Tax update for 2016

Announcement of annual tax adjustments have been released with some changes and some staying the same.

Taking full advantage of deductions and knowing the trigger points that take away some popular deductions is important for each of us that pays taxes. Here are some items for tax year 2016; the Internal Revenue Service recently announced annual inflation adjustments for more than 50 tax provisions, including the tax rate schedules, and other tax changes. Revenue Procedure 2015-53 provides details about these annual adjustments. This is the first installment of three on some of the tax items for 2016 that impact most taxpayers include the following dollar amounts:

  • For tax year 2016,
    • Your individual income taxes will have a 39.6 percent tax rate affects single taxpayers whose income exceeds $415,050 ($466,950 for married taxpayers filing jointly) The the other rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2016 are described in the revenue procedure. As a tax management strategy try
  • One exemption that many utilize to reduce your taxable income;
    • The standard deduction for heads of household rises to $9,300 for tax year 2016, up from $9,250, for tax year 2015.
    • The other standard deduction amounts for 2016 remain as they were for 2015: $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly. This exemption is provides the benefit to lower taxable income from all sources.
  • Itemizing deduction can be another helpful tool to reduce taxable income this deduction allows you to reduce income for medical expenses, property taxes, donations and other items. To take advantage of this deduction you need to be sure to keep a file to collect all of your receipts for these expenses to see if they total enough to increase the deduction above the standard value. The limitation for itemized deductions to be claimed on tax year 2016 returns of individuals begins with incomes of $259,400 or more ($311,300 for married couples filing jointly). This means that if your individual or household (combined) income is below these levels you can take advantage of itemizing deduction for these items. Of course the IRS gives you a $9,100 individual or $11,000 married filing jointly alternative that will not require you to gather the necessary paperwork support itemizing expenses above the standard allowance.
  • The personal exemption for tax year 2016 raises $50 to $4,050, up from the 2015 exemption of $4,000. 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.)

The next couple articles in this Michigan State University Extension series will review; AMT, lifetime learning credit, estate exemption.

IRS Issue Number: IR-2015-119 press release Oct. 21, 2015.                  

For more information you can visit the Michigan State University Extension- FIRM web site for tax and other farm risk management resources and reports or contact me, one of the farm risk management educators, at 989-672-3870 or .(JavaScript must be enabled to view this email address)

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