The filing deadline is not until Tuesday, April 18th, 2017. However, it is not too early to start thinking about your 2016 taxes. There were a number of federal and California-state tax changes in 2016 which may impact how much you will have to pay in taxes.
Tax brackets are going up and so are some standard deductions. The top tax bracket of 39.6% has been raised from $413,200 to $415,050 for single taxpayers and from $464,850 to $466,950 for married taxpayers filing jointly. Standard deductions for single individuals and married couples filing jointly will remain the same but the standard deduction for head of household will increase by $50 to $9,300.
Personal exemptions and the Alternative Minimum Tax (AMT) will also change. Personal exemptions will increase by $50 to $4,050. The AMT will increase by $300 to $53,900 for single filers and $83,800 for married couples filing jointly. The maximum Earned Income Credit will increase slightly for married couples filing jointly with 3 or more qualifying children to $6,269.
Individuals who do not have qualifying health care coverage under the Affordable Care Act will see penalties increase. Last year, individuals without qualifying health care were penalized $285 per adult or 2% of income above the filing limit. In 2016, the penalty will more than double to $695 per adult or 2.5% of income above the filing limit.
The foreign earned income exclusion is up to $101,300 from $100,800 in 2015. Estates will also see an increase in the amount of the basic exclusion. The new exclusion amount is $5,450,000 for decedents who died in 2016, up from $5,430,000 in 2015. The exclusion for married couples is double that rate at $10.9 million.
Health Savings Account (HSA) contribution limits have changed as well. For 2016, the HSA contribution limit has been raised to $3,350 for individuals and $6,750 for families. Individuals 55-years-old and older can take advantage of a $1,000 catch-up contribution.
California has changed the excise tax rates on fuel effective July 1, 2016. The Board of Equalization is able to adjust the excise taxes each year so that consumers pay roughly the same amount per gallon for a gallon of fuel. The tax on gasoline for motor vehicles dropped from 30 cents per gallon to 27.8 cents per gallon. The tax on diesel fuel increased from 13 cents per gallon to 16 cents per gallon.
Finally, a new law will modify the penalties for those with unpaid tax debts to include revoking their passport. The IRS now has the ability to revoke or deny a passport in cases of certain tax delinquencies of $50,000 or more. According to the Senate Finance Committee, tax compliance will increase if the issuance of a passport is linked to payment of one's tax debts.
Butterfield Schechter LLP is dedicated to helping our clients build wealth and protect their future through estate planning, business counseling, and tax services. Our firm can help you create a tax plan that will protect your assets and keep you up to date on the changing tax code. Contact our office today with any questions on how we can help you and your business succeed.