Time, and time shifting, is always a factor when it comes to taxes.
We filed our 2014 taxes in 2015 (some of us earlier than others!), simultaneously looking at what we need to do now so that when we file our 2015 returns in 2016, our tax bills are as small as possible.
Keeping up with the tax calendar is as important as tracking all the tax numbers.
So it's no surprise that the Internal Revenue Service chose today, Back to the Future Day, to issue its 2016 inflation adjustments for more than 50 tax provisions.
Countdown clock in Back to the Future's time-traveling DeLorean. Image courtesy BTTF Day Facebook page.
For you tax-only nerds (as opposed to tax and sci-fi nerds like me), in the movie sequel Back to the Future Part II, Marty McFly travels to Oct. 21, 2015, to save his children, yet to be born in the original 1985 film Back to the Future.
The plot is as tangled as the tax code and as full of unintended consequences. By fixing one thing, McFly and DeLorean time machine creator Doc Brown create a number of new messes that rival the unexpected tax complications that arise when taxpayers try to comply with many of the convoluted tax laws that Congress writes.
I'll be examining most of the tax adjustments in more detail in future — OK, pun intended — blog posts.
DeLorean time machine photo by Terabass via Wikimedia
But today's a bit crammed, with both tax and nontax tasks, and I don't have a special DeLorean to go back a few days and complete some things early that are now close to being past.
So I'm just hitting some of the coming inflation highlights in this post.
And remember: These figures apply to your 2016 taxes that you'll file in 2017.
Right now we're still working with 2015 inflation amounts through the end of this year for returns we'll file in 2016. See what I mean about tax time shifting?!
Income tax brackets: For tax year 2016, the top 39.6 percent tax rate will apply to single taxpayers with income of more than $415,050. That's up from $413,200 this year. The top tax bracket for married filing jointly taxpayers starts at taxable earnings of more than $466,950; up from 2015's over $464,850 kick-in point.
Personal exemptions: Every taxpayer gets a personal exemption amount that can reduce his or her adjusted gross income. Exemptions also are available for each taxpayer's dependents. For tax year 2016, the personal exemption amount rises $50 to $4,050. However, the exemption is subject to a phase-out on higher-earning taxpayers. That reduction that begins with AGIs of $259,400 for single taxpayers, $311,300 for married couples filing jointly. It is eliminated completely at AGI of $381,900 for single filers and $433,800 for married couples filing jointly.
Standard deduction: This deduction option is used by most taxpayers. The standard deduction for single and married filing separately taxpayers next year is $6,300. Married couples who file a joint return can deduct $12,600. A head of household taxpayer gets $9,300 as 2016's standard deduction.
Reduced itemized deductions: If you claim itemized deductions and make a lot of money, some of your deduction will be reduced. The limitation of itemized deductions on a 2016 Schedule A will start being cut for individuals with incomes of $259,400 or more and $311,300 for married couples filing jointly.
Estate tax: OK, I'm not trying to end on a down note, but until science catches up with science fiction, we're all going to eventually meet up with the convergence of death and taxes. For 2016, an estate of someone who passes away will not be taxed as long as its value is less than $5.45 million. That's up from this year's $5.43 million estate tax exclusion amount.
Here's hoping that you don't have to worry about an estate tax for your friends, family members or yourself until very far into the future.
You also might find these items of interest:
- Inflation affects state taxes, too
- 2015 inflation adjustments for exemptions, deductions, more!
- Tax rates, income brackets through the years (2010-2015; 2016 to be added soon)
Find more tax news and tips at the Don't Mess With Taxes home page.
