Outside Economics

New Tax Rule Changes for 2016 – Plan NOW

Posted by Wendell Brock, MBA, ChFC on Thu, Jan 07, 2016

The New year is upon us now and there is much to do to get things rolling. One thing to consider is how you plan your taxes for this year. What you did in 2015 is over! Don't make the same mistakes. Here are the new numbers/limits issued by the IRS for 2016 they may affect your current situation. Plan this year to pay less!1040-tax-Form-Image-copy.jpg

Tax Day Is April 18th:

Emancipation Day is the day that Washington decided that taxes are due which traditionally has been April 15th. However under federal law, the tax deadline gets extended when it falls on a holiday or weekend, so the tax deadline for this year will be the following Monday, April 18th. States in New England that celebrate Patriots’ Day will have even a later filing deadline of April 19th.

Because this year is leap-year (29 days in February) and three extra days in April, taxes this year will be due a total of four days later than normal. WeeHa!

Most Tax Brackets Are Rising Slightly:

Based on an adjustment for inflation, 2016 will see most tax brackets rise by roughly 0.4%.

Head of Household Filers Will Get A Bigger Standard Deduction:

Taxpayers qualifying as head of household, will see their standard deduction rise $50 to $9,300.

Rise In the Earned Income Credits:

Families with three or more qualifying children will see their maximum earned income credit rise to $6269. Families with two children will be getting a maximum earned income credit of $5572, while families with one child will be able to get up to $3373 in earned income credit. Taxpayers with no children will be able to claim up to $506 in 2016.

HSA Contribution Limits Going Up:

Health savings accounts (HSAs) allow individuals with high deductible health plans to set aside money on a pretax basis in order to cover anticipated healthcare costs. For 2016 the contribution limits for individual policies will remain at $3350, however, the maximum contribution for family policies will rise to $6750. A catch up contribution of $1000 for those 55 or older will continue to apply.

Higher AMT Exemption Offers Some Reprieve:

Ever since its inception in 1969, AMT has been a fairly unpopular tax. It was initially intended to tax higher income individuals who may have been paying too little in taxes. However, since AMT was never properly adjusted for inflation, it now affects middle income taxpayers as well. A reprieve in 2016 with an increase in the exemption up to $53,900 for single tax payers, and a jump to $83,800 for joint filers.

Estate Tax Exemption Edges Up:

Since the lifetime exemption amount for the gift and state tax is tied to inflation, it is slated to rise slightly this next year for 2016, increasing the exemption amount to $5.45 million, applicable to those that pass in tax year 2016.

Affordable Care Act (ACA) Penalties On The Rise:

The affordable care act imposes penalties for those not having qualified healthcare coverage. For 2016, a penalty of $695 or 2.5% (whichever is higher) of income will apply to individuals not having any healthcare coverage. Families with no healthcare coverage will see a significant increase from a $975 maximum penalty to $2,085 maximum household penalty or 2.5% of household income (whichever is higher).

Dont get caught trying to plan your taxes in the month of December to maximize deductions and lower your taxes. Now is the time to start the plan and work the strategies throughout the year. Make it a successful 2016!

Sources: Tax Foundation, IRSClick to edit your new post...



"How does what we know get in the way of what we don't know?" - Liz Wiseman

Topics: IRS, Income Taxes

More Problems: Foreign Account Tax Compliance Act (FATCA)

Posted by Wendell Brock, MBA, ChFC on Thu, Jun 05, 2014

A follow up from last week’s article about FBAR, the next hammer to drop is: The Foreign Account Tax Compliance Act, better known as FATCA, was passed in 2010 as part of the HIRE act. Which was supposed to start on July 1, 2014, but last week was postponed a second time until January 1, 2016, foreign financial institutions (FFI) will be required by the US government to report information regarding accounts of all US citizens – living in the US and abroad, US “persons”, green card holders and individuals holding certain US investments – to the IRS.

