Month: August 2016

The IRS just announced its inflation adjustments for next tax year.

The Internal Revenue Service announced new inflation-adjusted income brackets for the 2016 tax year.

The top tax rate of 39.6% now applies to single taxpayers earning more than $415,050 ($466,950 for married taxpayers filing jointly)—up from the 2015 thresholds of $413,200 and $464,850, respectively.

Here are the other major adjustments:

If you’re single…

IF YOUR TAXABLE INCOME IS…	YOU OWE…
$0-$9,275	10% of your taxable income
$9,275-$37,650	$927.50 + 15% of anything over $9,275
$37,650-$91,150	$5,183.75 + 25% of anything over $37,650
$91,150-$190,150	$18,558.75 + 28% of anything over $91,150
$190,150-$413,350	$46,278.75 + 33% of anything over $190,150
$413,350-$415,050	$119,934.75 + 35% of anything over $413,350
$415,050 and higher	$120,529.75 + 39.6% of anything over $415,050

If you’re married filing jointly or are a surviving spouse…

IF YOUR TAXABLE INCOME IS…	YOU OWE…
$0-$18,550	10% of your taxable income
$18,550-$75,300	$1,855 + 15% of anything over $18,550
$75,300-$151,900	$10,367.50 + 25% of anything over $75,300
$151,900-$231,450	$29,517.50 + 28% of anything over $151,900
$231,450-$413,350	$51,791.50 + 33% of anything over $231,450
$413,350-$466,950	$111,818.50 + 35% of anything over $413,350
$466,950 and higher	$130,578.50 + 39.6% of anything over $466,950

If you’re a head of household…

IF YOUR TAXABLE INCOME IS…	YOU OWE…
$0-$13,250	10% of your taxable income
$13,250-$50,400	$1,325 + 15% of anything over $13,250
$50,400-$130,150	$6,897.50 + 25% of anything over $50,400
$130,150-$210,800	$26,835 + 28% of anything over $130,150
$210,800-$413,350	$49,417 + 33% of anything over $210,800
$413,350-$441,000	$116,258.50 + 35% of anything over $413,350
$441,000 and higher	$125,936 + 39.6% of anything over $441,000

Understand Your Taxpayer Bill of Rights

Every taxpayer has a set of fundamental rights. The “Taxpayer Bill of Rights” takes the many existing rights in the tax code and groups them into 10 categories. You should know these rights when you interact with the IRS. Publication 1, Your Rights as a Taxpayer, highlights a list of your rights and the agency’s obligations to protect them. Here is a summary of the Taxpayer Bill of Rights:

1. The Right to Be Informed. You have the right to know what is required to comply with the tax laws. You are entitled to clear explanations of the laws and IRS procedures on all tax forms, instructions, publications, notices and correspondence. You have the right to know about IRS decisions affecting your accounts and clear explanations of the outcomes.
2. The Right to Quality Service. You have the right to receive prompt, courteous and professional assistance in your dealings with the IRS and the freedom to speak to a supervisor about inadequate service. Communications from the IRS should be clear and easy to understand.
3. The Right to Pay No More Than the Correct Amount of Tax. You have the right to pay only the amount of tax legally due, including interest and penalties. You should also expect the IRS to apply all tax payments properly.
4. The Right to Challenge the IRS’s Position and Be Heard. You have the right to object to formal IRS actions or proposed actions and provide justification with additional documentation. You should expect that the IRS will consider your timely objections and documentation promptly and fairly. If the IRS does not agree with your position, you should expect a response.
5. The Right to Appeal an IRS Decision in an Independent Forum. You are entitled to a fair and impartial administrative appeal of most IRS decisions, including certain penalties. You have the right to receive a written response regarding a decision from the Office of Appeals. You generally have the right to take your case to court.
6. The Right to Finality. You have the right to know the maximum amount of time you have to challenge an IRS position and the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. You have the right to know when the IRS concludes an audit.
7. The Right to Privacy. You have the right to expect that any IRS inquiry, examination or enforcement action will comply with the law and be no more intrusive than necessary. You should expect such proceedings to respect all due process rights, including search and seizure protections. The IRS will provide, where applicable, a collection due process hearing.
8. The Right to Confidentiality. You have the right to expect that your tax information will remain confidential. The IRS will not disclose information unless authorized by you or by law. You should expect the IRS to take appropriate action against employees, return preparers and others who wrongfully use or disclose your return information.
9. The Right to Retain Representation. You have the right to retain an authorized representative of your choice to represent you in your dealings with the IRS. You have the right to seek assistance from a Low Income Taxpayer Clinic if you cannot afford representation.
10. The Right to a Fair and Just Tax System. You have the right to expect fairness from the tax system. This includes considering all facts and circumstances that might affect your underlying liabilities, ability to pay or ability to provide information timely. You have the right to receive assistance from the Taxpayer Advocate Service if you are experiencing financial difficulty or if the IRS has not resolved your tax issues properly and timely through its normal channels.

The IRS will include Publication 1 when sending you a notice on a range of issues, such as an audit or collection matter. Publication 1 is available in English and Spanish. All IRS facilities will publicly display the rights for taxpayers.

Tax Breaks for the Military

If you are in the U. S. Armed Forces, there are special tax breaks for you. For example, some types of pay are not taxable. Certain rules apply to deductions or credits that you may be able to claim that can lower your tax. In some cases, you may get more time to file your tax return. You may also get more time to pay your income tax. Here are some tips to keep in mind:

1. Deadline Extensions.  Some members of the military, such as those who serve in a combat zone, can postpone some tax deadlines. If this applies to you, you can get automatic extensions of time to file your tax return and to pay your taxes.
2. Combat Pay Exclusion.  If you serve in a combat zone, your combat pay is partially or fully tax-free. If you serve in support of a combat zone, you may also qualify for this exclusion.
3. Moving Expense Deduction.  You may be able to deduct some of your unreimbursed moving costs on Form 3903. This normally applies if the move is due to a permanent change of station.
4. Earned Income Tax Credit or EITC.  If you get nontaxable combat pay, you may choose to include it in your taxable income. Including it may boost your EITC, meaning you may owe less tax and could get a larger refund. In 2015, the maximum credit for taxpayers was $6,242. The average amount of EITC claimed was more than $2,400. Figure it both ways and choose the option that best benefits you. You may want to use tax preparation software or consult a tax professional to guide you.
5. Signing Joint Returns.  Both spouses normally must sign a joint income tax return. If your spouse is absent due to certain military duty or conditions, you may be able to sign for your spouse.  You may need a power of attorney to file a joint return. Your installation’s legal office may be able to help you.
6. Reservists’ Travel Deduction.  Reservists whose reserve-related duties take them more than 100 miles away from home can deduct their unreimbursed travel expenses on Form 2106, even if they do not itemize their deductions.
7. Uniform Deduction.  You can deduct the costs of certain uniforms that you can’t wear while off duty. This includes the costs of purchase and upkeep. You must reduce your deduction by any allowance you get for these costs.
8. ROTC Allowances.  Some amounts paid to ROTC students in advanced training are not taxable. This applies to allowances for education and subsistence. Active duty ROTC pay is taxable. For instance, pay for summer advanced camp is taxable.
9. Civilian Life.  If you leave the military and look for work, you may be able to deduct some job search expenses. You may be able to include the costs of travel, preparing a resume and job placement agency fees. Moving expenses may also qualify for a tax deduction.