It’s often said that death and taxes are the only things that are inevitable and that everyone can count on, but annual tax changes to the ever-complicated tax codes in the U.S. seem to be the norm as well.
The tax changes for 2016 aren’t drastic, but some are worth noting. While filing won’t be any easier, there’s good news in the mix. And, as always, seek the advice of a tax professional if you have any concerns.
Health flexible spending accounts: $500 can be rolled over
Health care flexible spending accounts (FSAs) have traditionally been accounts you had to spend on your own by the end of the year, or you would forfeit the money. This year, you can roll over up to $500 to another account. Assuming this practice continues, it makes opening a flexible spending account much more attractive for anyone who is uncertain about how much they may spend on health care in a given year.
As an example, I was planning on investing in some complex dental procedures this year. I was tempted to put money in my flex spending account, but I also knew that, due to time for grafts to heal, the timeline on this procedure might not be clear — therefore I opted to save for the procedural steps outside of the FSA option. As reality went, I would have lost some of that money under the old rules, because some of the procedures had to be moved further down the road, meaning I didn’t spend nearly as much as I had planned this year. Knowing I could roll over up to $500 next year makes me much more likely to enroll in the coming year.
Another change to FSAs is an increased limit. It’s only been boosted by $50, from $2,500 to $2,550, but that amount could be helpful, and hopefully is just one of more annual increases. Health care procedures aren’t cheap, and having a safety net in the form of FSAs can be helpful to many Americans, especially for those with known upcoming expenses like knee or back surgery.
Bitcoin needs to be reported as income
If you got paid or received any income in the form of Bitcoin, it has to be reported as income. It’s calculated based on the current fair market value, so make sure you use a reliable way of calculating and have some way to clearly document the source.
Tip: If you were paid large amounts in Bitcoin or invested in large amounts, consultation with a reputable and in-the-know tax professional who understands this uncharted area will be crucial.
Obamacare penalty rises
If you didn’t get the minimum required health insurance last year, the penalty for not carrying health insurance rises this year. According to Healthcare.gov, “If you didn’t have coverage [last year], you’ll pay the higher of these two amounts when you file your federal tax return: 1 percent of your yearly household income… or $95 per person for the year ($47.50 per child under 18). The maximum penalty per family using this method is $285.” If you had coverage for part of the year, you pay an equal proportion of the fee. For example, if you had coverage for six months, you would pay 50 percent of the penalty.
If you are in any doubt about whether or not your insurance met the minimum requirements or if you’re not sure about how much of the year you were enrolled, gather your documents and discuss it with a professional tax preparer.
Energy credits and education benefits are no longer tax deductible
Several tax benefits that were extended to taxpayers in 2014 expired last year. These include energy credits for home improvements that contributed to energy savings, such as adding insulation or high efficiency windows.
Others include a higher education tuition credit of $2,000 to $4,000 of qualified tuition expenses, and expenses incurred by educators of up to $250 for out-of-pocket classroom expenses. None of these expenses can be claimed as deductibles (write-offs) this year.
Foster care expenses now includes relatives
If you had a child or other dependent with emotional, mental or physical disabilities living with you and you provided non-skilled medical attention, any payments made to the state or a qualified Medicaid provider may be deductible. This definition of “foster” has been expanded to include relatives, which is new under the code for filing income taxes.
Standard deduction: $100 increase for single filers, $200 for married
The standard deduction, or the tax credit that everyone gets every year, rose by $100 to $6,200 for single filers and by $200 or $12,400 for married filers who file jointly. Heads of households can claim $9,100. No, it’s certainly not a huge amount, but every little bit can help keep you in a lower bracket. More good news: it goes up by another $100 and $200 for the 2015 filing year.
Alternative minimum tax (AMT) to increase
The alternative minimum tax, which was designed to keep the wealthy from using loopholes to avoid paying taxes, also rose. While the AMT is too complex to discuss in a short article about tax changes and isn’t of use to all tax filers, it’s worth noting that this tax is going up.
The amount for individuals is up $900 to $52,800 and for joint filers, the amount is $82,100, up by $1,300. This amount is now permanently adjusted for inflation and should rise again next year.
With tax season quickly approaching, it’s important to get your finances in order while keeping these tax changes for 2015 in mind.