Tax Tip of the Week | No. 357 | 2016 Cost-of-Living Adjustments

Tax Tip of the Week | June 1, 2016 | No. 357 | 2016 Cost-of-Living Adjustments

Keep in mind these cost-of-living increases for various tax exemptions and deductions, taxable income, and contributions limits:

• Personal exemptions. They jumped from $4,000 to $4,050 in 2016.
• Income tax brackets. The 2016 income tax brackets rose by 0.4% from 2015. Remember, tax brackets are based on taxable income—not gross income!
• The lifetime individual gift and estate tax exemption for unified credit has risen by $20,000 to $5.45 million, and there will also be an upward adjustment in 2017.
• HSAs. For family policies, the annual contribution limit on an HSA connected to a high-deductible plan has increased by $100 this year to $6,750, with the additional $1,000 catch-up contribution allowed for those 55 and older.
• Roth IRAs. The phase-out range on 2016 Roth IRA contributions has become $117,001-$132,000 for single filers and heads of household, and $184,001-$194,000 for joint filers. These ranges are $1,000 higher than they were in 2015.
• Standard deduction for head of household. If clients file their federal tax returns using a head of household status, their standard deduction is $50 dollars higher than it was in 2015—it has risen to $9,300!
• AMT exemption. In 2016, the alternative minimum tax exemption jumped by $300 to $53,900 for single filers and by $500 to $83,800 for joint filers.

However the following income, contribution, and deduction limits DID NOT get a cost-of-living adjustment:

• Social Security benefits.
• Social Security tax. $118,500 limit on income subject to Social Security tax.
• IRA contribution limit. $5,500 for 2016, with an additional $1,000 catch-up contribution allowed for those who turn 50 or older by the end of 2016.
• IRA AGI deduction phase-out limit. $98,000 for those married filing jointly and $61,000 for single filers and heads of household.
• Elective deferral limits for 401(k), 403(b), and 457 plans. $18,000 this year, with an extra $6,000 catch-up contribution allowed for those who turn 50 or older by the end of 2016.
• The 401(a) defined contribution plan contribution limit. $53,000 for 2016.
• Retirement plan contribution limits. $53,000 for SEP plans and $12,500 for SIMPLE plans this year. SIMPLE plan catch-up contribution limit remains at $3,000.
• SEP minimum and maximum compensation limits. $600 for the minimum and $265,000 for the maximum.
• The Employee Stock Ownership Plan (ESOP) maximum balance. $1,070,000.
• The amount for lengthening of a 5-year ESOP period. $210,000.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW...until next week.