2016 Personal Tax Guide
Introduction: Tax Planning In Uncertain Times
As we start a new year, we find that the higher tax regime resulting from the passage of the American Taxpayer Relief Act of 2012 ("ATRA") still continues. The top federal long-term capital gains tax rate is still 20%, and the top federal ordinary income tax rate is 39.6%. The top alternative minimum tax remains at 28%. The top estate and gift tax rate remains at 40% and a $5.45 million gift, estate and generation-skipping tax exclusion (as adjusted annually for inflation) is in effect.
ATRA also provided for several tax incentives for businesses and individuals, which expired at the end of 2013. In December 2014, the Tax Increase Prevention Act of 2014 ("TIPA") was enacted, which reinstated these incentives for 2014. But the relief was short-lived, since these incentives expired as of December 31, 2014. For most of 2015, individuals could not count on these incentives when planning for the 2015 tax year or thereafter.
Then, in December 2015, Congress passed with uncharacteristic bipartisan cooperation the $1.1 trillion Omnibus Appropriations Act of 2016, which included the Protecting Americans from Tax Hikes Act of 2015 ("PATH"), a substantially unfunded $680 billion tax cut over 10 years. The Act was signed into law by President Obama on December 18, 2015. PATH extends many of the tax incentives and credits for businesses and individuals, which had expired as of December 31, 2014. Some of these incentives have been permanently extended. Our guide provides extensive coverage of PATH, which should assist you in planning.
Clearly, ATRA has had a major impact on the tax situation of many individuals and families. In addition, the Patient Protection and Affordable Care Act ("ACA") had imposed a 0.9% Health Insurance Tax on earned income for higher income individuals and a 3.8% Medicare Contribution Tax on net investment income. The tax is imposed on the lesser of (a) net investment income, such as interest income, dividends, capital gains and passive income less expenses directly attributable to the production of such income, and (b) the excess of modified adjusted gross income over a specified dollar amount ($250,000 for joint filers or a surviving spouse, $125,000 for married filing separately and $200,000 for other taxpayers). These taxes are imposed in addition to the other taxes discussed.
Other legislation signed into law this year include the Surface Transportation & Veterans Health Care Choice Improvement Act of 2015 which makes changes to tax return due dates and extensions for tax years beginning after December 31, 2015. Also enacted this year is the Bipartisan Budget Act of 2015 which removed the automatic ACA registration to new employees and repealed the Tax Equity and Fiscal Responsibility Act of 1982 and the electing large partnership ("ELP") rules. In addition, the Fixing America's Surface Transportation ("FAST") Act, enacted in December 2015, allows the IRS to communicate with the Department of State regarding taxpayers with an assessed tax debt of more than $50,000. This could result in the Department of State revoking the delinquent taxpayers' U.S. passports.
Also in December 2015, the Federal Reserve announced that it would raise the short-term interest rate by a quarter of a percentage point, up from close to zero. This rate increase is the first since the 2008 financial crisis. While the increase was small, the move was significant as it signaled a vote of confidence in the American economy, even as much of the rest of the world struggles. Unemployment is approaching 5%, which is very close to the point when inflationary pressure typically starts to kick in. The small interest rate increase could ward off this potential pressure. This change can impact families and individuals. Mortgage rates are expected to go up, so now may be the perfect time to lock into a fixed rate mortgage. Credit card and auto loan interest rates will also rise.
The 2016 presidential election campaign is underway and so far we have witnessed very dynamic discussions on some substantial issues that impact families, business owners and entrepreneurs. These issues include taxes and the gridlock in Washington, especially with regard to threatened government shut-downs, appropriations and budgets. We have also seen a highly volatile market. All of these events create new realities which we face together as a nation, and as families and individuals.
