For many of us, the holiday season promises plenty of shopping, parties, family gatherings and sporting events to pass the time as activity at the office may slow a bit (assuming you don’t work in the retail sector!). But you might want to take a little time to get a head start on planning for 2016. Taxes are always a big chore in the New Year, and there’s nothing like getting ahead of the game. To help out, here are a few important changes to keep in mind. Don’t forget that changes to tax year 2016 are the ones you’ll account for on the return you’ll file in 2017.
- First of all, a number of things are not changing between tax years 2015 and 2016, and that includes the annual contribution limit to a regular 401K of $18,000. The catch-up limit for those age 50 and over also stays put at an additional $6,000. The catch-up applies regardless of when during the year you turn fifty. The contribution limit on an IRA stays the same as well in 2016, at $5,500, and the catch-up remains an additional $1,000. For those with a self-employed 401K or SEP IRA, the annual limit stays at $53,000 for 2016.
- The limitation on itemized deductions for tax year 2016 kicks in at an income of $259,400 for singles and $311,300 for married (joint) filers.
- The contribution limit for a Health Savings Account (HSA) in 2016 stays at $3,350 for individuals, but rises to $6,750 for a family (up from $6,650 in 2015). Catch-up contributions are eligible at age fifty-five and over, and remain at an additional $1,000 for 2016.
- The Alternative Minimum Tax exemption for tax year 2016 is $53,900 for singles or $83,800 for married filing together (up from $53,600 and $83,400 respectively in 2015). This exemption will phase out beginning at $119,700 for singles or $159,700 married.
- If you have foreign income, the foreign earned income exclusion rises to $101,300 in 2016, up from $100,800 in 2015.
- For those who die in 2016, the estate basic exclusion amount will be $5.45 million, up from $5.43 million in 2015.
Another important change is that the penalty for not having health insurance will increase in 2016. It will be the higher of the following two alternative calculations:
- 2.5% of household income up to a maximum of the average annual premium of a basic (“bronze”) health care plan. For 2015, the penalty is 2%, with the maximum defined the same way.
- $695 per uncovered adult and $347.50 per uncovered child, up to a maximum of $2,085. In 2015 the numbers are $325, $162.50 and $975, respectively.
A discussion of all the changes to tax laws, not to mention the many nuances applicable to your own family’s situation, is beyond the scope of this Wealthwise. To get the full picture, consult with your professional tax advisor. If you don’t have one, we can help you find one. If you do have one, we can enhance their effectiveness by making sure they are optimally coordinated with your other advisors, focused on your welfare rather than theirs.
At PARTNERSINWEALTH we oversee all the diverse aspects of your financial life, helping you make the best decisions while being in control of your future.
To learn more, please contact Jeff Riley, CLU®,CFP®, PERSONALCFO at 713.964.4028 or JER@partnersinwealth.com.