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Your 2016 1040: What You Need to Know

December 08, 2016

Corey Veneziano, CPA, MSAT Tax Manager
Justin Morneault, Tax Staff

With the holidays around the corner, many of us are too busy with holiday shopping and family gatherings to give much consideration to our 2016 income tax obligations. For those being proactive, this article will provide further insight into common issues and questions relevant to your 2016 tax returns. 

What is the Standard Deduction and Exemption Amount in 2016?

IRS Rev. Proc. 2015-53 presents the standard, itemized and personal exemption deductions amounts for tax year 2016. These deductions from adjusted gross income (AGI) are commonly known to American taxpayers.

The standard deduction for taxpayers filing single (or married filing separately) is $6,300, whereas the deduction for taxpayers filing married jointly is $12,600. The deduction for the head of household status is $9,300, up $50 from 2015, and the only filing status to receive a standard deduction increase.

Some taxpayers may incur more deductible expenses that allow them to itemize their deductions with Schedule A. Taxpayers who take advantage of itemized deductions may see the deduction reduced if their AGI is greater than amounts published in Rev. Proc. 2015-53. If taxpayers' AGI surpasses $259,400 for those filing as single, $411,300 for those filing married jointly, $155,650 for those married filing separately, or $285,350 for heads of household, their itemized deductions will be subject to the "Pease Limitation." The limitation reduces the itemized deduction by the lesser of 3% of AGI or 80% of the total value of Schedule A deductions.

The revenue procedure details the increase to the personal exemption deduction of $4,050 per exemption, a $50 increase from 2015. The personal exemption deduction is subject to phaseout limitations based on filing status. The deduction phaseout begins with AGI of $259,400 if filing single or $311,300 if married filing jointly and is completely disallowed at AGI of $381,900 and $433,800 if filing single and married filing jointly, respectively.

What If I Didn't Have Health Coverage in 2016?

Provisions in the The Affordable Care Act (ACA) require individuals and their dependents have minimum essential health coverage, qualify for an exemption from coverage, or make a "shared responsibility payment" with their tax return. The shared responsibility payment is the greater of a percentage factor or flat dollar factor. Each factor is subject to a capped amount and annual cost of living adjustments.

In 2016, the percentage factor is calculated as 2.5% of modified adjusted gross income (MAGI) of the taxpayer, spouse and any dependents, above minimum applicable tax return filing requirements. The percentage factor features a maximum payment set at the annual average premium for the bronze health plan under the ACA. The average premium in 2016 ranges from $2,676 for an individual plan and $13,380 for a family of five or more. The 2016 flat dollar factor is equal to $695 per adult and $347.50 per child (under 19) up to a maximum family penalty of $2,085. 

Anything I Should Know Regarding my IRA Contributions?

The total contributions a taxpayer can make to their traditional and/or ROTH IRA is $5,500 ($6,500 if age 50 or older), representing no change from 2015. However, the above-the-line deduction phaseout levels for traditional IRA contributions have increased for 2016. If taxpayers are covered by an employer retirement plan, the entire deduction is disallowed for single taxpayers with MAGI above $72,000 and married filing jointly taxpayers with MAGI above $119,000. Consistent with prior years, taxpayers not covered by an employer retirement plan, filing single or head of household, face no IRA contribution deduction phaseout. However, if a taxpayer’s spouse was covered by a retirement plan, but the taxpayer was not, the taxpayer’s IRA contribution may be fully deductible if the MAGI is less than $194,000.

When Do I Have to File my 2016 Personal Tax Return?

Since 1954, federal individual income tax returns have been due by April 15th of the succeeding year, colloquially known as "tax day."  An exception exists, however, when the 15th day falls on a weekend or legal holiday. Section 7503 of the Internal Revenue Code extends the deadline under those circumstances to the next weekday which is not a legal holiday in the District of Columbia or state holiday. 2017 marks an interesting year, because the deadline is pushed forward twice.  In 2017, April 15th lands on a Saturday, but the following Monday is the observation of Emancipation Day in the District of Columbia. Therefore, Tuesday, April 18, 2017 is the deadline to file federal individual income tax returns for 2016.

Individuals may postpone their tax deadline six months, by filing Form 4868 Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, or by making an electronic payment, by the filing deadline. A timely filed Form 4868 will not provide an extension of time to pay taxes, but it will extend the return filing deadline to October 16, 2016.

Why Will It Take Me Longer to Get my Refund?

Provisions in the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) can delay when certain taxpayers receive their federal refund for 2016. The legislation generally requires a delay in providing credit or refund of overpayment, in instances where the taxpayer claimed the earned income tax credit (EITC) or additional child tax credit, on tax returns filed after December 31, 2016. Therefore taxpayers may find that they will not receive any refund until after February 15, 2017.

I Owe Income Tax This Year, How Can I Pay It?

The IRS offers several ways for taxpayers to pay their tax bill. Taxpayers are able to pay through numerous online methods with their credit/debit card, electronic funds transfer, or with IRS2GO - the agency's mobile application. Taxpayers can opt to pay their tax liability by phone as well. The 2016 Draft 1040 Instructions introduce a new cash payment option. In-person cash payments are limited to $1,000 per day per transaction, through retailers who partnered with the IRS. Currently, taxpayers can make a cash payment at their nearest 7-Eleven convenience store via the PayNearMe service. A nominal service fee is charged with the transaction, and the service is not available in all states.

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How BlumShapiro Can Help:

Changes in the tax environment may result in opportunities for you. Our tax professionals keep abreast of these changes to provide you with tax counsel that may minimize tax payments. Planning is the foundation of our work. Count on us for creative and objective planning and guidance, along with the hands-on attention of a partner.  Learn more about our tax services >>

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statues, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.


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