It’s January, and you know what that means… It’s tax season! Don’t get too discouraged. This process can be very easy if you are prepared with the right information.
Tax season officially opened on January 19th, and April 15th is usually the filing deadline, of course. However, things are always changing regarding tax deadlines and other laws, and 2016 is no different.
Therefore, those who are filing taxes this year need to stay up-to-date and can use all the tax help they can get. In fact, the biggest change to take note of is that, since the usual tax date, a Friday, is also a federal holiday, Emancipation Day, the deadline has been extended to Monday, April 18th, 2016.
This later deadline is one positive. While those mailing paper filings need to get it done by this date, along with the ease of internet sites, online filers have until 11:59 p.m. on the same day to get complete their filing. Also, keep in mind that this is actually the last year for paper filing. Unfortunately, while beneficial, this may also cost more to taxpayers and even increase the possibility of identity theft and scams. Below are a few additional changes regarding this tax season that everyone should know about to be prepared. Don’t forget to be on the lookout for more possible changes as well.
1. Tax brackets, which are based on income and used to determine tax rate, are continually changing and are of course predicted to be adjusted again because of inflation. Although this seems like a negative change for taxpayers, this year’s change for each bracket will only be very slight, by about .4 percent.
2. There is also a small increase in the maximum tax credit that people can receive from the Earned Income Tax Credit or EITC. For those that have three children that qualify, their maximum credit will increase. It will go up by $27 to $6,269. People with two children will also earn $24 more. This credit will be $5,572. Single-child families can earn a maximum of $3,373. This is $14 more than they earned in 2015. For those that don’t have children, their credit increase is only $3 to a total of $506. There has recently been proposal to expand this credit for low-income workers who don’t have children as well.
3. When it comes to exemptions, there is good news for taxpayers. Personal exemptions are estimated to be about $50 higher than last year at $4050 for 2016. As far as deductions, there is also an increase in the standard deduction for the head of household, another positive. Unfortunately, high-income earners will not be allowed a deduction for their income.
4. There are also a few changes regarding health savings and insurance penalties this year. HSA contribution limits have increased for both employers and employees. Individuals with Health Savings Accounts can still contribute up to $3,350 but for those with families, this contribution amount has changed. It is up $100 to a total of $6,750. Also, for those who didn’t have health insurance during 2015, they will be affected by higher Affordable Care Act Penalties. It is a costly decision. The maximum penalty is a total of $2,085, which is equal to the national average premium cost for the Obamacare Bronze Plan. To prevent having to pay this penalty for 2016, you need to be already be covered by a plan or obtain one within the first couple of months of this year
With all of these changes, there is also a lot that is staying the same regarding taxes. There are a number of tax breaks from last year that some people expected to expire, like the Educator Expense Deduction, for example. Instead, fortunately it is now a permanent tax break. This deduction lets teachers deduct $250 for classroom supplies that they were not reimbursed for. In addition, the IRA charitable transfer clause allows IRA owners that are age 70 and half or older to directly transfer $100,000 from their IRA to an eligible charity tax-free, yet another positive change that will staying the same from last year.
Now that you have an overview of what is changing and staying the same for tax season 2016, make sure not to miss the deadline and keep all of this information in mind when preparing and filing your taxes this year. It doesn’t have to be a difficult process as long as you don’t make the mistake of not being ready and informed.