Tax News & Views

 INSIGHTS FROM OUR NATIONAL TAX OFFICE

OCTOBER 30, 2015 
IRS Announces 2016 Inflation and Cost of Living Adjustments
 
The IRS recently released inflation and cost of living adjustments for tax rate schedules, retirement plan related items and other key tax items. However, unlike many prior years, some amounts are unchanged for 2016 while others increase slightly, which is due to the low 2015 inflation rate.
 
Here are some of the highlights:
 
Individual Tax Rate Schedules
For 2016, the 39.6 percent tax rate applies for single individuals whose taxable income exceeds $415,050 ($466,950 for married taxpayers filing jointly). These amounts are approximately $2,000 higher than for 2015.
 
Standard Deduction
The standard deduction amounts for single and married couples remain the same for 2016 at $6,300 and $12,600, respectively. Those taxpayers classified as a "head of household" will have a slight increase of $50 (to $9,300).
 
Itemized Deductions
The limitation for itemized deductions to be claimed on 2016 returns begins with adjusted gross income of $259,400 or more ($311,300 for married couples filing jointly).
 
Personal Exemption
The 2016 personal exemption amount increases $50 to $4,050. The exemption phase-out kicks in at adjusted gross incomes of $259,400 (single) and $311,300 (married filing jointly).
 
Alternative Minimum Tax (AMT)
The AMT exemption amount increases slightly for 2016 to $53,900 and begins to phase out at $119,700. For married couples filing joint returns, the exemption amount for 2016 is $83,800 and begins to phase out at $159,700.
 
For 2015, the exemption amount is $53,600 ($83,400 for married couples filing jointly).
 
Estate Tax Exclusion Amount
The basic exclusion for estates of persons who die in 2016 is $5.45 million, up $20,000 from 2015.
 
Gift Tax Exclusion
The annual gift tax exclusion amount remains $14,000 for 2016.
 
Elective Deferral (Contribution) Limits
The limit on contributions to 401(k), 403(b), and most 457 plans remains unchanged at $18,000. In addition, the "catch-up" contribution for employees aged 50 and over stays at $6,000.
 
IRA Contribution Limits
The limit on annual contributions to a traditional IRA remains unchanged at $5,500. Likewise, the catch-up limit for individuals age 50 or over remains $1,000. In the case of an IRA contributor not covered by a workplace retirement plan but married to someone who is covered, the deduction is phased-out if the couple's adjusted gross income is between $184,000 and $194,000, up from $183,000 to $193,000 for 2015. (Note: the phase-out ranges remain unchanged for IRA contributors who are covered by a workplace plan.)
 
Roth IRA Contribution Phase-Out
The adjusted gross income phase-out range for 2016 contributions to a Roth IRA is also $184,000 to $194,000 for married couples filing jointly. For single and head of household taxpayers, the Roth IRA income phase-out range is $117,000 to $132,000. The levels increased by $1,000 over 2015.
 
Defined Contribution Plan Limit
The annual limitation for contributions to defined contribution plans remains unchanged for 2016 at $53,000.
 
Defined Benefit Plan Limit
Effective January 1, 2016, the limitation on the annual benefit under a defined benefit plan remains unchanged at $210,000. For a participant separated from service prior to January 1, 2016, a blending calculation is required.
 
For more detailed information and items not listed, follow these links to the IRS news releases:
IR-2015-119 (tax rate schedules and other tax items)
IR-2015-118 (pension and retirement-related items).
 
Please visit with your Eide Bailly LLP service provider to learn more or to address specific questions you may have on tax rates and other tax amounts as you plan for 2016.

Eide Bailly's National Tax Office serves as a resource for clients to help analyze complex tax issues related to business decisions. Our professionals are committed to helping clients stay informed about tax news, developments and trends through various specialty areas, including cost segregation studies, wealth transfer, state and local taxation, international tax, IRS controversy and procedures, R&D tax incentives, tax-exempt organizations, tax legislation, accounting methods and pass-through entities.

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This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Eide Bailly LLP and the author do not assume responsibility for any individual's reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique before recommending the technique to a client or implementing it on the client's behalf. To request reprints of this publication, send a written request to RequestReprints@eidebailly.com. © 2015 Eide Bailly LLP.