While the law’s full implementation mkeep calm and fatca on.jpegay be postponed, it does not mean that you do not need to be compliant with the law. The postponed implementation is most likely on the part of the FFI’s than on the American citizens complying with the reporting requirements of the law. So you need to report your foreign assets.

(A United States “person” includes U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.)

This law requires foreign financial institutions such as local banks, stock brokers, hedge funds, insurance companies, trusts, etc., to report directly to the IRS all their clients who are US “persons.” FFIs that do not become compliant will be subject to a 30% withholding on their US investments when they are cashed in, which will directly impact FFI clients with US holdings.

FATCA requires financial institutions to use enhanced due diligence procedures to identify US persons who have invested in either non-US financial accounts or non-US entities. The intent behind FATCA is to keep US persons from hiding income and assets overseas. The key word here is “hiding”. Its O.K. to have assets over seas and follow that jurisdictions tax codes, but it’s not O.K. to “hide” those assets from the IRS.

The ability to align all key stakeholders, including operations, technology, risk, legal, and tax, are critical to successfully complying with FATCA. Both financial institutions and non-financial multinational corporations should consider steps such as:

  • Analyzing legal entity structures and registering FFIs that are required to register
  • Conducting gap analysis to identify systems and processes that must be updated
  • Develop an implementation plan for the changes required for FATCA compliance
  • Performing due diligence on preexisting account holders and re-mediate non-compliant accounts
  • Evaluating your controls related to FATCA compliance

FATCA also requires US citizens who have foreign financial assets in excess of $50,000 to report those assets every year on a new Form 8938 (FBAR) and may be filed with the 1040 tax return. The FBAR was discussed in more detail in a previous article.

This law is in essence making all the FFI’s in the world, similar to the US Banks, unemployed, unpaid IRS agents reporting on US citizens and their companies that may do business with their FFI.

Many Americans residing overseas are reporting banking lock-out. A number of foreign financial institutions have simply chosen to eliminate the accounts of US citizens and their US companies in order to minimize their exposure to FATCA reporting requirements, withholding fees and potential penalties. This is causing a lot of problems for US citizens and their companies doing business overseas.

The US Treasury/IRS has mandated the FFI’s use their Intergovernmental Agreements (IGAs); many countries have signed on and will facilitate the transfer of information. The IGA agreements include a non-discriminatory clause that is aimed at helping alleviate issues of lock-out of banking services to US citizens and US persons. In other words these FFI’s must be compliant or they will be placed on the IRS watch list and the FFI’s dollar assets could be impacted.

Many are calling this the “end of the dollar law” as many countries around the globe are looking to find alternatives to the dollar as the reserve currency to use when trading with their neighbor countries. This is one of the most overreaching laws the US Government has ever passed. In the end it appears to be a law that is doing more damage than good. As with all laws we never know the full ramifications until it is completely implemented, but this one was an easy one to spot that it would be bad, very bad for Americans the world over.

Topics: IRS, FBAR, FATCA, HIRE Act, Foreign Financial Institutions, US Citizens

Traditional IRA vs. Roth IRA

Posted by Wendell Brock, MBA, ChFC on Fri, Jul 26, 2013

A Traditional IRA is generally tax-deductible. There are some limitations; for example if you are an active participant in a qualified employer plan those limitations are more restrictive than if you’re not covered by an employer plan. These limitations are called “phase-outs” because the amount you can deduct from your taxes phases out as your income iIRA imagesncreases on an IRS-set range. 

Contributions to a Roth IRA are not tax deductible like with a Traditional IRA. Money earned in a Roth IRA can be withdrawn income-tax-free on a few conditions: you must have had the account for at least five years, if you're at least 59½, death, disability or a qualified first time home purchase. 

5 Reasons converting to a Roth IRA is not the best option
1.      Lower tax bracket after retirement
·         After retiring many people drop to a lower tax bracket. It is suggested if your tax rate will drop 10% or more it is not a good option to convert right now.
·         Also if you plan to move to a state with a lower tax rate it is better to wait.

