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2016 Tax Updates from EY Tax Planning Guide

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2016 Tax Updates from EY Tax Planning Guide

  1. 1. 2016 Tax UpdatesfromEY Tax PlanningGuide Planning aheadfor 2016 and beyond The IRS has issued Revenue Procedure 2015-53 , which contains the inflation adjustments to various exemptions, exclusions and limitation amounts that take effect in 2016 for income, estate and gift tax purposes. Revenue Procedure 2015-53 also sets forth several other important changes. Important inflation adjustments under Revenue Procedure 2015-53 Updated tax tables For tax years beginning in 2016, the tax rate tables under Section 3 are shown here: Section 1(a) - Married individuals filing joint returns and surviving spouses If Taxable Income Is: The Tax Is: Not Over $18,550 10% of the taxable income Over $18,550 but not over $75,300 $1,855 plus 15% of the excess over $18,550 Over $75,300 but not over $151,900 $10,367.50 plus 25% of excess over $75,300 Over $151,900 but not over $231,450 $29,517.50 plus 28% of excess over $151,900 Over $231,450 but not over $413,350 $51,791.50 plus 33% of excess over $231,450 Over $413,350 but not over $466,950 $111,818.50 plus 35% of excess over $413,350 Over $466,950 $130,578.50 plus 39.6% of excess over $466,950 Section 1(b) - Heads of households If Taxable Income Is: The Tax Is: Not Over $13,250 10% of the taxable income Over $13,250 but not over $50,400 $1,325 plus 15% of excess over $13,250 Over $50,400 but not over $130,150 $6,897.50 plus 25% of the excess over $50,400 Over $130,150 but not over $210,800 $26,835 plus 28% of the excess over $130,150 Over $210,800 but not over $413,350 $49,417 plus 33% of the excess over $210,800
  2. 2. Over $413,350 but not over $441,000 $116,258.50 plus 35% of the excess over $413,350 Over $441,000 $125,936 plus 39.6% of the excess over $441,000 Section 1(c) - Unmarried individuals (other than surviving spouses and heads of households) If Taxable Income Is: The Tax Is: Not over $9,275 10% of the taxable income Over $9,275 but not over $37,650 $927.50 plus 15% of the excess over $9,275 Over $37,650 but not over $91,150 $5,183.75 plus 25% of the excess over $37,650 Over $91,150 but not over $190,150 $18,558.75 plus 28% of the excess over $91,150 Over $190,150 but not over $413,350 $46,278.75 plus 33% of the excess over $190,150 Over $413,350 but not over $415,050 $119,934.75 plus 35% of the excess over $413,350 Over 415,050 $120,529.75 plus 39.6% of the excess over $415,050 Section 1(d) - Married individuals filing separate returns If Taxable Income Is: The Tax Is: Not over $9,275 10% of the taxable income Over $9,275 but not over $37,650 $927.50 plus 15% of the excess over $9,275 Over $37,650 but not over $75,950 $5,183.75 plus 25% of the excess over $37,650 Over $75,950 but not over $115,725 $14,758.75 plus 28% of the excess over $75,950 Over $115,725 but not over $206,675 $25,895.75 plus 33% of the excess over $115,725 Over $206,675 but not over $233,475 $55,909.25 plus 35% of the excess over $206,675 Over $233,475 $65,289.25 plus 39.6% of the excess over $233,475 Section 1(e) - Estates and trusts If Taxable Income Is: The Tax Is:
  3. 3. Not Over $2,550 15% of the taxable income Over $2,550 but not over $5,950 $382.50 plus 25% of the excess over $2,550 Over $5,950 but not over $9,050 $1,232.50 plus 28% of the excess over $5,950 Over $9,050 but not over $12,400 $2,100.50 plus 33% of the excess over $9,050 Over $12,400 $3,206 plus 39.6% of the excess over $12,400 Standard deduction For tax years beginning in 2016, the standard deduction amounts are: Standard deduction Filing Status Standard Deduction Married Individuals Filing Joint Returns and Surviving Spouses $12,600 Heads of Households $9,300 Unmarried Individuals (Other than Surviving Spouses and Heads of Households) $6,300 Married Individuals Filing Separate Returns $6,300 Overall limitation on itemized deductions For tax years beginning in 2016, an overall limitation on itemized deductions applies to taxpayers with adjusted gross incomes above the following thresholds: Overall limitation on itemized deductions Filing Status Limitation Applies At: Married Individuals Filing Joint Returns and Surviving Spouses $311,300 Heads of Households $285,350 Unmarried Individuals (Other than Surviving Spouses and Heads of Households) $259,400 Married Individuals Filing Separate Returns $155,650 Personal exemption
  4. 4. For tax years beginning in 2016, the personal exemption amount under Section 151(d) is $4,050 (up from $4,000 in 2015). The personal exemption is phased out for taxpayers with adjusted gross incomes above the following thresholds: Personal exemption phaseout Filing Status AGI – Beginning of Phaseout AGI – Completed Phaseout Married Individuals Filing Joint Returns and Surviving Spouses $311,300 $433,800 Heads of Households $285,350 $407,850 Unmarried Individuals (Other than Surviving Spouses and Heads of Households) $259,400 $381,900 Married Individuals Filing Separate Returns $155,650 $216,900 Exemption amounts for Alternative Minimum Tax (AMT) For tax years beginning in 2016, the exemption amounts for the AMT, the excess taxable income thresholds above which the 28% tax rate applies and the thresholds for the phase- out of the exemption amounts are listed, respectively, below: Exemption amount for alternative minimum tax (AMT) Filing Status Exemption Amount Married Individuals Filing Joint Returns and Surviving Spouses $83,800 Unmarried Individuals (Other than Surviving Spouses) $53,900 Married Individuals Filing Separate Returns $41,900 Estates and Trusts $23,900 Excess taxable income above which 28%AMT rate applies Filing Status Excess Taxable Income Threshold Joint Returns, Unmarried Individuals, and Estates and Trusts $186,300 Married Individuals Filing Separate Returns $93,150 Phaseout of AMT exemption amounts
