'Tis the season to ... consider your 2016 income taxes? Few people enjoy thinking about their taxes in advance, but now is an excellent time to do so.
The IRS recently announced that January 23, 2017, would be the first day that forms for tax year 2016 might be filed electronically, the expected preference for over 80 percent of taxpayers. That's also the first day that paper returns will be processed.
Take a holiday breather and make sure the records are coming together for your 2016 tax filings, while looking ahead to how your taxes may be affected in the New Year. Think of it as an exercise in having the extra funds to put another present under next year's tree.
Brackets and adjustments
The tax brackets for the 2017 tax year (the forms you will file in early 2018) are the same as for the 2016 tax year: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent, and 39.6 percent. The president-elect has stated plans to shrink the tax brackets to three (12 percent, 25 percent, and 33 percent) and adjust the threshold income values, but these are the proper number to use for planning purposes until the incoming Trump administration and Congress agree to make any changes.
For this year's filings (2016 tax year), the threshold income values for those married filing jointly are $18,551 (15 percent), $75,301 (25 percent), $151,901 (28 percent), $231,451 (33 percent), $413,501 (35 percent), and $466,950 (39.6 percent). Thanks to inflation, 2017 thresholds will rise to $18,651, $75,901, $153,101, $233,351, $416,701, and $470,701 respectively.
Individual taxpayer thresholds for the 2016 tax year are $9,276 (15 percent), $37,651 (25 percent), $91,151 (28 percent), $190,151 (33 percent), $413,351 (35 percent), and $415,051 (39.6 percent). Inflation-adjusted thresholds for 2017 will be $9,326, $37,951, $91,901, $191,651, $416,701, and $418,401 respectively.
The standard deduction for married taxpayers filing jointly is $12,600 in the 2016 tax year, rising to $12,700 in the 2017 tax year. Single taxpayers and married couples filing separately may claim a $6,300 deduction for the 2016 tax year and $6,350 in the 2017 tax year.
If you are near a threshold value, either current or proposed by the president-elect, you may want to increase your withholding rate — but don't go overboard. Read on to find out why.
Watch your refund
Are you expecting a tax refund this year? The majority of filers should, according to past IRS statistics. Out of the nearly 152 million returns processed last year, almost 111 million resulted in refunds. Total refunds for tax year 2015 were just over $317 billion, with an average refund of $2,857.
That's great news in many respects — until you realize that you have effectively loaned your refund amount to the government interest-free. As much fun as it can be to get a refund, it's more efficient and economical to balance out your withholdings as precisely as possible so you owe nothing or very little in taxes. Why not make the interest on the extra withholding yourself?
Assuming you do get a refund, you can track its progress using the IRS program named — wait for it — "Where's My Refund?" With your Social Security Number or Individual Tax Identification Number (ITIN), filing status, and exact refund amount expected, you can check your refund status within 24 hours after an e-return has been received or four weeks after mailing a traditional paper return. You may also check your refund status on a mobile device using the IRS2Go app. Just don't forget to claim it, as many of your fellow taxpayers never put in for the refunds they have earned.
Expect approximately three weeks for refunds to be processed and received, although some may wait longer. The IRS announced that, due to a new law, refunds that claim the Additional Child Tax Credit (ACTC) and the Earned Income Tax Credit (EITC) must be held until February 15. Including processing time, weekends, and holidays, it could be the week of February 27 until refunds are available to these taxpayers, prompting IRS Commissioner John Koskinen to say, "For this tax season, it's more important than ever for taxpayers to plan ahead."
It's still not enough, apparently
How much money does the government receive in taxes? Government revenues rose from just under $3.25 trillion in the 2015 fiscal year to $3.267 trillion in the 2016 fiscal year. Individual income taxes comprised just under $1.55 trillion of that total.
Unfortunately, with corresponding outlays of $3.854 trillion, we are left with a $587 billion deficit for fiscal 2016. Cutting this deficit seems unlikely in 2017 for several reasons. First, it hasn't been done since 2001, regardless of which party has controlled the White House or Congress. Next, the incoming president has promised to cut taxes massively while rebuilding the nation's infrastructure. Finally, he has indicated an unwillingness to trim Social Security benefits. Put it all together and we have a recipe for continuing — and quite possibly expanding — deficit spending.
Are you a tax procrastinator who cares more about the end of tax season than the beginning? As in 2016, the filing deadline extends past the traditional date of April 15. The filing deadline is normally moved to the following Monday in that case, but the District of Columbia's celebration of Emancipation Day on April 17 moves the filing deadline one more day to Tuesday, April 18.
In the previous filing season, the IRS processed almost 152 million returns. According to Commissioner Koskinen, the agency expects to process over 150 million tax returns in the upcoming tax year as well. If you're expecting a refund, it doesn't pay to procrastinate and risk being caught in the middle of millions of last-minute returns. However, if you have to pay taxes, there's no harm in waiting to file closer to the deadline — just don't wait until the very last minute in case either you or the IRS run into last-minute technical problems. Taxpayers can usually get an extension on their return, but they must still pay taxes owed by the deadline or incur interest and penalties.
Sure, you can wait until mid-April and then frantically take your shoebox full of crumpled receipts into your local tax preparer, begging for help — but why would you wait? Pre-season planning can help you and your tax preparer thoroughly investigate all the deductions and credits available to you to help you get the most out of your refund. In fact, there are things you could do today to save on this year's taxes. File nearer the deadline if you want, but have your taxes prepared early in any case.
Find some time amid the hectic holiday to take a few simple steps and make your life easier as tax filing season kicks in. Even better, get in the habit of organizing your tax materials throughout the year in order to make the next season go as smoothly as possible. Nobody enjoys going through the dreaded crumpled receipt shoebox, whether the filing deadline is a few months or a few hours away.
This article was provided by our partners at MoneyTips.