Tax Time
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Tax Law Changes and Tips

The 2017 filing season is set to begin on Monday January 23, 2017.  The IRS urges all taxpayers to make sure they have all their year-end statements in hand before they file their return.  This includes forms w-2, forms 1099, form 1095, and other documentation to substantiate income and deductions.  TAXTIME is well versed in what is needed and required to maximize your refund and or limit your tax liability thereby helping to avoid refund delays and the need to file an amended return later. We are also well versed and aware of State laws regarding general deductions, scheduled C gross receipts and deductions and the acceptable documentation that must be reviewed and maintained to substantiate all bona fide income and expenses.

Below are just a few important changes to the tax law that IRS implemented this year involving refunds and tax law changes to be aware of. 

Delayed Refunds

The Protecting Americans from Tax Hikes (PATH Act) mandates that IRS hold refunds on tax returns claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) until mid-February. The change is to help ensure that taxpayers get the refund they are owed by giving the IRS more time to help detect and prevent tax fraud.  Note that IRS will begin releasing EITC and ACTC refunds starting February 15th but these refunds likely will not start arriving in bank accounts or on debit cards until the week of February 27th.

Health Care Basics

Again this year; under the Affordable Care Act, also known as Obamacare, individuals who choose not to get health insurance through government exchanges, on their own or via their employers have to pay an additional tax know as an individual shared responsibility payment.

If you did not have health insurance coverage in 2016, you’ll have to pay the higher of these two amounts:

  • 2 percent of your yearly income above the tax-filing threshold (generally about $10,350) up to a maximum cost of the national average premium to purchase a Bronze Plan from the federal healthcare exchange. Or …
  • $695 per person ($347.50 per child under 18). The maximum penalty per family using this method is $2,085.

For 2016, IRS will not consider a return complete and accurate if the taxpayer does not report full year coverage, claim a coverage exemption or report a shared responsibility payment on the return.

PATH ACT OF 2015

In December 2015, President Obama Signed into law the Protecting Americans from Tax Hikes Act of 2015 (Path Act).  The PATH Act of 2015 extends or makes permanent over 50 separate provisions that had expired or were set to expire at the end of 2015.

Many of these tax provisions had been repeatedly extended over the past decade.  Unlike the past tax extenders many of the provision in the PATH Act were permanent include:

  • Qualified Charitable Distributions from IRA to Charity
  • State and Local Sales Tax Deduction
  • American Opportunity Tax Credit
  • Child Tax Credit reduced threshold
  • Section 179 Expansion
  • Above-the-Line Deduction for Educators
  • Increased Earned Income Tax Credit (EITC) Amounts

Along with permanent provisions of the PATH Act of 2015, some items were only extended through the end of 2016

Some of the temporary provisions include:

  • Exclusions of Discharged Mortgage Debt on Short Sale
  • Deduction of Mortgage Insurance Premium
  • Adjustment for Qualified Tuition and Fees
  • Fifty-percent Bonus Depreciation (through 2019)

New Filing Deadlines for Businesses and Extenders

The government also is changing the dates for filing by businesses and individuals filing for extensions. The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 changed the filing deadlines for partnerships and S corporations, among others.

These entities must now file their returns by the 15th day of the third month after the end of the tax year (meaning March 15 for those entities using a calendar tax year). C corporations, on the other hand, have to file by the fourth month after the end of the tax year (April 15 on a calendar-year schedule), which is a one-month deferral from previous filing requirements.

Taxpayers who cannot file on time now have additional extension options to comply with paperwork related to partnership income (Form 1065 — new six-month extension), estate and trust affairs (Form 1041 — new 5 ½-month extension) and employee benefit plans (Form 5500 series — new 3 ½-month extension).

Filing Requirements

2016 filing requirements for most taxpayers

Filing Status

Age

Gross Income

Single

Under 65

65 or older

$10,350

$11,900

Married Filing Jointly

Under 65 (both spouses)

65 or older (one spouse)

65 or older (both spouses)

$20,700

$21,950

$23,200

Married filing separately

Any age

$4,050

Head of Household

Under 65

65 or older

$13,350

$14,900

Qualifying Widow(er)

Under 65

65 or older

$10,350

$11,900

 
Exemption

For tax year 2016, the personal exemption amount was raised to $4,050; however, certain phase outs exist. The Personal Exemption Phase-out (PEP) reduces both the personal and dependency exemptions by 2% for each $2,500 that adjusted gross income (AGI) exceeds the thresholds established for each filing status.          

For 2016, the Personal Exemption Phase-out (PEP) begins at the following AGI amounts:

  • Married Filing Separately $155,650
  • Single $259,400
  • Head of Household $285,350
  • Married Filing Jointly $311,300
  • Qualifying Widow(er) $311,300

Standard Deduction

For 2016, the standard deduction will stay the same for single taxpayers ($6,300) Married taxpayers filing jointly and qualifying widows ($12,600). Taxpayers who file as Head of Household may deduct $9,300 as their standard deduction. The standard deduction amount might be increased for taxpayers who are blind or age 65 or older. Alternatively, taxpayers who can be dependents of another will have a reduction in their standard deduction.

The additional standard deduction for individuals 65 years or older, or blind, is:

  • $1,550 for taxpayers filing Single
  • $1,550 for taxpayers filing Head of Household
  • $1,250 for taxpayers filing either Married Filing Jointly or as Qualifying Widow(er)

Higher Taxes

Every year, a number of figures change in the tax code. In addition to the deduction levels changing for standard deductions, the income thresholds for each tax bracket also change. Those final income thresholds became even more important after the American Taxpayer Relief Act of 2012 (ATRA) added a seventh federal income tax bracket (39.6 percent) in 2013. The final incomes that will fall into each tax threshold are not yet available from the IRS.

  • Married filing separately: $233,475
  • Unmarried individuals: $415,050
  • Head of household: $441,000
  • Married filing joint returns: $466,950

ATRA also made several important changes to the treatment of capital gains. Unmarried individuals with income over $200,000 and married couples filing jointly with income over $250,000 will also pay a 3.8 percent Medicare surcharge tax on investment income, thereby increasing the effective rate on capital gains to 23.8 percent (20 percent plus 3.8 percent).

 

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