‘Tis the season. Yes - for shopping, eggnog and overindulgence at the buffet table. But for freelancers, it’s also the season to take stock of what your income and expenses were in 2015, to get your financial house in order and to determine what you will owe in taxes come next April. Plus, it's a good time to think about your tax return and to make note of upcoming tax deadlines, using our handy 2016 Tax Calendar. To help you get a handle on the tax changes coming your way that may impact you, we've compiled this handy Tax Checklist for freelancers, so please check it out:
Unpaid taxes? Kiss your passport goodbye.
As part of the Highway Funding Bill that was passed last year, a new law went into effect on January 1, 2016 which gives the IRS the power to revoke or deny your passport in cases of certain unpaid taxes. Under this new regulation, if the IRS has filed a lien or levy against you due to unpaid taxes and you have not yet worked out a repayment plan to satisfy your tax debt, you may have to cancel that spring break trip outside of the country—because you may lose your travel documents. Limited exceptions exist for taxpayers who are actively disputing their IRS case or who are required to travel for emergency or humanitarian purposes.
The IRS is taking steps to combat identity theft
Under new policies announced by the IRS, taxpayers may receive a letter when the service stops suspicious tax returns that have indications of involving identity theft but contain legitimate taxpayer’s name and/or Social Security number. The IRS has agreed to reverse its policy and provide identity theft victims with copies of the fraudulent tax return that has been filed under their name by criminals, so they can take the proper steps to secure their personal information.
Tax Day shifts to April 18 in 2016
In observance of Emancipation Day on Friday, April 15, 2016, taxpayers will have until April 18, 2016, to file their 2015 individual returns and make their first 2016 estimated tax payment.
Obamacare penalties increase for individuals. The individual mandate penalty increases to the higher of 2 percent of yearly household income or $325 person per year, with a maximum penalty per family for those using this method of $975 for 2015. The penalties will increase again in 2016. In addition, federal poverty level guidelines, used to determine if the individual qualifies for subsidy, have increased.
Supreme Court ruling on same-sex marriage
All states must now recognize all married couples in the same way for state income tax purposes, regardless of gender. This will impact the ability to file join income tax returns, the ability to transfer property to each other tax-free, the ability to leave an estate to the spouse without gift tax implications, and spousal treatment of inherited IRAs.
Flexible Spending Account limits
The annual limit on employee contributions to flexible spending accounts remains the same for 2016 at $3,350 for individuals. However, the family contribution limit in 2016 is $6,750 (a $100 increase from 2015).
Changes related to the Trade Preferences Extension Act
The Trade Preferences Extension Act (TPEA) contains a number of tax provisions in addition to its trade measures. Taxpayers who exclude foreign earned income under Code Section 911 cannot claim the child tax credit. Taxpayers must receive a payee statement (1098-T) before they can claim an American Opportunity, Hope, or Lifetime Learning Credit or take the deduction for qualified tuition and related expenses. This is effective for tax years beginning after the TPEA’s date of enactment.
Standard deductions changes
According to the IRS, approximately two out of every three taxpayers claim the standard deduction on their income tax returns.
For 2016, there is a change to the standard deduction amounts for heads of households. The standard deductions are as follows:
Personal exemptions will be $4,050 in 2016, up from $4,000 in 2015. The Alternative Minimum Tax exemption amount in 2016 is $53,900 for singles and $83,800 for married couples filing jointly (up by $300 and $400, respectively, compared to 2015 exemptions).
Other key changes include:
Tax credit and deduction extenders
President Obama recently signed into law the tax extenders package which includes raising the fiscal 2015 cap for the Section 179 deduction (applicable to purchases such as computers, furniture, vehicles, and other equipment) from the existing $25,000 to the $500,000 level it was at from 2010 to 2014.
New Forms for Obamacare
Form 1095-B and Form 1095-C, which were optional for calendar year 2014, but they must be filed by any person that provides minimum essential coverage to an individual (1095-B) and by applicable large employers (Form 1095-C) who had on average at least 50 full-time equivalent employees (FTEs) during calendar year 2014 or small employers who are member of a controlled group that collectively had at least 50 FTEs and who offer an insured or self-insured plan or no group health plan at all.
So there you have it, a round-up of the key changes which may affect your individual and business tax returns this filing season. If you would like to engage our professional services to help you optimize your tax situation, please review our estimated fee schedule prior to contacting us.
Jonathan Medows is a certified public accountant licensed in New York, New Jersey, Maryland, and Pennsylvania. He is also a recognized expert in taxation for freelancers and the self-employed—often tapped for his expert knowledge and perspective on self-employment taxation by national and regional publications such as The New York Post, BusinessWeek, Forbes taxation blog, WebCPA, CPA Practice Advisor, and others. You can read some of Jonathan’s press coverage here.
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