Inflation adjustments to 2016 tax brackets

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

Inflation in 2015 has been negligible. That means the tax provisions that are adjusted each year to account for inflation aren’t changing that much.

But in the tax world, every little bit helps. And the 2016 inflation adjustments just announced by the IRS mean that most taxpayers will see some changes.

Tax bracket tweaks

The 7 existing tax brackets are the same in 2016, but the amount of money that falls into each will change a bit in 2016. And those inflation increases mean that you can earn a little more in each bracket and stay at the same tax rate.

Increased exemptions

The good exemption news is that every taxpayer gets to claim a specific dollar amount, along with the same amount for all dependents, to help reduce their adjusted gross income. In 2016, the exemption amount goes up $50 to $4,050.

Note, however, wealthier taxpayers could lose the value of exemptions. It starts phasing out at $259,400 for single taxpayers and $311,300 for married couples filing jointly. It disappears totally when a single filer’s income hits $381,900 or $433,800 for married couples filing jointly.

More to deduct

If you claim the standard deduction, and most taxpayers do, you’ll be able to reduce your adjusted gross income a bit more on your 2016 taxes.

The standard deduction is based on your tax-filing status. For single taxpayers and couples who file separate returns, it’s $6,300. Married jointly filing couples get double that: $12,600. Head of household taxpayers can claim a $9,300 standard deduction amount in 2016.

Don’t confuse 2015, 2016 figures

Remember, these amounts affect 2016 taxes that you’ll file in 2017. Inflation adjustments for 2015 were issued by the IRS back in November 2014.

But the 2016 numbers are good to have handy as you plan your strategies to keep next year’s tax bill as low as possible.

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.