It’s that time of the year again and businesses, individuals as well as freelancers are preparing for the tax season. Every year it is the same story.
There are changes you need to keep up with and solutions that can help you make your filing easier. This year is no different, except that this year we are going to share a tool that will help you file your returns not only faster, but also quicker. We are also going to share some of the changes that you should keep in mind while preparing for filing the returns.
MasterTax tax compliance software will not only help you with filing your taxes, but also with scheduling and balancing your taxes. But before you file your taxes, there are other things to be kept in mind. How much tax do you want to pay, how to save on taxes, how to pay only what is necessary and what all has changed with the updates that were rolled out this year?
Here are some of the most important updates that can have a profound impact on your tax filing:
The tax day is April 18th. Why? The Washington, D.C., holiday of Emancipation Day is on Friday, April 15 and by rule, the tax day is extended if it falls on a holiday. So by definition, the tax day will fall on a Monday which is April 18. This gives you a few more days to think and calculate your taxes before you file your return.
The Affordable Care Act and tax penalties
The penalties under the Affordable Care Act for not having a qualifying health plan were $95 per adult or one percent of income above the filing limit. The penalty has once again risen to $695 per adult or 2.5% of income. A family maximum will apply here and the amount will be $2,085.
Taking into consideration the inflation and the rise in various segments across the industry, the tax bracket this year will rise by 0.4% approximately. Nothing much to look forward to, but a notable update all the same.
New standard deductions
The standard deductions for taxpayers will remain more or less the same. This is true for single, married filing jointly and married filing separate returns. In case of heads of households, the standard deduction will rise marginally by $50 to a total of $9,300.
The personal exemptions have seen a similar raise of $50 going up to $4,050 for the year 2016 when filing your return this year.
Health savings accounts contribution limit
Citizens who have health savings accounts that have a higher deductible plan are allowed to set aside a part of their money to pay for their health care. This allows them to save on their taxes. The contribution limit for individuals will remain unchanged at $3,350. However, the contribution limit for family policy has been raised by $100 to $6,750.
AMT exemption limit has increased
A large number of tax payers have accepted the AMT (Alternative Minimum Tax) or have been forced to reconcile with it making it extremely important. The AMT for a single tax payer will rise from $300 to $53,900, while for joint return filers it will go from $500 to $83,800.
Estate tax exemption
Estate tax exemption and gifts are lifetime exemptions that are directly related to the rate of inflation. Keeping this in mind, the exemption amount has been raised to $5.45 million from a measly $20,000 last year.
Earned income credit limit
Earned income credit that is allowed for the year 2015 has increased significantly for those who qualify for it. For families having three or more children, the limit will be increased to $6,269 by $27. For those who have two children, the limit will rise by $24 to $5,572. Families having one single child can enjoy a raise of $3 and claim $506.
Renewals that may change
Some of the most popular tax provisions are revised and renewed at the last minute, and this year is going to be no different. The lawmakers are at it as usual. Some of the popular ones are private mortgage insurance deductions, teachers’ write-offs for office and school supplies, state sales tax deductions, IRAs, charitable distributions, and more. These provisions are renewed on a retroactive basis, so you can keep your fingers crossed and hope for the best.
As we discussed about some of the changes that are taking place this year, here is some pivotal information that is not changing but are still significant enough to receive mention.
401K contribution limit
Flexible spending arrangements
All these changes and the ones that are not changing only show that the inflation has remained more or less stagnant. Now a word of advice – most of you put off your tax planning until the last minute, which can lead to financial stress and problems. This is not a good practice and you should start working out your taxes in January so if you do owe some money, you have a few months to make that payment among other things before the final deadline, which is April 18.