Although April 15 seems far off, it will get here before you know it. It is never too early to start preparing yourself for filing and paying your taxes. Every year comes with some new tax laws about which you need to know in order to correctly prepare your taxes. The following are some of the most important new tax laws for 2016.
Penalties for No Health Insurance
The Affordable Care Act (ACA) has been in place for a few years, and now it is time for higher penalties to be implemented. Those who do not have health insurance through their job or an individual plan will be hit with a much higher tax penalty. The highest penalty possible will be $2,085, which is the average premium cost for the Bronze Plan on the federal health exchange. To save this money, be sure to get covered before tax time.
Increased Personal Exemption
The standard personal exemption deduction has been raised by $50 to $4050. It has also been increased for those who are heads of household. However, if you are in one of the top income tax tiers, then this deduction no longer applies to you. It is also important that you realize that the tax brackets have experienced a 0.4 percent increase due to inflation.
HSA Changes for Families
Families with a Health Savings Account (HSA) have the opportunity to contribute a total of $6,750 this year, which is $100 more than last year. If you are individual, you will see no changes to the amount you can contribute to an HSA.
Due Date Extension
This year, you have three extra days to file your taxes! The official tax day, April 15, falls on a Friday this year, and it also happens to be a national holiday. The IRS has thus extended the due date to the subsequent Monday, which is April 18, at 11:59 pm.
Changes to the Earned Income Credit
There have been some slight changes to the Earned Income Credit that may be to your benefit. The maximum credit you can get on your taxes will increase by $27 for those who have three children, $24 for those with two children, and $14 for those with one child. Those who are eligible for the earned income credit without children can add an extra $3.
Alternative Minimum Tax Increases
The alternative minimum tax has become more important, and these exemptions associated with this tax have increased. Those who are single will see an increase of $300 in their AMT exemptions, while those who file jointly have an additional $500.
Temporary Tax Cuts Turn Permanent
There are a few temporary tax cuts that have become permanent tax breaks for certain individuals. The Educator Expense Deduction, which teachers can use to deduct $250 for non-reimbursed classroom supplies, is now permanent. There is also a clause that allowed individuals over the age of 70 to transfer $100,000 of their IRA funds to a charity without having to pay any taxes.
These are the main changes to the tax laws about which you need to be aware before you work on your taxes this year. There may be more laws rolling out this year, as some tax bills are still making their way through Congress.
As you look to file your taxes for this year, you may be concerned about back taxes that you owe or what to do if you cannot pay. You have options for negotiating with the IRS and reduce your tax debt and/or bill. The tax professionals at Fidelity Tax Relief can discuss your situation with you and determine what path is right for you. Fill out this questionnaire to see if you are eligible for tax debt relief.