Dear Clients and Friends,
We hope that 2016 ended as a good year for everyone. We thank all of you for your support this past year and into
2017 and look forward to a continued, successful relationship.
With a new President coming into office early this year we can expect a number of tax changes to occur. This is a good time to get your income tax “house” in order. We are once again making our tax organizers available, for free, to anyone who requires one if you have not used one in the past please call the office to request one for 2016. If you received an organizer last year we will mail this year’s organizer to the same address. The tax organizer may not be enough however, and we wanted to bring some special items to your attention below.
Security and Identity Theft
The IRS has determined that one of the prime targets of data theft is thx preparation companies. This year we attended courses designed to improve the protection of our firm and your confidential data. One of the mandatory changes we are implementing immediately is our new “no-click” policy combined with a new information transfer policy. Because so many electronic intruders get in via email attachments, our firm has instituted our national tax professional security advisor’s recommendations and implemented a “no-click” policy. This means we will not open any documents that you have sent us via email-a mandatory solution, which when combined with our latest security software and other steps makes it extremely difficult for electronic intruders to get through our defenses. This brings the question about how you will transfer data to us, and vice versa. We now will accept data from you in 4 ways: surface mail; drop-off; fax; or uploads to our web portal. We know these changes will cause some hassle on your (and our part) but it is the best way to protect your and our confidentiality.
Health Care Deductions
2013’s tax bill reduced your deductions for medical costs, including health insurance, for 2016. We will see very few deductions available for medical costs now unless you have substantial bills. The amount of your medical expenses in most cases must now be more than 10% of your income before we can deduct anything, so weigh carefully whether to go to the trouble of summarizing these costs. If you are self-employed we still need to know how much you paid for health insurance.
ALL deductions of any amount must have a receipt. Any individual contribution of over $250 must also have an acknowledgement letter from the charity, and the letter must be dated. Any deduction over $5,000 must be accompanied with a qualified appraisal. The letter should show the date and amount of any individual contribution over $250, and should also state that no goods or services were received in return for the contribution. Remember if you charged a charitable contribution to a credit card by 12/31/16 we are able to deduct it in 2016.
The IRS is looking closely for offshore accounts. If you have an account, retirement account, or business interest with a value of over $10,000 at any point in the year in a foreign country, or foreign business ownership (not through a mutual fund) please let us know as some special rules apply. There are substantial penalties for failure to disclose these items.
We must obtain Form 1098 from you when you pay mortgage interest. Additionally we must obtain refinancing closing statements, and if you drew money out on a home mortgage or refinancing we must have general information on the use of the money.
If you own rental property, this year the IRS has demanded substantially more information We now need FOR EACH PROPERTY SEPARATELY, the physical location, The type of property (single family, duplex, etc.) and Forms 1099K received, and a record, by property for the number of days rented and the number of days used for personal purposes
Roth IRA Conversions
You will continue to hear from a lot of “experts” that you need to convert your retirement accounts to Roth IRAs. While there are a number of advantages to conversions, there ae an equal number of disadvantages that carry some major tax consequences. Please do not convert your accounts without coming in to see us for an appointment to discuss both the positives and negatives.
The simplest and most effective tax planning too for most Americans of all income levels is full participation in retirement plans. Make sure you maximize your 401-K deferral in available, contribute to tax-deductible IRAs, and if over 70 and ½ pay all charitable contributions through direct transfer from your IRA to the charity.
If you receive an IRS Letter 3572 “Your federal income tax return for the year above has been selected for examination” please notify us as soon as possible so we can respond to the IRS for you.
The new standard mileage rate for 2016 is .54 cents per each business mile traveled after 2015. However, the medical and moving expense deduction has been reduced to .19 cents per mile.
Earned Income Tax Credit
The Earned Income Tax Credit (EITC) increases in 2016. The credit is refundable and is designed to help lower-income individuals and families by providing additional money to them in the form of a tax refund.
The maximum EITC ranges from $506 for a single individual with no children to $6,269 for individuals with three or more children. The phase-out thresholds for the EITC are also higher in 2016. Single individuals who have one child and earn as much as $39,269 are eligible for at least part of EITC.
The Protecting Americans from Tax Hikes Act of 2015 – known as the PATH Act – has made an important change to how people receive the EITC. Starting in 2017, if you claim EITC, you won’t get your refund until Feb 15 or later, even if you’re eligible to receive the EITC and you file a return as early as Jan 2. The law applies to your entire tax refund. The IRS said the changes brought about by the PATH Act give the agency “more time to help detect and prevent fraud.”
Alternative Minimum Tax
The income threshold for the AMT exemption has risen for 2016. For individuals, it starts at $53,900 and begins to phase out at $119,700. For married couples filing jointly, the threshold begins at $83800 and phase out begins at $159,700.
There is good news for people who itemize their deductions: the income limit has risen. If you’re single, your AGI can be up to $259,400 while the limit is now $311,300 for married couples filing jointly
If you don’t have health insurance and are exempt from purchasing it, 2016 will be the last year you’ll escape without paying extra fees. Of course this may change with the incoming administration.
If your eligible for Lifetime Learning Credit, your AGI limit was raised from $110,000 for married filing jointly to $111,000.
We are including with this letter our 2016 tax planner. We advise you to look over the checklist and use this as you gather your last year’s tax information. After looking this over, please call if you have questions for 2016 or would like to discuss your specific options into 2017. If we can be of service to friends or associates, please pass along our information; we will be happy to help. We appreciate your business and look forward to a successful New Year.
Link to Tax Planner: https://npcpa.net/wp-content/uploads/2016-Individual-Tax-Organizer.pdf
Nelson & Pelura, LLC