HIGHLIGHTS OF THE CHANGES AFFECTING 2016
Home Mortgage Interest – The IRS recently added three new fields to Form 1098, which the bank sends to you each year to let you know how much home mortgage interest you paid during the year. The new fields include the balance of the loan, when it originated, and the address of the property securing the loan. The new fields are intended to enhance the IRS computer’s ability to detect and audit individuals who are incorrectly deducting interest on more than $1 million of acquisition debt and $100,000 of equity debt.
Business Expense Election – In the past, items purchased for business use with a useful life of more than one year had to be capitalized over the item’s useful life, regardless of cost, requiring some items with minimal cost to be depreciated. Recent IRS regulations allow small businesses to expense items of nominal cost. However, to take advantage of the new regulations, the business must have an accounting policy in place that specifies a de minimis amount up to $500. Without such a policy, the old rules will continue to apply.
STANDARD MILEAGE DEDUCTIONS
Note: These are the $0.57/mile rates in effect during 2015. The 2016 rates were not released as of publication date.
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RETIREMENT PLANS – 2016 CONTRIBUTION LIMITS
- SE Defined Contribution Plans: Lesser of 25% of compensation or $53,000.
- SEP Plans: Lesser of 25% of compensation or $53,000.
- 401(k) and 403(b) Plans Elective Deferrals: $18,000 ($24,000 age 50+)
- SIMPLE Plans Elective Contributions: $12,500 ($15,500 age 50 and over)
- Defined Benefit Plans: : Max annual benefit: $210,000
- Highly Compensated Employee Status Threshold: $120,000
- Key Employee Status Threshold: $170,000
Special rates (capital gain rates) apply to gains attributable to sale of capital assets held for more than a year.
- CAPITAL GAIN RATES:
- To the extent a taxpayer’s marginal rate is 15% or less: 0%
- To the extent a taxpayer’s marginal rate is 25% but less than 39.6%: 15%
- To the extent a taxpayer’s marginal rate is 39.6% or greater: 20%
- EXCLUDED FROM THE 0%, 15% AND 20% RATES:
- Gain attributable to real property depreciation: 25% Max
- Gain attributable to collectibles & qualified small business stock: 28% Max
- MAXIMUM ANNUAL NET LOSS DEDUCTION: $3,000 ($1,500 MFS filers)
- NETTING SHORT-TERM (ST) AND LONG-TERM (LT) GAINS & LOSSES:
- ST gains and losses are netted as are LT gains and losses. Then the two are netted together, with the result being either a net ST or LT gain or loss. Taxpayers, when possible, can achieve a better overall tax benefit by offsetting short-term capital gains with long-term capital losses, thus offsetting higher-taxed profits with lower-taxed losses
2016 ANNUAL GIFT TAX EXCLUSION
$14,000 Each individual is allowed an annual gift tax exclusion of $14,000 per donee for 2016, with no limit to the number of donees. These gifts are not deductible by the giver nor are they taxable to the donee. Gifts in excess of the exclusion must be reported on a gift tax return. Gifts in excess of the exclusion are taxable but are offset with the Unified Estate and Gift Tax Credit until that credit is used up. Any amounts used to offset the gift tax will reduce the amount of credit available for the giver’s estate tax.
Attached is the 2016 Pocket Tax Guide
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