2.      Nearing retirement and will spend your IRA
·         If you will be in the same tax bracket after retirement the question to ask is when will you need to use the money in your IRA. One of the benefits of a Roth IRA is you don’t need to take required minimum distributions starting at age 70 ½. If you are near retirement and will be using money soon from your IRA it dose not make sense to convert to a Roth IRA.

3.      Don’t have money to pay conversion taxes
·         If you have to use money from your IRA to pay the conversion taxes it may not be ideal to convert, its best to pay the tax from other sources.

4.      You plan to leave a substantial amount to charity
·         The most tax-effective way to leave money to charity is through a traditional IRA. Money given to charities from traditional IRA’s is typically not taxed.

5.      You need asset protection
·         If you are in a position where you might be sued, such as a physician or retired engineer it is best to consult a lawyer before making the move to convert to a Roth IRA.

Check back next week for the top reasons converting to a Roth IRA will be the best move for you.

Topics: IRS, Roth IRA, Traditional IRA, Tax Bracket

IRS Scandal

Posted by Wendell Brock, MBA, ChFC on Thu, Jun 13, 2013

The IRS Administrators apologized for the inappropriate targeting of conservative political groups during the 2012 election. It’s amazing that when the American Public does something wrong they get slapped with fines, jail time, and other penalties, but when a government official (high level or low level) does something wrong they get to apologize. IRS Logo

Here is the rub; according to an AP article by Stephen Ohlemacher, a few weeks ago, he states, “Learner said the practice was initiated by low-level workers in Cincinnati and was not motivated by political bias. Agency officials found out about the practice last year and moved to correct it, the IRS said in a statement.”

Now, I have not worked for the IRS, however I did a recent stint with the SBA, Office of Disaster Assistance, writing loans for Hurricane Sandy victims, and if the IRS, being a government agency operates anything like the SBA, also a government agency, then never do “low-level” people initiate anything. Everything was initiated by Washington.

When a new policy was handed out it was done with consultation with those in charge in Washington or the folks in Washington sent out the policy for distribution. If you were not given the authority to do something you never did it. Period. So for Learner to say that this was initiated by low-level workers, is simply an incomplete truth (not sure I want to call it a lie at this point, because using the word “lie” to me is very serious). 

Low-level workers want to keep their jobs they are not by nature going to stick their neck out to do something risky, against the policy, on their own. The instruction to do something would come from someone higher up, much higher up. Each and every job in the government has a detailed job description, that job description tells you what you can and cannot do, what authority you have and where to go if you need something approved requiring more authority. This is what is supposed to keep them, the federal employees out of trouble. Particularly in an agency that the public relies on for detailed information. 

Additionally, most things that are requested, the low-level workers need to gain approval from people with greater authority. Nothing gets approved without someone else reviewing the entire package to make sure all the “i’s” are dotted with the right size dots. The bigger the approval or more authority sought, the higher up it goes to get approval. 

There are only two options here, if it is true what Learner said that senior officials did not know about the targeting, then 1. They should be fired and fined and jailed, just as any American is for dealing wrongly with the federal government; or 2. They should be fired, fined for negligence on the job. (Not sure I would jail someone for negligence, which is like incompetence, perhaps they simply did not know they were incompetent? In that case it may not be completely their fault.)

The damage done to the IRS and the country because of their actions is enormous. It used to be that you could trust the people who worked for the government, maybe not the politicians, but the employees could be trusted, not any more. For the IRS to have such a monumental breach of trust, they may just as well close it down, and start over. It seems they forgot that liberty is based on trust.

However someone will still be required to collect the taxes – getting rid of the IRS as many are calling for does not get rid of the need for people to be trusted to properly collect the taxes due; but at times getting rid of a federal agency and thinning the ranks, is a very good thing, that we need more of in our country. 

Maybe a flat tax would do much to solve this problem and as Steve Forbes says the tax return should fit on a post card. It would certainly take fewer employees to process a post card than the many multi-page returns we file now. What do you think – should the IRS be abolished?

Topics: IRS, IRS Scandal, IRS Administrators, conservative political groups


Wendell W. Brock, MBA, ChFC

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