Quick Links to Specific Year-End Tax Planning Strategies & Checklists:
– Year-End Tax Planning & Strategies Overview
√ What’s New for 2016 <– YOU ARE ON THIS PAGE
– Year-End Tax Planning Checklist for Individuals
– Year-End Tax Planning Checklist for Businesses
– Year-End Checklist for Payroll & 1099 Reporting
Year-End Tax Planning – What’s New for 2016
“Extenders”:For years, Congress left unaddressed over 50 tax related items (deductions, credits, etc.) that periodically expired, requiring Congress to extended them repeatedly (these tax provisions have been dubbed “extenders”). On December 18th of last year, the Senate passed, and the President signed, the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). This legislation makes most of the “extender” tax provisions permanent, and others provisions were extended several years with defined phase-outs. Still other provisions were extended just through 2016. As far as the tax provisions addressed in this bill, the overall report is good news and we can proceed with year-end tax strategic planning.
Please note that the following tax benefits are extended only through 2016:
- Mortgage insurance premiums deductions
- College qualified tuition & expenses deduction
- Various energy-efficiency tax credits
- Mortgage debt forgiveness exclusion
- Empowerment Zone tax incentives
2016 Tax Rates:
Individuals Federal Income Tax Rates have not changed.
Individuals Dividend and Capital Gains Tax Rates have not changed.
3.8% surtax (associated with ObamaCare) on net investment income which began in 2013 is still in place (discussed below).
Affordable HealthCare Act Impact on 2016:
In addition to the new 3.8% NII surtax and the additional 0.9% Medicare discussed below in the 2013 recap, there are other provisions of ObamaCare that you should know about.
Employers with 50 employees or more will be required to either provide health insurance to their employees, or participate in a “Employer Shared Responsibility Payment” program.
Individuals were required to have health insurance beginning in January, 2014. Under ObamaCare, states have developed marketplaces to assist and enroll individuals and families in obtaining coverage. You may qualify for a tax credit or cost-sharing subsidy if you get insurance through a state marketplace site.
2016 Penalty: If you do not have health insurance, the penalty will be the greater of $695 per adult (up from $325 in 2015 and $95 in 2014) and one-half this amount for dependents under age 18 or 2.5% of household income (up from 2% in 2015 and 1% in 2014).
New Taxes and Tax Rate Changes effective for 2013 (Re-visited): Since these changes took effect not that long ago, people are still trying to understand them and we felt it would be good to revisit the changes that were new in 2013 and that still apply to 2016.
Ordinary Earned Income top rate increased from 2012’s 35.0% to 39.6% for 2013 and forward (for taxable income of $413,200+ for single taxpayers and $464,850+ for married filing joint taxpayers). This is a 4.6% increase.
There is also a 3.8% surtax (associated with ObamaCare) on net investment income (“Net Investment Income Tax” or “NIIT”) and certain passive income items (for taxable income of $200k+ for single taxpayers and $250k+ for married filing joint taxpayers).
Net Investment & Passive Income top rate increased from 2012’s 35.0% to 43.4% for 2013 and forward (the top 39.6% rate referred to above plus the 3.8% surtax).
Long-Term Capital Gains (including Qualified Dividends) top rate increased from 2012’s 15.0% to 23.8% for 2013 and forward (regular tax increase of 5.0% plus the 3.8% surtax).
There is an additional 0.9% Medicare tax (also associated with ObamaCare) on wages and self-employment income (for wages/SE-income of $200k+ for single taxpayers and $250k+ for married filing joint taxpayers).
Developing Strategies and a Specific Plan to fit Your Situation: While uncertainties exist, there remain many solid planning opportunities and we encourage you to schedule an appointment so that we can discuss your situation with you and develop a specific strategy for you.
Circular 230 Disclosure: This is to advise you that, unless expressly stated, nothing in this communication (including any attachment or other accompanying materials) was intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding any federal tax penalties, or for promoting, marketing, or recommending a partnership or other entity, investment plan or arrangement to anyone.