As accountants gear up for the 2015 tax return season, CPAs and others must also take time to understand new tax laws for 2016. Among other changes, tax deductions are getting an overhaul, and the new standard deductions make it possible that clients won’t need to itemize to save the most on tax returns in early 2017.
The standard deduction for 2016 isn’t changing for everyone. Married couples who file together have a standard deduction of $12,600 total, and the deduction for single filers is $6,300. The standard tax deduction for someone filing head of household in 2016 goes up to $9,300, which is $50 more than 2015's deduction. A surviving spouse can claim the $12,600 if they meet IRS qualifications: his or her spouse passed away in the past two years and there is a dependent child living at home.
Professional tax preparers should keep up with all possible tax deductions to help clients save money, especially on complex tax returns. When assisting blind or elderly taxpayers, for example, accountants can take advantage of additions to standard deductions. Individuals older than 65 years of age in 2015 can take an additional deduction of $1,550 if they are filing as head of household or single. Joint filers and surviving spouses can add a deduction of $1,250, and blind individuals can claim the same extra deductions. Someone who is both blind and over age 65 can double up on those deductions.
Because standard deductions are relatively easy to apply, they are often easier on taxpayers than itemized deductions. Even when itemized tax deductions are slightly higher than the standard deduction, the work and risk of filing a return with such items might not be worth it — especially if the taxpayer doesn’t have immaculate records. Itemized deductions are preferable when substantial savings make it worth the risk or when additional deductions bring the return into a lower tax bracket.
Tax deductions aren’t the only changes made for 2016. The IRS updated income brackets to account for inflation. The changes shifted thresholds up by a couple thousand dollars for several tax brackets, making the cut off for the highest tax bracket $415,050 for single filers and $466,950 for married filers. Single filers in the highest tax bracket owe $120,529.75 plus 39.6 percent on income over $415,050. For such taxpayers, itemized tax deductions that add down to a lower tax bracket are usually preferable to standard deductions. Accountants handling wealth management services throughout the year for such clients can assist further by keeping records of expenses that can be itemized so tax time is less stressful.
Whether dealing with straightforward or complex tax returns, accountants and other tax professionals must understand tax deductions. No one answer exists to the question of which filing type is better. As such, professionals must know how to evaluate circumstances and choose wisely between itemized or standard deductions.
Photo courtesy of Stuart Miles at FreeDigitalPhotos.net
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