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TAX RESOURCES

2016 TAX CODE UPDATES

B Y J O N AT H A N M E D O W S

Every year the tax code changes slightly: for 2016, there are
a number of important updates that may affect you and your
freelance business. To help you get a handle on them, check out
this handy Freelancer Tax Checklist.
1. UNPAID TAXES? KISS YOUR PASSPORT GOODBYE.
As part of the Highway Funding Bill that was passed last year, a new law went into effect on January 1, 2016 which
gives the IRS the power to revoke or deny your passport in cases of certain unpaid taxes. Under this new regulation,
if the IRS has filed a lien or levy against you due to unpaid taxes and you have not yet worked out a repayment plan
to satisfy your tax debt, you may have to cancel that spring break trip outside of the country—because you may lose
your travel documents. Limited exceptions exist for taxpayers who are actively disputing their IRS case or who are
required to travel for emergency or humanitarian purposes.

2. THE IRS IS TAKING NEW STEPS TO PROTECT YOUR DATA.

Under new policies announced by the IRS, taxpayers may receive a letter when the service stops suspicious tax
returns that have indications of involving identity theft but contain legitimate taxpayer’s name and/or Social Security
number. The IRS has agreed to reverse its policy and provide identity theft victims with copies of the fraudulent tax
return that has been filed under their name by criminals, so they can take the proper steps to secure their personal
information.

3. TAX DAY SHIFTS TO APRIL 18 THIS YEAR.

In observance of Emancipation Day on Friday, April 15, 2016, taxpayers will have until April 18, 2016, to file their
2015 individual returns and make their first 2016 estimated tax payment.

4. OBAMACARE PENALTIES INCREASE FOR INDIVIDUALS.

For 2015, the individual mandate penalty increases to the higher of two percent of yearly household income or
$325 person per year, with a maximum penalty per family for those using this method of $975. The penalties will
increase again in 2016. In addition, federal poverty level guidelines, used to determine if the individual qualifies for
subsidized health insurance, have increased.

5. SOCIAL SECURITY THRESHOLD AMOUNTS WILL STAY THE SAME IN 2016.

The wage base on which the government collects Social Security taxes will stay at 2015’s level of $118,500, and the
earned-income limits for those who take benefits before full retirement age will stay at $15,720 for those younger
than full retirement age all year and $41,880 for those who hit their full retirement age during 2016.

6. THE SUPREME COURT RULING ON SAME-SEX MARRIAGE IMPACTS JOINT TAX RETURNS.
All states must now recognize all married couples in the same way for state income tax purposes, regardless of
gender. This will impact the ability to file joint income tax returns, the ability to transfer property to each other tax-
free, the ability to leave an estate to the spouse without gift tax implications, and spousal treatment of inherited IRAs.
7. STANDARD DEDUCTION CHANGES.
According to the IRS, approximately two out of every three taxpayers claim the standard deduction on their income
tax returns, which makes these changes notable. For 2016, there is a change to the standard deduction amounts for
heads of households. The standard deductions are as follows:

• Single (Unmarried Individuals): $6,300 (no change)

• Married Filing Separately: $6,300 (no change)
• Head of Household: $9,350, an increase of $150
• Married Taxpayers Filing Jointly and Qualifying Widow(er)s: $12,600 (no change)

Personal exemptions will be $4,050 in 2016, up from $4,000 in 2015. The Alternative Minimum Tax exemption
amount in 2016 is $53,900 for singles and $83,800 for married couples filing jointly (up by $300 and $400,
respectively, compared to 2015 exemptions).

Other key changes include:

• The maximum Earned Income Credit amount is $6,269 for taxpayers filing jointly who have three or more
qualifying children in 2016, up from $6,242 for 2015.
• The monthly limit for the transportation benefits remains $130 for transportation, but rises to $255 for qualified
parking in 2016, up from $250 for tax year 2015.
• The foreign earned income exclusion is $101,300 for 2016, up from $100,800 in 2015.

8. TAX CREDIT AND DEDUCTION EXTENDERS.

President Obama recently signed into law the tax extenders package which includes raising the fiscal 2015 cap for
the Section 179 deduction (applicable to purchases such as computers, furniture, vehicles, and other equipment)
from the existing $25,000 to the $500,000 level it was at from 2010 to 2014. So go ahead and invest in your business
knowing that qualified expenses can be deducted on next year’s tax return.

9. NEW FORMS FOR OBAMACARE.

If you have even one employee this applies to you. Form 1095-B and Form 1095-C, which were optional for
calendar year 2014, but they must be filed by any person that provides minimum essential coverage to an individual
(1095-B) and by applicable large employers (Form 1095-C) who had on average at least 50 full-time equivalent
employees (FTEs) during calendar year 2014 or small employers who are member of a controlled group that
collectively had at least 50 FTEs and who offer an insured or self-insured plan or no group health plan at all.

Disclaimer: This is meant as a guide, not professional advice. If you have any questions about your taxes or your
deductions, hire an accountant or ask a tax professional.

Jonathan Medows is a New York City based CPA who specializes in taxes and business issues for consultants across the country. His
website, www.cpaforfreelancers.com, has a resource section with how-to articles and information for freelancers.