  5. 5. Filing Status Phaseout at: Married Individuals Filing Joint Returns and Surviving Spouses $159,700 Unmarried Individuals (Other than Surviving Spouses) $119,700 Married Individuals Filing Separate Returns $79,850 Estates and Trusts $79,850 Kiddie tax For tax years beginning in 2016, the first $1,050 of income of a child subject to the kiddie tax will generally not be subject to tax, and the next $1,050 will be taxable at the child's own bracket. Unearned income in excess of $2,100 will be taxed to the child at the parent's tax rate. This is unchanged from 2015. AMT exemption for a child subject to the "Kiddie Tax" For tax years beginning in 2016, the AMT exemption amount for a child to whom the kiddie tax under Section 1(g) applies may not exceed the sum of the child's earned income for the tax year, plus $7,400 (unchanged from 2015). Interest on education loans For tax years beginning in 2016, the $2,500 maximum deduction for interest paid on qualified education loans begins to phase out for taxpayers with modified adjusted gross income over $65,000 ($130,000 for joint returns), and is completely phased out for taxpayers with modified adjusted gross income of $80,000 or more ($160,000 or more for joint returns). This is unchanged from 2015. American Opportunity Tax Credit and Lifetime Learning Credits For tax years beginning in 2016, the American Opportunity Tax Credit (which modifies and expands the Hope Scholarship Credit through 2017) equals 100% of qualified tuition and related expenses of up to $2,000, plus 25% of those expenses over $2,000, but not over $4,000. Accordingly, the maximum American Opportunity TaxCredit allowable for tax years beginning in 2016 is $2,500. For 2016, a taxpayer's modified adjusted gross income over $80,000 ($160,000 for a joint return) is used to determine the reduction in the amount of the American Opportunity Tax Credit otherwise allowable. A taxpayer's modified adjusted gross income over $55,000 ($110,000 for a joint return) is used to determine the reduction in the amount of the Lifetime Learning Credit otherwise allowable. This is unchanged from 2015. Transportation fringe benefit For tax years beginning in 2016, the monthly limit for qualified parking is $255 (up from $250 in 2015) and the monthly limit for mass transit/van pool benefits is $130. Adoption credit and adoption assistance programs For tax years beginning in 2016, the maximum credit allowed for qualified adoption expenses is $13,460 (up from $13,400 in 2015). The maximum credit allowed for a child with special needs under Section 23(a)(3) is also $13,460. For 2016, the available adoption credit begins to phase out for taxpayers with modified adjusted gross income in excess of $201,920 (up from $201,010 in 2015) and is completely phased out for taxpayers with modified adjusted gross income of $241,920 (up from $241,010 in 2015) or more. The same amounts apply in
  6. 6. the case of adoption assistance programs for the amounts that may be excluded from an employee's gross income. Expatriation to avoid tax For 2016, an individual with an "average annual net income tax" of more than $161,000 (up from $160,000 in 2015) for the five tax years ending before the date of expatriation is a covered expatriate under Section 877A(g)(1)(A) and subject to tax under Section 877A. Tax responsibilities of expatriation For tax years beginning in 2016, the amount that would be includible in the gross income of a covered expatriate by reason of Section 877A(a)(1) is reduced (but not below zero) by $693,000 (up from $690,000 in 2015). Annual gift tax exclusion The annual gift tax exclusion amount under Section 2503 is $14,000 for 2016 (unchanged from 2015). The annual exclusion permitted by Section 2523(i)(2) for transfers to a noncitizen spouse has been increased from $147,000 in 2015 to $148,000 in 2016. Unified credit against estate tax For an estate of any decedent dying during calendar year 2016, the basic exclusion amount is $5,450,000 (up from $5,430,000 in 2015) for determining the amount of the unified credit against estate tax under Section 2010. Special use valuation method The Section 2032A ceiling on special use valuation method for qualified real property for an estate of a decedent dying in 2016 is $1,110,000 (up from $1,100,000 in 2015). Interest on a certain portion of the estate tax payable in installments To calculate Section 6601(j) interest for an estate of a decedent dying in 2016, the dollar amount used to determine the "2% portion" of the estate tax payable in installments under Section 6166 is $1,480,000 (up from $1,470,000 in 2015). Large gifts received from foreign persons For tax years beginning in 2016, the threshold for reporting gifts from foreign persons under Section 6039F is $15,671 (up from $15,601 in 2015). Foreign earned income exclusion For tax years beginning in 2016, the foreign earned income exclusion amount under Section 911(b)(2)(D)(i) is $101,300 (up from $100,800 in 2015).

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