Tax News
August 15, 2016

 

2016 Tax Season

 

We hope that 2016 has been a safe and healthy year for you and your family

 

My wife Mary is a full-time professor at Peru State College and I continue to teach Business Law and International Business at Bellevue University as well as Business & Contract Law, Business Finance, Management and Investing online at Peru State College. It looks to be an active and busy time in the Lundholm household.

 

Now on to taxes. The following letter highlights some tax changes for the 2015 tax year and some other items that may interest you and some other things to keep in mind for the future. I hope that you find this letter to be helpful and informative. I want to take this opportunity to thank you for your business and let you know that I look forward to working with you and yours in the future.

 

All returns that can be e-filed will be filed electronically via a secured network. This should result in faster refunds to you and more accurate filing of your returns.

 

My office address, shown above, is a professional lawyers’ office (the building with the tall white pillars) located South of the Shear Madness hair salon just South of Center Street on 87th Avenue.

 

I will continue to teach the Business Law classes at Bellevue University, now on Tuesdays and Thursdays. I will, however, be available for appointments all day on Mondays, Wednesdays and Fridays and mornings on the days I teach. The office building is open from 9:00 AM to 5:00 PM Monday t through Friday if there is something you need to pick up or drop off.

 

I have established a presence on the internet at Lundholmlaw.com. There are links from that site to my email address and other destinations of interest.

 

Estimated Income Tax Brackets and Rates
In 2016, the income limits for all brackets and all filers will be adjusted for inflation and will be as follows (Table 1). The top marginal income tax rate of 39.6 percent will hit taxpayers with taxable income of $415,050 and higher for single filers and $466,950 and higher for married filers.


Table 1. 2016 Taxable Income Brackets and Rates (Estimate)

Rate

Single Filers

Married Joint Filers

Head of Household Filers

10%

$0 to $9,275

$0 to $18,550

$0 to $13,250

15%

$9,275 to $37,650

$18,550 to $75,300

$13,250 to $50,400

25%

$37,650 to $91,150

$75,300 to $151,900

$50,400 to $130,150

28%

$91,150 to $190,150

$151,900 to $231,450

$130,150 to $210,800

33%

$190,150 to $413,350

$231,450 to $413,350

$210,800 to $413,350

35%

$413,350 to $415,050

$413,350 to $466,950

$413,350 to $441,000

39.6%

$415,050+

$466,950+

$441,000+

Source: Author’s Calculations.

 

Standard Deduction and Personal Exemption
The standard deduction for single and married couples filing jointly will not increase in 2016 (Table 2). For taxpayers filing as head of household, it will increase by $50 from $9,250 to $9,300.
The personal exemption for 2016 will be $4,050.

 

Table 2. 2016 Standard Deduction and Personal Exemption (Estimate)

Filing Status

Deduction Amount

Single

 $6,300.00

Married Filing Jointly

 $12,600.00

Head of Household

 $9,300.00

Personal Exemption

 $4,050.00

 

PEP and Pease
PEP and Pease are two provisions in the tax code that increase taxable income for high-income earners. PEP is the phase-out of the personal exemption and Pease (named after former Senator Donald Pease) reduces the value of most itemized deductions once a taxpayer’s adjusted gross income reaches a certain amount.
The income threshold for both PEP and Pease will be $259,400 for single filers and $311,300 for married filers (Tables 3 and 4). PEP will end at $381,900 for singles and $433,800 for married couples filing jointly, meaning these taxpayers will no longer have a personal exemption.

 

Table 3. 2016 Pease Limitations on Itemized Deductions (Estimate)

Filing Status

Income

Single

 $259,400.00

Married Filing Jointly

 $311,300.00

Head of Household

 $285,350.00

Source: Author’s Calculations.

 

Table 4. 2016 Personal Exemption Phase-Out (Estimate)

Filing Status

Phase-Out Begin

Phase-Out Complete

Single

 $259,400.00

 $381,900.00

Married Filing Jointly

 $311,300.00

 $433,800.00

Head of Household

 $285,350.00

 $407,850.00

Source: Author’s Calculations.

 

Alternative Minimum Tax
Since its creation in the 1960s, the Alternative Minimum Tax (AMT) has not been adjusted for inflation. Thus, Congress was forced to “patch” the AMT by raising the exemption amount to prevent middle class taxpayers from being hit by the tax as a result of inflation.

 

On January 2, 2013, the American Taxpayer Relief Act of 2012 indexed the income thresholds to inflation, preventing the necessity for an annual “patch.”
The AMT exemption amount for 2016 is $53,900 for singles and $83,800 for married couples filing jointly (Table 5).

 

Table 5. 2016 Alternative Minimum Tax Exemptions (Estimate)

Filing Status

Exemption Amount

Single

 $            53,900.00

Married Filing Jointly

 $            83,800.00

 

 

Married Filing Separately

 $            41,900.00

Source: Author’s Calculations.

 

Earned Income Tax Credit
2016’s maximum Earned Income Tax Credit for singles, heads of households, and joint filers is $506, if the filer has no children (Table 6). The credit is $3,373 for one child, $5,572 for two children, and $6,268 for three or more children.

Sale of Personal Residence:
             
If gain is realized on the sale or exchange of a personal residence that has been owned and occupied as the taxpayer’s residence for at least two of the previous five years prior to the sale or exchange, capital gains of $250,000 for one individual and $500,000 for a married couple may be excluded from taxable income.  This exclusion may be available for those not satisfying the two year regulation in some circumstances.

Please send me an email or call to set up an appointment at my office in Omaha, or your home or place of business.  You should bring any and all tax forms you receive, including W-2’s and 1099’s, as well as any letters you may have received from the Internal Revenue Service or the State Department of Revenue.  Also please bring information concerning charitable donations, medical expenses and mortgage interest, real estate tax and personal tax information. 

If a Tax Worksheet is not enclosed, let me know and I will sent one to you.  Please call or send an email and I will get one in the mail without delay. 

Thank you for your continued business and friendship.  I look forward to working with you.  Good luck and God bless. 

Sincerely, 

http://lundholmlaw.com/img/bobsig.jpg

Robert B. Lundholm