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It’s a given: Every year the tax code changes just enough to ensure that we all have to do a double-take as we complete our tax returns. This year is no exception. There are a number of important updates that may affect you and your freelance business.
To help you get a handle on them, check out this handy Freelancer Tax Checklist:
1. The IRS is taking new steps to protect your data.
You may not believe it, but the IRS is looking out for you. 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.
2. Tax Day shifts to April 18 this year.
Bonus! You have three “extra” days to file your taxes this year (but please don’t wait to file your taxes!). 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.
3. Obamacare penalties increase for individuals.
You can run, but you cannot hide from the impact of Obamacare. For 2015, the individual mandate penalty increases to the higher of two percent of yearly household income or $325 person per year, with a maximum penalty per family for those using this method of $975. The penalties will increase again in 2016. In addition, federal poverty level guidelines, used to determine if the individual qualifies for subsidized health insurance, have increased.
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4. Social Security threshold amounts will stay the same in 2016.
The wage base on which the government collects Social Security taxes will stay at 2015's level of $118,500, and the earned-income limits for those who take benefits before full retirement age will stay at $15,720 for those younger than full retirement age all year and $41,880 for those who hit their full retirement age during 2016.
5. The Supreme Court ruling on same-sex marriage impacts joint tax returns.
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 joint 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.
6. Standard deduction changes.
According to the IRS, approximately two out of every three taxpayers claim the standard deduction on their income tax returns, which makes these changes notable. For 2016, there is a change to the standard deduction amounts for heads of households. The standard deductions are as follows:
- Single (Unmarried Individuals): $6,300 (no change)
- Married Filing Separately: $6,300 (no change)
- Head of Household: $9,350, an increase of $150
- Married Taxpayers Filing Jointly and Qualifying Widow(er)s: $12,600 (no change)
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:
- The maximum Earned Income Credit amount is $6,269 for taxpayers filing jointly who have three or more qualifying children in 2016, up from $6,242 for 2015.
- The monthly limit for the transportation benefits remains $130 for transportation, but rises to $255 for qualified parking in 2016, up from $250 for tax year 2015.
- The foreign earned income exclusion is $101,300 for 2016, up from $100,800 in 2015.
7. 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. So go ahead and invest in your business knowing that qualified expenses can be deducted on next year’s tax return.
8. New forms for Obamacare.
If you have even one employee this applies to you. 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. While these changes are not monumental, you’ll want to be aware of them as you get your taxes organized—so keep this checklist handy. Happy tax filing!
Jonathan Medows is a New York City based CPA who specializes in taxes and business issues for consultants across the country. His website, www.cpaforfreelancers.com, has a resource section with how-to articles and information for freelancers.