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Many of the tax changes affecting individuals and businesses for 2016 were related to the
Protecting Americans from Tax Hikes Act of 2015 (PATH) that modified or made permanent
numerous taxes breaks (the so-called "tax extenders"). To further complicate matters, some
provisions were only extended through 2016 and are set to expire at the end of this year while
others were extended through 2019. With that in mind, here's what individuals and families need
to know about tax provisions for 2016.
Personal Exemptions
The personal and dependent exemption for tax year 2016 is $4,050.
Standard Deductions
The standard deduction for married couples filing a joint return in 2016 is $12,600. For singles
and married individuals filing separately, it is $6,300, and for heads of household the deduction
is $9,300.
The additional standard deduction for blind people and senior citizens in 2016 is $1,250 for
married individuals and $1,550 for singles and heads of household.
2012 or later that are carried over into the grace period for that plan year will not count against
the $2,550 limit for the subsequent plan year.
Further, employers may allow people to carry over into the next calendar year up to $500 in their
accounts, but aren't required to do so.
Adoption Credit
In 2016 a nonrefundable (i.e. only those with a lax liability will benefit) credit of up to $13,460
is available for qualified adoption expenses for each eligible child.
For tax year 2016, the child tax credit is $1,000. A portion of the credit may be refundable, which
means that you can claim the amount you are owed, even if you have no tax liability for the year.
The credit is phased out for those with higher incomes.
A credit of up to $2,000 is available for an unlimited number of years for certain costs of postsecondary or graduate courses or courses to acquire or improve your job skills. For 2016, the
modified adjusted gross income threshold at which the lifetime learning credit begins to phase
out is $108,000 for joint filers and $54,000 for singles and heads of household.
Student Loan Interest
In 2016 you can deduct up to $2,500 in student-loan interest as long as your modified adjusted
gross income is less than $65,000 (single) or $130,000 (married filing jointly). The deduction is
phased out at higher income levels. In addition, the deduction is claimed as an adjustment to
income so you do not need to itemize your deductions.
Individuals - Retirement
Contribution Limits
For 2016, the elective deferral (contribution) limit for employees who participate in 401(k),
403(b), most 457 plans, and the federal government's Thrift Savings Plan is $18,000 (same as
2015). For persons age 50 or older in 2016, the limit is $24,000 ($6,000 catch-up contribution).
Contribution limits for SIMPLE plans remain at $12,500 (same as 2015) for persons under age
50 and $15,500 for anyone age 50 or older in 2016. The maximum compensation used to
determine contributions increased to $265,000.
Saver's Credit
In 2016, the adjusted gross income limit for the saver's credit (also known as the retirement
savings contributions credit) for low-and-moderate-income workers is $61,500 for married
couples filing jointly, $46,125 for heads of household, and $30,750 for married individuals filing
separately and for singles.
Manen Kothari, CPA serves in Schaumburg, Mount Prospects, Glendale Heights, Bartlett,
Barrington and Chicago as well as other areas of Downers Grove, Naperville, Des Plaines, Elk
Grove Village, Skokie and Addison. We are also efficient in showing you the detailed deductions
that can help you to limit your tax liabilities for the next few years to come as long as we are at
union with your business.
Please call if you need help understanding which deductions and tax credits you are entitled to.