As 2016 comes to an end, it is a good time to think of planning moves that will help lower your tax bill for this year and into the future.

Consider the following items when looking at your personal tax planning:

  1. Make use of tax deferral strategies using retirement plans - Maximize 401(k) contributions, IRA contributions, or (if applicable) plans you have set up for your small business. There are special rules on making IRA contributions for expats so ask us if you are unfamiliar with those rules.
  2. Reduce your taxable income in 2016 – maximize itemize deductions (such as charitable contributions), consider purchases for your business which could be a Section 179 deduction in 2016, etc.
  3. Consider making tax payments before April 18, 2017 if you plan to extend your filing. This can avoid penalty and interest charges.

Big Change for FBAR (foreign bank account) reporting

For those of you subject to foreign bank account reporting (i.e. those who have non-US bank accounts in excess of $10,000 in aggregate during 2016), the initial deadline for Form 114 has changed from June 30 to April 15 (June 15 for expats). Extensions are now allowed for this form similar to tax return extensions but FinCen has announced the October 15 extension for the FBAR will be automatic. More information here:

Other Deadline Changes

Starting in 2016 certain tax return due dates have changed for calendar year businesses:

  1. Partnerships have changed from April 15 to March 15
  2. C Corporation due dates changed from March 15 to April 15

New Administration – possible changes for future years

The new administration has proposed collapsing the current seven tax brackets (currently there is a top rate of 39.6%) to three brackets:

Tax rate / Married filing joint / Single
12% / Less than $75,000 / Less than $37,500
25% / $75,000–$225,000 / $37,500–$112,500
33% / More than $225,000 / More than $112,500

Further proposed changes to basic individual taxation are:

-Personal and dependent exemptions would be eliminated

-The head of household filing status would be eliminated; and

-The standard deduction would be increased to $30,000 to joint filers, and $15,000 for single filers (this may significantly reduce the number of taxpayers who itemized deductions).

Stay tuned for more information when actual legislation comes into effect.

2016 tax rules – a quick review

Income tax rates — Range from 10% to 35% unless taxable income exceeds $415,050 for singles or $466,950 for married couples. Rate on income above those amounts is 39.6%.

2016 foreign earned income exclusion – up to $101,300 of 2016 foreign earned income

2016 foreign housing exclusion – A certain amount of your housing costs (over a base amount of $16,208) can be excluded if you qualify for this exclusion. Generally, you can consider up to $30,390 in rent and utility costs. There are certain “high cost” locations where you can potentially deduct a higher amount. Those can be found near the end of this link:

Gift tax — Annual tax-free gifts allowed with $14,000 per gift limit. Gifts to non-resident alien spouse of up to $148,000 are not considered a reportable gift.

Breaks now permanent — 1) optional deduction for state and local sales tax in lieu of state and local income tax; 2) the $250 deduction for classroom supplies paid by teachers; and 3) IRA-to-charity transfer of up to $100,000 by taxpayers 70½ or older.

Itemized deductions — Limited for single taxpayers with adjusted gross income (AGI) above $259,400 and married couples with AGI above $311,300.

Alternative minimum tax — Exemption amount for 2016: $53,900 for singles; $83,800 for married filing jointly.

Business expensing — Up to $500,000 for new and used equipment and 50% bonus depreciation for new assets.

Personal exemptions — Phased out for singles with AGI above $259,400 and marrieds with AGI above $311,300.

Capital gains & dividends — Long-term gains taxed at 15% for most taxpayers. Zero percent for those in 10% and 15% ordinary income brackets; 20% for those in 39.6% ordinary income bracket.

Medicare tax on earned income — Medicare surtax of 0.9% imposed on wages and self-employment income exceeding $200,000 for singles and $250,000 for married couples.

Net investment income tax — A 3.8% tax imposed on unearned income for singles with modified AGI exceeding $200,000 and for couples with modified AGI exceeding $250,000.

We look forward to working with you on your 2016 taxes.