Individuals

URGENT!

Telephone scam calls are still affecting our area.  Callers are leaving messages or saying they are from the Internal Revenue Services and you owe past tax or face lawsuit.  They are requesting payment over the phone immediately.

THIS IS A SCAM!!!!

Do not give them any information!


Tax Preparedness Series: What to Do Before The Tax Year Ends Dec. 31

 

IR-2016-170, Dec. 14, 2016

WASHINGTON — As tax filing season approaches, the Internal Revenue Service is reminding taxpayers there are things they should do now to get ready for filing season.

For most taxpayers, Dec. 31 is the last day to take actions that will impact their 2016 tax returns. For example, charitable contributions are deductible in the year made. Donations charged to a credit card before the end of 2016 count for the 2016 tax year, even if the bill isn’t paid until 2017. Checks to a charity count for 2016 as long as they are mailed  by the last day of the year.

Taxpayers who are over age 70 ½ are generally required to receive payments from their individual retirement accounts and workplace retirement plans by the end of 2016, though a special rule allows those who reached 70 ½ in 2016 to wait until April 1, 2017 to receive them. Most workplace retirement account contributions should be made by the end of the year, but taxpayers can make 2016 IRA contributions until April 18, 2017. For 2016, the limit for a 401(k) is $18,000. For traditional and Roth IRAs, the limit is $6,500 if age 50 or older and up to $15,500 for a Simple IRA for age 50 or older.

Taxpayers who have moved should tell the US Postal Service, their employers and the IRS. To notify the IRS, mail IRS Form 8822, Change of Address, to the address listed on the form’s instructions. For taxpayers who purchase health insurance through the Health Insurance Marketplace, they should also notify the Marketplace when they move out of the area covered by their current Marketplace plan.

For name changes due to marriage or divorce, notify the Social Security Administration (SSA) so the new name will match IRS and SSA records. Also notify the SSA if a dependent’s name changed.  A mismatch between the name shown on your tax return and the SSA records can cause problems in the processing of your return and may even delay your refund.

Effective Jan. 1, 2017, any Individual Taxpayer Identification Number (ITIN) not used at least once on a tax return in the past three years will no longer be valid for use on a return. In addition, an ITIN with middle digits 78 or 79 will also expire on Jan. 1. Those with expiring ITINs who need to file a return in 2017 must renew their ITIN. Affected ITIN holders can avoid delays by starting the renewal process now.

Taxpayers should allow seven weeks from Jan. 1, 2017, or the mailing date of the Form W-7, whichever is later, for the IRS to notify them of their ITIN application status – nine to 11 weeks if taxpayers wait to submit Form W-7 during the peak filing season, or send it from overseas. Those who fail to renew before filing a return could face a delayed refund and may be ineligible for some important tax credits. For more information, including answers to frequently-asked questions, visit the ITIN information page on IRS.gov.

Keeping copies of tax returns is important as the IRS makes changes to protect taxpayers and authenticate their identity. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income amount from a prior tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign their tax return at Validating Your Electronically Filed Tax Return.

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The Internal Revenue Service (IRS) has announced the annual inflation adjustments for a number of provisions for the year 2016, including tax rate schedules, tax tables and cost-of-living adjustments for certain tax items.

These are the applicable numbers for the tax year 2016 – in other words, effective January 1, 2016. They are NOT the numbers and tax rates that you’ll use to prepare your 2015 tax returns in 2016. These numbers and tax rates are those you’ll use to prepare your 2016 tax returns in 2017.

If you aren’t expecting any significant changes, you can use the updated tax tables to estimate your liability for the 2016 tax year. If, however, you are expecting to make more money, get married, buy a house, have a baby or other life change, you’ll want to consider adjusting your withholding or tweaking your estimated tax payments.

Tax Brackets. The big news is, of course, the tax brackets and tax rates for 2016:

The standard deduction amounts for 2016 are as follows:

2016-sd

For 2016, the additional standard deduction amount for the aged or the blind is $1,250. The additional standard deduction amount is increased to $1,550 if the individual is also unmarried and not a surviving spouse.

For those taxpayers who itemize their deductions, the Pease limitations, named after former Rep. Don Pease (D-OH) may cap or phase out certain deductions for high income taxpayers. The Pease thresholds for 2016 are:

2016-pl

If the Pease limitations apply, the total of all your itemized deductions is reduced by the lesser of:

  • 3% of AGI above the applicable threshold; or

  • 80% of the amount of itemized deductions otherwise allowable for the tax year.

Pease limitations apply to charitable donations, the home mortgage interest deduction, state and local tax deductions and miscellaneous itemized deductions. They do not apply to medical expenses, investment expenses, gambling losses and certain theft and casualty losses.

Keep in mind that the floor for medical expenses remains 10% of adjusted gross income (AGI) for most taxpayers. Taxpayers over the age of 65 may still use the 7.5% through 2016 – but after that, the favored tax rate will disappear and all taxpayers will be subject to the 10% floor.

