Have you done your taxes yet? Your W-2s or 1099s have started to trickle in with the mail over the past few weeks. You might also be in the process of gathering the right receipts and pertinent statements.
Before you sign an IRS tax return and send it off, though, make sure you know about these new or improved tax breaks for this year’s tax season. By taking advantage of these tax breaks, you can reduce your total tax debt.
- IRA Rollover Self-Certification
Take heart if you missed the 60-day time limit for transferring distributed funds from your IRA or workplace retirement fund to another qualifying fund. Thanks to a new rule, you might qualify for a waiver that will prevent you from having to pay early distribution taxes.
- Serious illness or death in your family
- Financial institution mistakes
- A lost and uncashed check
- Severe damage to your home
- Postal errors
To make things easy on the taxpayer, the IRS website has a sample letter that you can fill in and print to explain which of the 11 reasons applies to you. Look for Revenue Procedure 2016-47.
- Gift Tax Exclusion for ABLE Accounts
An ABLE account—achieving a better life experience—offers tax-advantaged opportunities for disabled people and their families. It helps them save for and pay for expenses related to the disability. Although the legislation was passed in 2014, the specialized accounts only became available on a general basis in 2016.
- Prevention and wellness
- Employment training and support
- Assistive technology
- Personal support services
These accounts offer both state and federal tax advantages. In addition, the first $100,000 in an ABLE account does not count as income or assets when disabled individuals try to qualify for public assistance programs.
Although only nine states currently have ABLE programs, you can open an account—or contribute to one—in a state other than your own.
- Higher Tax Thresholds
The positive effect of getting a cost-of-living increase or raise at your job can be a mixed blessing if it lifts you into a higher tax bracket. Fortunately, the IRS raised the tax thresholds for 2016, meaning you’re less likely to have to pay a greater percentage of your wages toward taxes if you earned more last year than you did in 2015.
Married couples filing jointly slid up from a 15 percent tax bracket to 25 percent once they earned more than $74,900 in household income in 2015. In 2016, such filers had to earn more than $75,300 before moving into the 25 percent bracket.
- Increase of Standard Deduction for Head of Household
Those filing as head of household in 2016 will enjoy a $50 increase in their standard deduction, from $9,250 in 2015 to $9,300 in 2016.
The standard deduction didn’t increase for other filers. Singles still receive a $6,300 standard deduction and married couples filing jointly receive a $12,600 standard deduction.
You can get a larger standard deduction if you are blind, age 65 or older, or both. Depending on your circumstances, the increase can be as much as $1,550.
Enter your standard deduction on line 40 of Form 1040. Instructions in the left-hand column of your tax return help you figure out how much you can claim.
- Increase of Personal Exemption
Line 42 of Form 1040 lets you claim personal exemptions, which are amounts you can deduct from your adjusted gross income for yourself and your dependents. Such exemptions are in addition to your itemized deductions or standard deduction.
In 2016, the per-person exemption rose $50 to $4,050 per person. Note that a person can only be claimed as an exemption on one tax return. So, let any of your working dependents know that they cannot take themselves as an exemption even if they earn enough money to file their own tax return.
The exemption phases out once you reach certain income levels. Your exemptions decrease by 2 percent for each $2,500 above these income levels.
- Increased Earned Income Credit
If you have low or moderate income, you might qualify for the federal earned income credit. The income-based credit is for single, head of household, married filing jointly or widowed taxpayers with or without children.
The maximum credit for 2016 is $6,269 for filers with three or more qualifying children. The amount reflects a $27 increase from 2015’s figure of $6,242.
Low-income people without children receive the lowest credit. Single, head of household or widowed taxpayers receive a maximum credit of $506 if they make less than $14,880. Those who are married filing jointly receive the same amount provided their income is less than $20,430. The credit amount reflects a $3 increase from the 2015 credit of $503. Income limits have increased $60 for singles and $100 for those in the married filing jointly category.
Take advantage of the earned income credit by filling out Schedule EIC and attaching it to your tax return if you have a qualifying child and meet the income requirement. Then, enter the amount of your credit on line 66a of Form 1040. If you don’t have a qualifying child but meet the income requirements, simply enter your credit amount on line 66a.
- Foreign Earned Income Exclusion
If you live and work overseas, you can exclude a portion of your income and foreign housing expenses from gross income on your U.S. tax return. To claim the exclusion to income you earned in a foreign country, you must meet one of the following:
- You have been physically out of the U.S. for at least 330 full days during any 12-month period.
- You have been “a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,” according to the IRS.
- You have been a U.S. resident alien who is a “citizen or national of a country with which the United States has an income tax treaty in effect,” according to the IRS. In addition, you must meet the second requirement above.
If you qualify for the exclusion, you can exclude up to $101,300 of income earned in a foreign country, $500 more income than 2015’s $100,800 tax exclusion.
To claim the exclusion, you must file a U.S. income tax return even if the money you made was less than the $101,300 exclusion. Fill out Form 2555 or 2555-EZ.
Original article published on RisMedia.com written by Jodi O’Connell
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