The Internal Revenue Service has made more than 50 inflation adjustments to federal tax rates for 2016.
As we head into the second half of the year, these adjustments will affect gift taxes, estate taxes, personal exemptions and trust and estate income taxes. You and your advisors should take them into account as you plan for the rest of 2016.
“Most of these tax changes are small,” said Paul DeLauro, head of wealth planning at City National Bank. “But there are hidden gems within these changes that lead to great tax planning solutions.”
Here are the changes most likely to impact taxpayers:
- The top tax rate of 39.6 percent remains in effect but the income thresholds have increased to $415,050 for single taxpayers and $466,950 for married taxpayers filing jointly.
- The personal exemption for tax year 2016 rises to $4,050, up $50 from the 2015 exemption of $4,000.
- The exemption begins to phase out when singles reach adjusted gross incomes of $259,400; $311,300 for married couples filing jointly. It phases out entirely at $381,900 adjusted gross income for singles, $433,800 for married couples filing jointly.
- The estates of those who die in 2016 are exempt from tax up to $5.45 million, an increase from $5.43 million in 2015.
- For taxpayers with foreign earned income, taxes are excluded on that income up to $101,300. That’s an increase from $100,800 in tax year 2015.
Bottom line: Taxes are complicated. Make sure you schedule a meeting with your financial advisor to go over these changes and how you might optimize them for yourself and your family.