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Staying on top of IRS tax changes is a challenge. Don’t you feel sometimes like income tax is the hardest subject in the world to understand? Well, it’s really nothing to be embarrassed about. Here’s what Albert Einstein said way back when:

“The hardest thing in the world to understand is income taxes.” – Albert Einstein

If the subject was perplexing to a genius like Einstein — and it’s only gotten more complicated since then — is it any wonder that most Americans are dazed and confused when it comes to filing their returns?

We’ve compiled a simple guide that will let you know the main updates for Tax Year 2016.

The deadline to file taxes for 2016 is April 18, 2017. It’s April 18 because the 15th falls on a Saturday and that Monday, the 17th, is a holiday, Washington D.C.’s Emancipation Day (observed).

General tax updates

  • Here are the 2016 Federal tax bracket adjusted for inflation. According to the IRS:
    • The highest tax bracket, 39.6 percent, affects single taxpayers whose income exceeds $415,050 ($466,950 for married taxpayers filing jointly), up from $413,200 and $464,850, respectively.
    • Other earners are taxed at the following tax rates: 10, 15, 25, 28, 33 and 35 percent. To find out which one you are in, check the related income tax thresholds for tax year 2016.

The standard deductions for 2016 are:

  • Married Individuals Filing Joint Returns: $12,600
  • Surviving Spouses and Heads of Households: $9,300
  • Single: $6,300
  • Married Individuals Filing Separately: $6,300

Note about taking the standard deduction:

If you decide to take the standard deduction amount, remember that you are not also allowed to itemize your deductions on Schedule A (Form 1040). In general, itemized deductions are there to help taxpayers who currently hold a mortgage or have investment interest they would like to deduct.

To learn more about itemized deductions, check out the IRS Guidelines.

  • Alternative minimum tax exemption. Originally, the alternative minimum tax was set to limit tax breaks for rich Americans but increasingly affects the middle class. Here is the IRS guidance on the AMT tax break.

Health expense account (HSAs & FSAs) changes

For those individuals who have a Health Savings Account (HSA) in 2016, the contribution limit has been raised to $3,350 for the single plan and $6,750 for the family plan. The Health Savings Account (HSA) can only be used in conjunction with a high-deductible health plan.


Retirement-related tax updates

401(k) contribution limits

In 2017, employees can now contribute up to $18,000 to 401(k) plans, the same limit as 2016. The limit is also $18,000 for 403(b), most 457 plans and the Thrift Savings Plan.

For individuals who are age 50 or over at the end of the calendar year, there is an opportunity for catch-up contributions to 401(k)s. In 2017, the total catch-up contributions equate to $6,000 per person and are allowed under a 401(k), 403(b), SARSEP and governmental 457(b) plans.

Individual retirement account contribution limits

Retirement savers who choose to use an IRA can contribute up to $5,500 in 2017. Catch-up contributions for individuals age 50 and older are limited to $1,000 for the same year.

Limitation on IRA rollovers

As of 2015, you are limited to one indirect rollover from your IRA account to another IRA account per year.

With an indirect rollover, a plan participant is allowed to withdraw (through a distribution) all of their retirement balance without taking on a penalty if they decide to enroll the balance into a new IRA account. Due to the change back in 2015, indirect rollovers are now only allowed to be performed once a year.

However, if you want to transfer your IRA balances through a direct rollover, i.e., trustee to trustee, then there are no limitations on how many times this can occur. As long as your retirement balance stays out of your hands during the transfer (i.e., direct rollover), you can perform this process as many times as you like.

The Saver’s Credit (Retirement Savings Contributions Credit)

Low- and moderate-income workers are provided an additional tax credit to help them save for retirement. The credit rate – 10 percent, 20 percent or 50 percent of your contribution – depends on individual or married status and adjusted gross income. According to the IRS, the saver’s credit helps offset part of the first $2,000 individual workers voluntarily contribute to IRAs and 401(k) plans and similar workplace retirement programs.

In 2017, the saver’s credit is for up to $4,000 for married-filing-jointly couples.

Miscellaneous 2017 tax changes

Here are a few other tax changes that were released by the IRS for the 2017 tax year:

  • The personal exemption for Tax Year 2017 is $4,050, the same as 2016.
  • The 2017 maximum Earned Income Credit amount is $6,318 for taxpayers filing jointly who have three or more qualifying children, up $49 from tax year 2016.
  • Estates of decedents who die during 2017 have a basic exclusion amount of $5,490,000, higher than the $5,450,000 for estates of decedents who died in 2016.

This is a lot of tax information to digest in a quick post. To help minimize your overall tax liability, it is highly recommended that you consult a qualified tax professional on your personal and business taxes.

For more information, check out the full listing of the summarized IRS 2017 tax changes.

[Note: This material does not constitute any specific legal, tax or accounting advice. Please consult with qualified professionals for this type of advice.]

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