There are no major changes (there are always some changes) that will affect most individual 1040 filers this year for tax year 2016. The big changes are likely going to come for the 2017 tax year - keep an eye on our new government!
No news is good news after you file your tax return, right? The 2016 filing season was one of the smoothest I have ever seen in my 27 years in the business.
Tax Year 2014 was the first year in which the Affordable Care Act takes effect for tax purposes. Be sure to read my separate page on the Act and how it may impact your return. No major changes from 2015 to 2016 tax year. Again, 2017 is going to be a year of change.
Health Savings Accounts are now an integral part of a tax efficient health care program. If you don't have an "HSA", you need to find out if you qualify and if so, contribute at least $1 to the account to "start the clock".
Roth IRA accounts aren't new but are still underutilized. Everyone who is eligible should have a ROTH IRA and contribute something to it. Workers and retirees (with existing IRA accounts) are usually eligible to contribute to or convert a small part of their traditional IRA to the Roth.
Popular tax breaks like the educator adjustment, tuition and fees deduction, and exclusion for mortgage debt forgiveness have been extended or made permanent.
Many items like the standard deductions, exemption amount, and tax brackets are indexed to inflation and have gone up for 2016.
"Able" Accounts are now available (for 2015) and work like the popular 529 plans for college savings. Able accounts allow family members to contribute to a tax free account on behalf of a disabled family member for the purpose of assisting that individual with living expenses.
MyRA is a new type of IRA account now available for anyone without a retirement plan at work. MyRA accounts are established by the individual who directs his employer to send a specified contribution to the account through payroll deduction. MyRa accounts are tax free and work like the ROTH IRA in some respects.
Minnesota has introduced a reading credit. If you pay for private reading lessons or incur other qualified expenses, you may be eligible for the state reading credit.
States are aggressively enforcing their requirements regarding income tax and sales and use tax. If you work in a state other than your home state, be sure to discuss the details with us so we can advise you accordingly. If you buy goods (including cigarettes) on the internet and do not pay sales tax at the time of purchase, you may owe use tax to your home state. Minnesota has a $770 exemption for individuals. Wisconsin does not have an exemption amount.
Small employers may be subject to a $100 per day per employee fine for reimbursing their employees for health insurance premiums. Small employers without a qualified plan in place should never reimburse employees for health insurance premiums or medical expenses.
The best way to keep the IRS (and State) at bay is to learn the rules and follow them. Once a problem develops, it is more difficult and time consuming than ever to clear up due to budget cutbacks at the IRS.
The strong economy is "new" (does anyone beside me remember 2008?) and is a great time to take a fresh look at your personal finances and get your house in order.
Please let me know if you have specific questions that I can answer regarding these changes or other aspects of the tax law that impact your situation.
43% of Americans pay no income tax.
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"Anyone who isn't confused doesn't really understand the situation." --Edward R. Murrow (1908-1965, American Journalist
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