These Tax Breaks May Have You Heading Straight for an Audit Audits don't just happen…
The Most Important Tax Filing Changes You Need to be Aware of Right Now
Every year, changes are made to the tax code that affects how you file. That may mean that a tax break is available for a temporary time, or it may mean that the amount of certain exemptions or deductions have changed. Even minor changes can make a big impact on how much tax you must pay, so it is important to stay aware of changes when they are made.
Extra Days to File
Most years, the deadline to file your taxes is April 15. However, this year, you’ll have a few extra days as the filing deadline is April 18.
The reason is that the federal government celebrates Emancipation Day in Washington, D.C., which falls on April 15 this year. The 15th is a Friday, so the next business day is the 18th.
People who live in Maine, Massachusetts or other states that celebrate Patriots Day will have another day to file. Patriots Day falls on April 18, so those residents will have until April 19 to file.
Higher Health Insurance Penalty
Once the Affordable Care Act went into effect, everyone was required to have health insurance. Those who did not would have to pay a tax penalty.
This year, the penalty has risen to 2 percent of household income or $325 per adult and $162.50 per child. The maximum penalty was $975 per family.
That’s an increase of $95 per adult and $47.50 per child, or $285 for a family maximum.
You may also owe money if you received a subsidy but underestimated your income. You could get a refund if you overestimated your income. You can get around paying the penalty by showing that you could not afford health insurance.
Higher Personal Exemption
Some changes will benefit taxpayers. For example, the personal exemption rose from $3,950 to $4,000. That’s not a huge increase, but it will certainly help out taxpayers who are in a lower income bracket.
The personal exemption is the amount deducted from the income of each person on an income tax return, which lowers their tax obligation.
Higher Alternative Minimum Tax
The alternative minimum tax was implemented to ensure that everyone pays at least some tax. However, there are ways to avoid it depending on your filing status and what deductions you claim. The formula for determining AMT is complex, and it is best left to a tax professional.
This year, the AMT exemption has increased to $53,600 from $52,800 for individuals and to $83,400 from $82,100 for married couples filing jointly.
Increased Mileage Rate
If you drive your vehicle for business, to go to medical appointments, or to do charity work, you can deduct your mileage. You will need to keep a log of your mileage, including the dates and the purpose of the trip.
This year, the mileage rate went up to 57.5 cents from 56 cents for business purposes. The rate for medical trips or moving actually went down a half cent to 23 cents. The mileage rate for doing charity work is 14 cents.
Many Tax Breaks became Permanent
Temporary tax breaks are often introduced to stimulate the economy, and they are usually reviewed year to year to determine if they are still needed. This year, many temporary tax breaks became a permanent part of the tax code.
Those tax breaks include:
- Taxpayers over 70-1/2 are able to donate up to $100,000 from their IRA without paying taxes on the amount
- Those who live in states without a state income tax can deduct sales tax paid
- Teachers who buy their own supplies can deduct $250 (though the amount will rise with inflation)
- Enhanced Child Tax Credit
- American Opportunity Tax Credit
- Earned Income Tax Credit, which is available for those with low or moderate income
- You must speak with your tax professional to find out how to qualify for these or other tax credits
Extended Tax Break
A tax break to cancel the debt on a home was extended this year but not made permanent. The tax break allows homeowners to forego paying income taxes on debts for a primary residence that were forgiven. Typically, these homes were part of a short sale or were damaged by a natural disaster.
This tax break was extended through the end of 2016.
Of course, if you experience any lifestyle change, that is going to change your taxes. If you are married, divorced, have a child, adopt a child, buy a house, sell a house, buy or sell a business, or have major medical expenses, your tax obligation will change. You may be subject to new tax obligations both in Cave Creek and at the federal level.
As with any other tax issue, the best way to understand your obligation is to talk with a Cave Creek tax attorney.
Working with a tax professional can walk you through changes in your taxes as a result of your lifestyle changes or a result of law so that you can minimize your tax obligation and avoid any fines or other penalties. A tax attorney from Silver Law PLC can help if you are facing tax litigation, an IRS audit, or tax collections. These are complicated legal issues that require the help of experienced counsel, and our attorneys will work diligently to help you minimize or avoid penalties. Call us today to learn more about the services we offer or to schedule a consultation about your tax case.
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