Here’s a quick review of some of the rules you can expect to encounter when you get ready to prepare your 2016 federal income tax return.
Income tax rates. For 2016, ordinary federal income tax rates range from 10% to 35% unless your taxable income exceeds $415,050 when you’re single or $466,950 if you’re married filing jointly. The rate on income above those amounts is 39.6%.
Tax breaks that are now permanent. Three tax breaks you’ll be able to take on your 2016 return, and on future returns: 1) The optional deduction for state and local sales tax in lieu of state and local income tax; 2) the $250 deduction for classroom supplies if you’re an educator; and 3) IRA-to-charity transfers of up to $100,000 when you’re 70½ or older.
Itemized deductions and personal exemption phase-outs. For 2016, itemized deductions and personal exemptions are limited when you file as single and your adjusted gross income (AGI) is above $259,400. The limitation begins with AGI above $311,300 for married couples filing jointly.
Alternative minimum tax. The exemption amount for 2016 is $53,900 for singles and $83,800 for married filing jointly.
Capital gains and dividends. Long-term gains are generally taxed at 15%. The rate is zero percent if you’re in the 10% and 15% ordinary income brackets, and 20% when you’re in the 39.6% ordinary income bracket.
Affordable Care Act surtaxes. You’ll pay a Medicare surtax of 0.9% on wages and self-employment income exceeding $200,000 when you’re single and $250,000 when you’re married filing jointly. For unearned income, you’ll pay the 3.8% net investment income tax when you’re single and your modified AGI exceeds $200,000. If you’re married filing jointly, the net investment income tax is imposed when your modified AGI exceeds $250,000.