What’s New

Child and dependent care credit amounts and Child tax credit: The maximum amount of child and dependent care expenses eligible for the credit is now $3,000 if you have one child, or $6,000 if you have two or more children. These increased amounts are permanent. Child tax credit has been made permanent at $1,000 per child. You must reduce the maximum credit amount of $1,000 for each child if your modified adjusted gross income (AGI) is more than certain amount by your filing status. Plus, starting in 2016, if you claim a foreign earned income or housing exclusion, you cannot claim the refundable portion of the child tax credit, also known as the additional child tax credit.

Kiddie tax rules: The amount of unearned income certain children can have before they pay tax at their parents’ rates has gone up. Children can now have up to $2,100 in unearned income before they are subject to “kiddie tax” rules. Depending on the child’s age and whether he or she is a student, kiddie tax rules may apply to children up to age 23. If the child’s only income is interest and dividend income (including capital gain distributions) and totals less than $10,500, the child’s parent may be able to elect to include that income on the parent’s return rather than file a return for the child.

Home office deduction: Beginning in tax year 2013 (returns filed in 2014), taxpayers may use a simplified option when figuring the deduction for business use of their home.  Note: This simplified option does not change the criteria for who may claim a home office deduction. It merely simplifies the calculation and recordkeeping requirements of the allowable deduction. The simplified option is Standard deduction of $5 per square foot of home used for business (maximum 300 square feet).

Standard mileage rate: For 2016: For 2016: The standard mileage rates for the use of your car or other vehicle is 54 cents per mile for business, 19 cents per mile driven for medical or moving purposes and 14 cents per mile for charitable travel which is the same as 2015. For 2017, the standard mileage rates for the use of your car or other vehicle is 53.5 cents per mile for business, 17 cents per mile driven for medical or moving purposes and 14 cents per mile for charitable travel.

Contribution limits for flexible spending accounts: The most you can contribute to one of these plans remains at $2,550. Your spouse can also contribute $2,550 if he or she meets the qualifications. For certain FSAs, up to $500 can now be carried over to the next year. An employee who chooses to participate can contribute up to $2,600 during the 2017 plan year

Retirement Plan Contribution Limit: For 2015 and 2016, your total contributions to all of your traditional and Roth IRAs cannot be more than $5,500 ($6,500 if you’re age 50 or older), or your taxable compensation for the year, if your compensation was less than this dollar limit. The limit on employee elective deferrals (401(k) ) is: $18,000 ($24,000 if you’re age 50 or older) in 2015 and 2016 (the $18,000 amount may be increased in future years for cost-of-living adjustments). Contributions an employer can make to an employee’s SEP-IRA cannot exceed the lesser of 25% of the employee’s compensation, or $53,000 for 2015 and 2016. For 2016 IRA and Roth IRA Deduction Limits – Effect of Modified AGI on Deduction, please refer to http://clotax.com/individuals/third/194-2/

IRA to charity exclusion: The IRA qualified charitable distribution (QCD) provision has been extended. If you are age 70 ½ or older, this exclusion allows you to make direct distributions from your traditional IRA to a charity without recognizing the distribution as income. (You cannot take a charitable deduction.)

Direct deposits of refund to a myRA® account. You now can have your re-fund directly deposited to a new retire-ment savings program called myRA®. This is a starter retirement account offered by the Department of the Treasury. See the instructions for lines 76a through 76d. For more information and to open a myRA account online, visit www.myRA.gov.

Education Savings Bond Interest Exclusion

Education Saving bond interest exclusion are Single and head of household – MAGI of $77,550 to $92,550 and Married filing jointly or qualifying widow(er) – $116,300 to $146,300.

Adoption Credit/Exclusion

In 2016, the maximum adoption credit is $13,460 per child. The amount of the adoption credit or excludable assistance, however, is phased out for taxpayers whose 2016 modified adjusted gross income (MAGI) exceeds $201,920 and is eliminated for taxpayers whose MAGI is $241,920 or more.

Residential energy credit. Beginning in 2016, exterior doors, exterior windows and skylights will only be eligible for the nonbusiness energy property credit if they meet or exceed the specific requirements of the version 6.0 Energy Star program.