In many respects, 2016 looks a lot like 2015. Federal tax brackets, Social Security paychecks, and retirement plan contribution limits are all linked to inflation. With no inflation to speak of, the figures for this year will remain practically unchanged.
But there are a few significant changes to keep in mind. First, a couple of crackdowns:
• Married couples will have fewer options when claiming Social Security benefits. Beginning in May, anyone who suspends his or her own benefit will simultaneously shut off the possibility of spousal benefits. Also, those born in 1954 or later will no longer be able to opt for spousal benefits at full retirement age while delaying their own benefits.
• The full penalty for not having health insurance will be in effect this year, making it more costly to live uninsured. The penalty was much smaller in 2014 and 2015.
For taxpayers, there is also some good news:
• The qualified charitable distribution (QCD) provision has been made permanent. This provision allows individuals 70 ½ or older to distribute up to $100,000 per year from their IRA directly to a qualified charity, and then count the amount toward their required minimum distribution while excluding it from gross income.
• The American Opportunity Tax Credit has also been made permanent. This credit can save parents up to $2,500 per college student per year.
• Another provision made permanent: Itemizers may opt to deduct state and local sales taxes instead of income taxes.
• Computers, software, and Internet access purchased for an eligible student will now be considered qualified expenses for 529 savings plans. This rule is retroactive to last year.
Other taxpayer-friendly provisions were extended as part of the PATH Act of 2015, including some affecting businesses. Be sure to talk with your CPA or financial advisor about how these provisions could benefit you in the New Year.
By Jeffrey P. Ebert, PhD, CFP® / Financial Advisor
Jeff holds the CFP® designation and earned his doctorate in social psychology at Harvard University. Jeff has expertise in retirement and education planning.
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