For businesses and individuals, what are the key tax updates for 2015 filing and 2016 tax planning? This list is meant to be useful but not comprehensive. No matter what, remember that Dunham Associates CPAs can help you meet 2015 corporate filing deadlines of March 15, 2016, and individual deadlines of April 18, 2016:
TAXATION OF INDIVIDUALS:
A. Healthcare.
Health Savings Accounts: Contribution limits rise for families to $6,650 for 2015 and $6,750 for 2016—but CA does not conform. With higher 10% medical expense thresholds and higher deductibles under many Obamacare policies, high deductible insurance and HSAs are becoming increasingly popular savings vehicles. Many even view these as retirement savings vehicles.
Medical mileage: The medical mileage rate is 23 cents in 2015 and 19 cents in 2016. If you smoke medical marijuana while driving though, you can’t deduct the expenses!!!
The Affordable Care Act: In 2015, more than 760,000 taxpayers with premium tax credits failed to file Form 8962 as required, yet the average credit was $3,400. Married couples lose this credit if they make more than $63,720. There is mandatory mid-year reporting of a person’s life changes and complicated shared policy allocations. The penalty for the uninsured, deemed a Tax by the Supreme Court, increases to $325 or 2% of household income in 2015 and $695 or 2.5% of household income in 2016. The wealthy pay higher Medicare premiums or the Net Investment Income Tax in addition to increasing regular taxes.
B. Retirement Savings:
Retirement Savings: 401(k) and 403(b) contribution limits increase to $18,000 with a $6,000 catchup contribution allowed. The IRS is now more sympathetic to QLACs—Qualified Longevity Annuity Contracts; it has loosened the Required Minimum Distribution requirements on IRAs and 401k’s to help people who think they are superannuated.
Stock Options and Basis: Dunham CPAs about ISO’s, NQSOs, Brokers now are not allowed to report basis on exercised stocks from W-2 information on Forms 1099-B; this complicates stock option reporting.
Low income tax savings: If you make low income in a year and yet choose to save, you can get a ten to fifty per cent credit for your thriftiness. You need joint income below $36,500 for a fifty percent credit or below $61,000 for a ten per cent credit. This works for IRA’s or workplace retirement plans.
C. Miscellaneous:
Phaseouts: The personal exemption for 2015 is $4,000 but this exemption phases out for singles making $258,250 or couples exceeding $309,900. Simultaneously, itemized deductions phase out at these levels—all without Congress boasting about tax increases.
Education and childcare: The tuition deduction is extended to 2015 and 2016 through the PATH Act—but California won’t give you a break on this. At least the IRS now has indexed for inflation the $250 in educator’s expenses. Deductions for student loan interest phase out for taxpayers with income over $65,000 in 2015 ($130,000 for joint returns); this hurts the people who benefitted most from their education. The Child tax and American Opportunity credits are now “permanent”, which makes children cheaper.
Energy Credits: The PATH Act extends credits for energy and qualified solar electric property and you can still get up to $7,500 back for qualified electric vehicles and a $2,500 CA rebate—no matter what gas prices are.
Earned Income Credits: California’s low income earners may now rush to collect an Earned Income Tax Credit paralleling the federal program—provided they don’t work for themselves. Joint filers with two kids, for example, must earn below $49,974 to begin getting the credit.
Gifts and Estates: For 2015-6, the gift tax exclusion amount is $14,000. The unified estate and gift tax exclusion for singles is $5,430,000 for 2015 and $5,450,000 for 2016. The basis of property acquired from a decedent now “shall not exceed” the basis as finally determined in the estate return. If you are a married optimist whose estate that might grow to ten million, be sure to consider the “tax portability election” before filing form 706.
Fun Tax Court rulings: Compensation for Human egg donations is now taxable income! And bartenders may know more about the amounts of their tips than does the IRS! Gamblers now can make safe harbor estimates of their losses inconveniently on a per-session basis.
BUSINESS TAXES:
Audits and Information returns (1099’s, W-2’s, 1098’s etc.): penalties for non-filing will more than double in 2016 to $250 (plus $100 for CA)—and this is no joke. 1099 status audits are regular and all employers should consider the issues. The IRS now may audit returns for up to six years if it suspects underreporting of 25% of income. Get this? Over-reporting of basis counts as underreporting of income. If not, call us.
The Affordable Care Act: Businesses will face Draconian penalties of up to $100 per day per employee for improperly qualified health reimbursement plans, but may receive credits in the future for offering health insurance to employees earning less than $50,000 per year. Applicable large employers (ALEs) with at least fifty employees who work thirty hours per week become subject to excise taxes if they don’t extend health insurance coverages; businesses begin reporting employee health coverage in 2015.
Depreciation and Section 179 expensing: Bonus depreciation gets extended into the future but is phased down in 2018 but—great news for businesses—Section 179 deductions for qualified real estate and computer software become permanent. Never mind CA’s niggardly $25,000 expensing limit; there’s a permanent federal Section 179 $500,000 expense limitation with phaseout at $2,000,000.
Repair Regulations: The IRS’s complicated tangible property regulations run to 222 pages and are designed to limit expensing and force capitalization of certain repairs, betterments, restorations or adaptations of their property. Businesses with assets over $10,000,000 are frequently required to file the challenging Form 3115 because these regulations have retroactive effects, but there is a simplified method for smaller businesses. In 2016, the de minimus expensingelection for taxpayers without formal financial statements increases to $2,500.
Silicon Valley Inspired Taxes: The IRS is now debating treatment of Silicon Valley’s meals, laundry, barber shops, etc. as benefits for the employer; these may become part of employee compensation with all the accompanying taxes. A federal district court has ruled that UBER drivers are employees, and not independent contractors. The contest between taxation and innovation prevails!
Conclusion
As you can see, the PATH Act and other legislation, federal and state, increases taxes and complicates tax filing. While the Healthcare Act raises new taxes and federal spending, federal deficits have dramatically increased making further tax increases likely in the future; we have mortgaged our future and our children must pay. We can only cover a limited amount of this legislation because we did not want this to turn into a book. If you have questions or want more complete information, please contact Dunham Associates CPAs.