Here are the 2015/2016 updates to salary deferral limits:
This is a great time of year for gift giving. The calendar year is about to wind down and a new one will begin. Some basic reminders:
You've all seen the cute little onesies that people gift to infants that say "tax deduction". Or all the comments to parents of December babies congratulating them on their "tax deduction". Well, they're cute and humorous sentiments but the idea that children are a "tax deduction" is a myth. Well, not a myth, technically, but a misnomer. Those cute little kids aren't "tax deductions" they are actually exemptions.
The IRS code for personal tax returns, in some areas of the 1040, is one step shy of being a lottery scratch-off ticket. There are deductions, credits and exemptions; some before tax is computed, some after. The current 1040 tax return is a Rube Goldberg-esque, 100 years in the making, attempt to ensure that you aren't cheating your fellow Americans by paying less than you're supposed to in tax.
In the case of exemptions, everyone gets one (for example, if you're married, filing jointly, you automatically get 2). Additionally, if you have dependents (a status granted to those cute kids referred to earlier) you are entitled to an exemption for each of those, as well.
The personal and dependent exemption amount for 2015 tax returns is: $4,000.
Similar to itemized deductions, though, exemptions are phased out as your income reaches certain limits.
Married, filing jointly: $309,900
Head of Household: $284,050
Married, filing separately: $154,950
A family of 5, earning less than $309,900, would report a $20,000 exemption amount.
Feel free to reach out with any questions regarding exemptions (line 42 on the 1040) to firstname.lastname@example.org
There is a give-away embedded in the tax code called: deductions. When filing personal tax returns, deductions reduce taxable income. Each "personal taxable entity" is given the option of taking a standard deduction or itemized deductions. It is rarely a complicated choice because one chooses the greater of the deduction amounts. However, while not a complicated choice, it does generate some questions about how each are determined.
The standard deduction is available for anyone when filing 2015 Federal return.
What constitute itemized deductions? At the risk of being cavalier, anything on Schedule A. What is schedule A, you ask? It is the IRS sub-schedule of 1040 (literally called Form Schedule A) that helps one compute eligible itemized deductions.
Everything listed on sch. A is deductible but some deductible expenses are subject to limits. For example:
Additionally, itemized deductions begin to be phased-out (disallowed) when your income reached a certain level:
The IRS recently upped the minimum for "expense-ing" tangible property from $500 to $2,500. It doesn't go into effect until 2016 but they've agreed to not audit going back so, effectively, can report this way for 2015. Read more about it here:
http://www.accountingweb.com/tax/irs/irs-increases-tangible-property-expensing-threshold-to-2500 or reach out with any questions.