update. Due to low inflation, as measured by a consumer index for urban workers, the wage ceiling for the Social Security tax will remain at $118,500 for 2016, the same as for 2015. The 6.2% Social Security tax will continue to apply to wages up to this ceiling, and the 1.45% and 2.35% Medicare tax rates will still apply to all wages. But this means that recipients of Social Security retirement benefits won’t be getting an increase in 2016, either.
Social Security changes. On Nov. 2, the president signed into the law the Bipartisan Budget Act, thereby eliminating two strategies for Social Security retirement benefits: the file-and-suspend strategy and the restricted application strategy. But some taxpayers may still be able to use one or both of these strategies for a limited time. We will have more details in next month’s issue.
Charity from IRS? Typically, you must provide written substantiation to prove charitable gifts of $250 or more, but the IRS has proposed new procedures where charities could volunteer to provide the vital information. This change would ease some of the onerous recordkeeping requirements for donors (see page 3). We’ll keep you posted on any new developments.
Most plan limits won’t budge. Due to relatively low inflation, most qualified retirement plan limits won’t change in 2016, including the following:
- The elective deferral salary reduction contribution limit for participants in 401(k), 403(b) and most 457 plans remains $18,000.
- The limit for additional catch-up contributions by participants who are age 50 or older to 401(k), 403(b) and most 457 plans remains $6,000.
- The limit for additions to defined contribution plans remains $53,000.
- The limit for contributions to a SIMPLE remains $12,500.
- The limit for additional catch-up contributions to a SIMPLE remains $3,000.
- The maximum compensation amount for qualified retirement plans remains $265,000.
Tip: Certain limits, including some phase-out ranges for deductible contributions to traditional IRAs, will increase slightly in 2016. But the IRA contribution limit remains $5,500 or $6,500 if you’re age 50 or older. (IRS Information Release IR-2015-118, 10/21/15)
E-filing is up. The IRS’ efforts to encourage e-filing in the business sector are paying off. According to the statistics released by the nation’s tax collection agency, the number of business returns e-filed rose nearly 9% this year, continuing recent growth in the number of corporate and partnership returns filed electronically. (IRS Internal News Release IR-2015-113, 8/8/15) This year, an additional 625,000 corporations and partnerships chose to e-file their tax returns. As of Sept. 20, almost 8 million corporations and partnerships have e-filed their income tax returns. The IRS estimates that e-filing accounts for 77% of all corporate and partnership returns filed during 2015.
- Small Business Tax Deduction Strategies No matches