The international arena continues to be of concern to many individuals and families. The global threat of ISIS, the confrontation with Russia over the Ukraine and other matters, perennial hot spots such as North Korea, China's economic performance, and the sluggish recovery in the EU and Japan, continue to be significant issues. We have also seen, and empathize with the victims of the grim terrorist attacks at home and abroad; the unfolding migrant tragedy and all of the suffering of thousands of families around the world as they, and we, deal with the scourges of war and terrorism. These, too, are our realities.
Many families with wealth are concerned about their children's and grandchildren's future, and wonder what can be done to sustain and grow their wealth in these uncertain times. With the many law changes cited above, and current economic and geopolitical conditions, it is extremely important that you pay attention to your financial position so that you can achieve your financial goals. Specific items such as retirement planning, managing cash flow, financing the cost of your children's college education and transferring your family's wealth to the next generation, should all be top of mind in 2016.
We have written this guide to provide you with a tool to identify opportunities to mitigate taxes, accomplish your financial goals, and preserve your family's wealth. The guide includes all major tax law changes through January 1, 2016. The best way to use this guide is to identify areas that may be most pertinent to your unique situation and then discuss the matter with your tax advisor. As always, our tax professionals will be pleased to discuss any of the ideas in this guide or any other tax planning approaches that might apply to your personal financial situation.
The guide is meant not only to assist with the preparation of your 2015 income tax returns, but also to plan for the 2016 tax year and beyond. We find that it is never too early to start planning for the new year!
|2016 Personal Tax Guide complete download [Adobe PDF file]|
|chapter||Table of Contents– download by chapter|
|1||Tax Planning Strategies|
|2||Tax Rate Overview|
|3||Estimated Tax Requirements|
|4||Alternative Minimum Tax|
|5||Business Owner Issues and Depreciation Deductions|
|6||Capital Gains and Dividend Income|
|7||Stock Options, Restricted Stock and Deferred Compensation|
|8||Small Business Stock|
|9||Passive and Real Estate Activities|
|10||Principal Residence Sale and Rental|
|14||Estate and Gift Tax Planning|
|17||Planning for Same-Sex Couples|
|18||International Tax Planning and Reporting Requirements|
|19||State Tax Issues|
|Appendix A||2016 Federal Tax Calendar|
|Appendix B||2015 Federal Tax Rate Schedules|
|Appendix C||2016 Federal Tax Rate Schedules|
|Appendix D||2015 and 2016 Maximum Effective Rates|
Jeff Chazen, Angela Chen, Denise DeLisser, Carolyn Dolci, Dan Gibson, Stephanie Hines, James Jacaruso, Richard Lichtig, Peter Michaelson, Kenneth Weissenberg, Tom Hall
Jonathan Acquavella, June Albert, Peter Alwardt, Stephen Bercovitch, Lina Chan, Cindy Feder, Susan Fludgate, William Gentilesco, Nancy Gianco, Matthew Halpern, Kety Hernandez, Mary Ho, Cindy Huang, Sue Huang, Jean Jiang, Bo Kearney, Cindy Lai, Michael Mongiello, Richard Shapiro, Chaya Siegfried, Barbara Taibi, Holly Wong
This tax guide highlights tax planning ideas that may help you minimize your tax liability. This guide does not constitute accounting, tax, or legal advice, nor is it intended to convey a thorough treatment of the subject matter. The best way to use this guide is to identify those issues which could impact you, your family, or your business and then discuss them with your tax advisor.
The discussion in this guide is based on the Internal Revenue Code as amended through January 1, 2016. Future legislation, administrative interpretations, and judicial decisions may change the advisability of any course of action. Because of periodic legislation changes, you should always check with your tax advisor before implementing any tax planning ideas.
Any tax advice contained in this publication (including any attachments) is not intended for and cannot be used for the purpose of (i) avoiding penalties imposed by the Internal Revenue Code or (ii) promoting, marketing, or recommending any transaction or matter addressed herein.
Copyright 2016 by EisnerAmper LLP. All rights reserved. This book, or portions thereof, may not be reproduced in any form without permission of EisnerAmper LLP.