(K) is $18,000; catch up at age 50 is $6,000
  2. Maximum amount for SIMPLE plan is $12,500; catch up at age 50 is $3,000
  3. Traditional IRA amount is $5,500 ($6,500 for ages 50 and older)
  4. Roth IRA amount is $5,500 ($6,500 for ages 50 and older)