The personal exemption amount for 2016 is $4,050, up from $4,000 in 2015. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $259,400 ($311,300 for married couples filing jointly). It phases out completely at $381,900 ($433,800 for married couples filing jointly.)

Phaseouts apply as follows:

2016-amt

In years past, the AMT was subject to a last minute scramble by Congress to “patch” the exemption but as part of the American Taxpayer Relief Act of 2012 (ATRA), the AMT exemption amounts are permanently adjusted for inflation – that’s why you now see it in this list. The AMT exemption amounts are as follows:

The kiddie tax applies to unearned income for children under the age of 19 and college students under the age of 24. For 2016, the threshold for the kiddie tax – meaning the amount of unearned net income that a child can take home without paying any federal income tax – is $1,050. All unearned income in excess of $2,100 is taxed at the parent’s tax rate.

Some tax credits are also adjusted for 2016. Some of the most common tax credits are:

  • Earned Income Tax Credit (EITC). For 2016, the maximum EITC amount available is $6,269 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,242 for tax year 2015. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.

  • Child & Dependent Care Credit. For 2016, the value used to determine the amount of credit that may be refundable is $3,000 (the credit amount has not changed). Keep in mind that this is the value of the expenses used to determine the credit and not the actual amount of the credit.

  • Adoption Credit. For 2016, the credit allowed for an adoption of a child with special needs is $13,460, and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $13,460. Phaseouts do apply beginning at taxpayers with modified adjusted gross income (MAGI) in excess of $201,920 and completely phased out for taxpayers with MAGI of $241,920 or more.

  • Hope Scholarship Credit. The Hope Scholarship Credit for 2016 will remain an amount equal to 100% of qualified tuition and related expenses not in excess of $2,000 plus 25% of those expenses in excess of $2,000 but not in excess of $4,000. That means that the maximum Hope Scholarship Credit allowable for 2016 is $2,500. Income restrictions do apply and for 2016, those kick in for taxpayers with modified adjusted gross income (MAGI) in excess of $80,000 ($160,000 for a joint return).

  • Lifetime Learning Credit. As with the Hope Scholarship Credit, income restrictions apply to the Lifetime Learning Credit. For 2016, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $111,000, up from $110,000 for tax year 2015.

Changes were also made to certain tax deductions, deferrals & exclusions for 2016. You’ll find some of the most common here:

  • Student Loan Interest Deduction. For 2016, the maximum amount that you can take as a deduction for interest paid on student loans remains at $2,500. Phaseouts apply for taxpayers with modified adjusted gross income (MAGI) in excess of $65,000 ($130,000 for joint returns), and is completely phased out for taxpayers with modified adjusted gross income (MAGI) of $80,000 or more ($160,000 or more for joint returns).

  • Foreign Earned Income Exclusion. For tax year 2016, the foreign earned income exclusion is $101,300, up from $100,800 for tax year 2015.

  • Transportation and Parking Benefits. For 2016, the monthly limitation for the qualified transportation fringe benefit remains at $130 for transportation, but rises to $255 for qualified parking, up from $250 for tax year 2015.

  • Medical Savings Accounts. For 2016, participants who have self-only coverage in a Medical Savings Account are subject to an annual deductible that is not less than $2,250 (up from $2,200 for tax year 2015) but not more than $3,350 (up from $3,300 for tax year 2015). For self-only coverage the maximum out of pocket expense amount remains at $4,450. For 2016 participants with family coverage, the floor for the annual deductible remains as it was at $4,450 (the same as in 2015); however the deductible cannot be more than $6,700 (up $50 from the limit for tax year 2015). For family coverage, the out of pocket expense limit remains at $8,150 for tax year 2016 as it was for tax year 2015.


If you don’t have health insurance: How much you’ll pay

If you can afford health insurance but choose not to buy it, you must pay a fee called the individual shared responsibility payment. (The fee is sometimes called the “penalty,” “fine,” or “individual mandate.”)

Learn more about the individual shared responsibility payment from the Internal Revenue Service.

The fee for not having health insurance in 2016 & 2017

The fee is calculated 2 different ways – as a percentage of your household income, and per person. You’ll pay whichever is higher.

Percentage of income

  • 2.5% of household income

  • Maximum: Total yearly premium for the national average price of a Bronze plan sold through the Marketplace

Per person

  • $695 per adult

  • $347.50 per child under 18

  • Maximum: $2,085

Paying the fee

  • Using the percentage method, only the part of your household income that’s above the yearly tax filing threshold ($10,300 for individuals, $20,600 for couples filing jointly in 2015, the most recent year available) is counted.

  • Using the per-person method, you pay only for people in your household who don’t have insurance coverage.

  • If you have coverage for part of the year, the fee is 1/12 of the annual amount for each month you (or your tax dependents) don’t have coverage. If you’re uncovered only 1 or 2 months, you don’t have to pay the fee at all. Learn about the “short gap” exemption.

  • You pay the fee when you file your federal tax return for the year you don’t have coverage.

Estimating your fee

Use this IRS tool to estimate your individual responsibility payment.