Most of us are gathering 2016 data and
getting ready to prepare (or have someone
else prepare) our 2016 income taxes. It is
important to be mindful of federal legislation
that impacts tax returns we’ll be filing soon.
In December 2015, federal legislation
addressed many provisions which expired
at the end of tax-year 2014. Many had come
up for renewal every year or two, leading
to uncertainty for taxpayers and making
meaningful tax planning difficult. Retroactive
to tax-year 2015, the act enhanced or made
“permanent” a number of these provisions
and further extended others temporarily.
Below is a summary of some of the morepopular
personal tax provisions impacted
by the legislation.
Qualified Charitable Distributions
For nine years off-and-on, Congress allowed
taxpayers age 70-1/2 and older to transfer
up to $100K annually directly from IRAs to
charities. Such transfers, known as Qualified
Charitable Distributions (QCDs), are treated
as non-taxable distributions. They are now
allowed on an ongoing basis. Since a QCD
is not taxable, gifts made in this manner
cannot also be listed as itemized deductions.
Note that if you made such a distribution
from an IRA in 2016, you will receive a Form
1099-R from your IRA custodian coding the
distribution as “normal”. You will show the full
distribution on line 15a Form 1040 but then
list the taxable amount as zero on line 15b.
Write/print “QCD” next to line 15 to alert the
IRS as to the nature of the distribution.
State and Local Sales Tax Deduction
State and local sales taxes may be now be
claimed as federal itemized deductions
on an ongoing basis in lieu of state and
local income taxes. This is particularly
advantageous for folks who pay no NYS
income tax. For folks who do not track their
annual sales tax history, the IRS provides a
simple table to estimate total sales tax based
on income. For big-ticket purchases, such as
an auto, the IRS allows taxpayers to add sales
tax for such purchases to the table amount.
Other “Permanent” Provisions:
- Additional Child Tax Credit –
maintains a portion of the credit that is
refundable (allows for a refund even if
the total tax is zero). Limited by Adjusted
Gross Income (AGI).
- American Opportunity Credit
covering qualified college costs –
maximum credit is $2,500/student/year
for first four years of college. Covers
tuition costs plus materials and supplies
including computers. 40% of the credit is
refundable. Limited by AGI.
- Earned income credit – Refundable
credit for low-income taxpayers who have
earned income. Credit increases with
number of dependents.
- Teachers’ deduction – Educators will
continue to be able to deduct up to $250
of unreimbursed qualified out-of-pocket
expenses as an “above-the-line” deduction.
Includes professional development
expenses. Will be indexed for inflation.
Extended through Tax-Year 2016:
- Mortgage insurance premiums deduction.
- College tuition and fees “above-the-line”
- Mortgage debt exclusion – exclusion from
income for forgiveness of mortgage debt
on principal residence.
There is something here for just about
everyone who pays federal income taxes.
Make sure you are aware of these provisions
when filing your 2016 taxes.
How CNB Can Help
Please feel free to contact us with any questions you have. James Terwilliger can be reached at (585) 419-0670 ext: 50630 or via email at JTerwilliger@CNBank.com.
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Tax information presented is not to be considered as tax advice and cannot be used for the purpose of avoiding tax penalties. Canandaigua National Bank & Trust does not provide tax, legal, or accounting advice. Please consult your personal tax advisor, attorney, or accountant for advice on these matters.