Some noteworthy US tax items for the year ahead

Tax penalties related to Obamacare on the rise.
The Affordable Care Act imposed penalties for those not having qualifying health care coverage. Those penalties started at $95 per adult, or 1% of income above the filing threshold in 2014, but they rose to $285 per adult, or 2% of income above the filing limit in 2015. For 2016, penalties will rise again, hitting $695 per adult, or 2.5% of income. A family maximum will apply to the per-person amount, but the $2,085 amount will be substantially higher than the $975 in 2015, and the $285 in 2014.

Tax brackets are rising slightly.
Most of the tax brackets that govern different classes of taxpayers are adjusted for inflation. For 2016, these bracket amounts are rising by roughly 0.4%.

Standard Deduction
For taxable years beginning in 2016, the standard deduction amounts are increased to:

  • $12,600 for married couples whose filing status is “married filing jointly” and surviving spouses;
  • $6,300 for singles and married couples whose filing status is “married filing separately”; and
  • $9,300 for taxpayers whose filing status is “head of household.”

Exemption Amount
The exemption amount generally increases from year to year and has increased from $4,000 for 2015 to $4,050 in 2016 for taxpayers whose AGI does not exceed the following amounts:

Filing Status / Adjusted Gross Income
Married filing jointly or qualifying widow(er) / $311,300
Head of household / $285,350
Single / $259,400
Married filing separately / $155,650

For taxpayers whose AGI exceeds the listed amounts, the personal exemption is reduced. The
reduction in the exemption is equal to 2% for each $2,500 (or part of $2,500) of AGI in excess of the amounts shown above.

State and Local Taxes
A taxpayer’s ability to deduct state and local general sales taxes in lieu of state and local income taxes was made permanent by the Protecting Americans from Tax Hikes (PATH) Act of 2015. Thus, a taxpayer who itemizes deductions may elect to deduct state and local income taxes or state and local general sales taxes. However, a taxpayer cannot deduct both types of state and local taxes.

Higher exemption from AMT
The alternative minimum tax has impacted a growing number of taxpayers, making the exemption amount more important than ever. Single taxpayers will see their AMT exemptions go up $300 in 2016 to $53,900, while joint filers will see a $500 boost to $83,800.

The estate tax exemption is heading upward.
The lifetime exemption amount for the gift and estate tax is tied to inflation, and it is slated to rise next year as well. The exemption amount will rise to $5.45 million, up $20,000 from 2015. The limit applies to estates of those who pass away in 2016.

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