2016 tax rules — a quick review

Income tax rates — Range from 10% to 35% unless taxable income exceeds $415,050 for singles or $466,950 for married couples. Rate on income above those amounts is 39.6%.

Estate & gift tax — Annual tax-free gifts allowed with $14,000 per gift limit. Estate tax exemption of $5,450,000 for 2016 with 40% top tax rate.

Breaks now permanent — 1) optional deduction for state and local sales tax in lieu of state and local income tax; 2) the $250 deduction for classroom supplies paid by teachers; and 3) IRA-to-charity transfer of up to $100,000 by taxpayers 701/2 or older.

Itemized deductions — Limited for single taxpayers with adjusted gross income (AGI) above $259,400 and married couples with AGI above $311,300.

Alternative minimum tax — Exemption amount for 2016: $53,900 for singles; $83,800 for married filing jointly.

Business expensing — Up to $500,000 for new and used equipment and 50% bonus depreciation for new assets.

Personal exemptions — Phased out for singles with AGI above $259,400 and marrieds with AGI above $311,300.

Capital gains & dividends — Long-term gains taxed at 15% for most taxpayers. Zero percent for those in 10% and 15% ordinary income brackets; 20% for those in 39.6% ordinary income bracket.

Medicare tax on earned income — Medicare surtax of 0.9% imposed on wages and self-employment income exceeding $200,000 for singles and $250,000 for married couples.

Net investment income tax — A 3.8% tax imposed on unearned income for singles with modified AGI exceeding $200,000 and for couples with modified AGI exceeding $250,000.

© MC 2016

Keep up with Affordable Care Act information reporting

As 2017 approaches, turning your attention to your reporting requirements under the health care law can prevent a beginning-of-the-year rush to gather information. Need additional incentive? Consider this: Though the IRS offered extended deadlines and relief from filing penalties last year, those breaks will likely not apply to this year’s returns. Here’s what to think about as you prepare for the upcoming filing season.

How many employees you have. The key here is understanding that your employee count includes full-time employees as well as full-time equivalent employees. You’re an “applicable large employer,” or ALE, if your business employed an average of at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year. Special rules apply to related companies with a common owner, seasonal workers, and new employers.

What’s the definition of full-time and full-time equivalent? A full-time employee is one who works an average of 30 or more hours per week (or 130 hours per month). Full-time equivalents are determined by multiplying the number of part-time employees by average hours worked and dividing the result by the hours required for full-time status.

Example. Twenty employees working an average of 15 hours per week are equivalent to 10 full-time employees (20 employees times 15 hours divided by 30 hours).

How do you count employees? Here’s the general rule. Add the total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each month of the prior calendar year. Divide that number by 12. Is the answer fewer than 50? You’re not an ALE, and you generally have no reporting requirements. If the answer is 50 or more, you are an ALE.

The forms you’ll need to file. If your employee count reveals that you are an ALE, you’re required to file a Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, for each employee who was a full-time employee for any month of the calendar year. You’ll also have to file one or more Forms 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns. Form 1095-C informs individual employees about the health coverage offered by your business. Form 1094-C reports the summary of all your Forms 1095-C.

2017 DEADLINES

Form 1095-C (copies sent to employees) — January 31, 2017

Forms 1094-C and 1095-C (copies due to IRS, if filed on paper) — February 28, 2017

Forms 1094-C and 1095-C (copies due to IRS, if filed electronically) — March 31, 2017

© MC 2016

Wrap up tax benefits for year-end charitable gifts

Are you contemplating gifts to charity at the end of this year? Not only do you help out a worthy cause, you can also reduce your 2016 tax bill if you itemize your deductions. Here’s how to make sure you’ll get the full benefit.

The general rule. Generally, you can deduct the full amount of contributions you make to a qualified charitable organization, up to 50% of your adjusted gross income for the year. Did you make a large contribution? You can carry the excess forward for five years. Just remember that you have to get written acknowledgment from the charity for monetary gifts of $250 or more.

Tip: A contribution made by credit card late in the year is still deductible if posted to your account this year. You can charge an online donation on December 31, and take a deduction on your 2016 return, even if you don’t pay the credit card bill until 2017.

“This for that” gifts. When you make a gift of more than $75 that entitles you to receive goods or services in return, the charity must provide a good faith estimate of the goods or services received and the amount of payment exceeding the value of the gift. You can deduct the portion that exceeds the fair market value.

Gifts of your time. Although you can’t deduct the value of volunteer services you provide, you can write off out-of-pocket expenses incurred on behalf of a charity. Examples include long-distance travel, lodging, and local transportation.

Gifts of property. In general, the annual deduction for gifts of property is 30% of your adjusted gross income. You can carry the remainder forward for five years. If you donate appreciated property you’ve owned for more than a year, in most cases you can deduct the property’s fair market value. You’ll need an independent appraisal for gifts over $5,000.

Tip: To claim the full deduction, the gift must be used to further the charity’s tax-exempt mission. For instance, if you donate a painting to your alma mater, it must be displayed where students can study it.

If you have questions about charitable giving tax rules, contact us. We’ll help you lock in deductions before January 1.

© MC 2016