Accuratecpaservices | 2016 Tax Brackets Preview
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2016 Tax Brackets Preview

2016 Tax Brackets Preview

Whether you believe the current level of taxation on U.S. citizens is the right amount or not, it’s important to understand how the upcoming year’s tax brackets and deduction calculations will affect your individual tax liability.

Whether you believe the current level of taxation on U.S. citizens is the right amount or not, it’s important to understand how the upcoming year’s tax brackets and deduction calculations will affect your individual tax liability.

Whether you believe the current level of taxation on U.S. citizens is the right amount or not, it’s important to understand how the upcoming year’s tax brackets and deduction calculations will affect your individual tax liability.

Every year, after the CPI (Consumer Price Index) for the year has been calculated by the U.S. Bureau of Labor & Statistics, the IRS takes that official figure and adjusts approximately 40 different items and calculations in the Federal Tax Code to reflect the current level of inflation. The reason to recalculate each year, based on the level of inflation from the previous year, is to prevent something called “bracket creep” – which occurs when an individual is pushed into a higher tax bracket without experiencing any actual increase in real earnings.

In the case of a year of high inflation, the adjustments can mean tax savings for you, because it means higher levels of deductions and exemptions, as well as raising the income thresholds where higher taxes are assessed. Most taxpayers do benefit when inflation occurs, as it allows for a larger amount of income to be taxed at the lower rates.

For 2016 tax calculations, however, the CPI rose only 0.2%, largely on the decline of gasoline prices over the past year. So while brackets and deductions have been adjusted upwards, the change is slight.

As slight as the increase may be, it does mean actual, real savings for every taxpayer. A couple making $100,000 in 2016 will pay $45 less in taxes than they paid for tax-year 2015

The standard deduction for individuals and married couples has not increased for 2016.

Single taxpayer: $6,300

Married couple filing jointly: $12,600

The personal exemption has been increased, to $4,050 per person, from $4,000 in 2015. This means an additional $200 in income sheltered from taxes for a family of 4. Note, however, that this exemption does phase out as you get into the higher income levels.

The maximum Earned Income Tax Credit (EITC) has been raised from $6,242 in 2015 to $6,269 in 2016, for taxpayers with 3 or more qualifying children.

Other CPI adjustments in the income-tax calculations include changes in the Pease limitations for higher-income earners, which have to do with the amount of itemized deductions you can take, and in the Alternative Minimum Tax (AMT), which was permanently linked to inflation in the American Taxpayer Relief Act of 2012.

So your tax savings due to CPI adjustment does exist, although it is quite small. This is not necessarily a bad thing, however, because it reflects the country’s low inflation due to the extraordinary drop in oil prices this past year. And the lower gas prices are probably having a far greater effect on your monthly budget than the tax-code adjustments will.

You can use these numbers in your tax-planning for calendar year 2016, by adjusting your withholding, or modifying your charitable deductions, or planning your income. Be sure to talk a qualified tax preparer to get the expert help you need.

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