03/15/2016
Previous | Next | Personal Finance Home | Career Corner | Health | Issues
This tax season brings changes you should know about as you’re preparing your 2015 return and planning for 2016 and beyond. Here are five areas to keep in mind.
There’s a delayed filing date.
If you’re a procrastinator filing at the last minute, this year you have more time. Because Friday, April 15 is a federal holiday, your 2015 income tax return is due the following Monday, April 18. This is also the due date to file for an extension until Oct. 15 or to make an IRA contribution for 2015.
“The due date to file your return or for an extension may also be affected by state law,” says Robert Fishbein, a vice president and general counsel at Prudential Financial. For example, if you live in Maine or Massachusetts, Monday April 18 is a state holiday and you don’t have to file returns until the 19th. But be careful, Fishbein warns, as the delayed filing date for the 2015 returns may not delay when you must make estimated tax payments.
There are new steps for fighting fraud and ID theft.
Tax return preparation software may now require you to provide your driver’s license number for the IRS and state tax agencies to combat tax return fraud. “The rules here are tricky,” says Fishbein. “You have no legal obligation to provide that information or to have a driver’s license to file a tax return. But depending on your software, you may need to provide information to file your return. It’s possible that withholding your driver’s license will slow the process.”
Another new anti-ID theft/fraud measure is a 16-digit verification code for online filers. If the code is on your Form W-2, you’ll need to enter it when prompted by your tax software program. If you fail to provide the code, you won’t be able to e-file your return. “Not all Form W-2s will have the code,” Fishbein notes.
Note health care reporting changes.
Again this year you must report “minimum essential coverage,” or MEC. If you indicate so on line 61 of your Form 1040, you won’t be subject to a penalty tax. This is the first year employers are required to report if coverage qualifies as MEC, and they must send the applicable form to you by March 31, 2016. “Of course, for early filers this means you may not have evidence of your coverage qualifying as MEC,” Fishbein says. “But assuming you know that you have MEC, you can still complete line 61 and file your return.”
If you do not have MEC, you must pay the penalty tax — currently $325 per adult and $162.50 per child, up to a maximum of $975 — for each month you weren’t covered, unless you can demonstrate you’re eligible for an exemption. Examples include if coverage is considered unaffordable (more than 8 percent of household income per person), if you had a short coverage gap (fewer than three months), or if your income is below the tax return filing threshold.
Watch for retroactive reinstatements.
Until the end of 2014, taxpayers had been permitted for some time to deduct the greater of their state income tax or their state sales tax. This helped residents of states, such as Florida and Texas, that don’t have an income tax. The Protecting Americans from Tax Hikes Act of 2015 retroactively extended this provision for 2015. For those who have not tracked their state sales tax payments, there’s a table that provides a safe harbor deduction based on income. Also, the sales tax from the 2015 purchase of a new automobile can be added to the sales tax from the table.
Also reinstated retroactively to the beginning of 2015 is a provision allowing distributions from an IRA to be paid directly to a charity and excluded from income. “The amount donated to charity will avoid income tax,” Fishbein says. Without this provision, an individual would have to include the amount in income and take a charitable deduction that might not entirely offset the income amount. This provision is available up to $100,000 of charitable donations in a calendar year. You must be 70 ½ or older and required to take IRA distributions.
Roth recharacterizations may affect you.
If you converted a traditional IRA to a Roth IRA in 2015, and if the converted investment has declined in value, you can recharacterize that amount and not pay income tax on an amount greater than the current value. “The law allows this type of ‘do over’ option when you convert to a Roth IRA,” Fishbein explains. “For a 2015 conversion, you must recharacterize on or before Oct. 15, 2016 and not convert again to a Roth IRA until 2017.”
Courtesy of Brandpoint
Prudential Financial, its affiliates, and their financial professionals do not render tax or legal advice. Please consult with your tax and legal advisors regarding your personal circumstances. Prudential Financial Inc. Newark, NJ 0288797-00001-00
© 2016 BrandpointThe views and opinions expressed in these articles do not necessarily reflect those of College Central Network, Inc. or its affiliates. Reference to any company, organization, product, or service does not constitute endorsement by College Central Network, Inc., its affiliates or associated companies. The information provided is not intended to replace the advice or guidance of your legal, financial, or medical professional.