Top 10 Changes to the 2016 1040 Tax Form

The IRS has released a number of draft tax forms and instructions for the 2016 tax year, including Form 1040 and its related schedules. This article highlights some of the key changes made on the 2016 return. Click here for the June 17, 2016 draft of 2016 Form 1040, U.S. Individual Income Tax Return. Click here for the Oct. 7, 2016 draft instructions to Form 1040.

  1. Educator Expenses: Beginning in 2016, the $250 maximum per educator deduction can include certain expenses for professional development courses related to the curriculum, or to the students, that the educator teaches.
  1. IRA deduction: Generally, an individual who isn’t an active participant in certain employer-sponsored retirement plans, and whose spouse isn’t an active participant, may make an annual deductible contribution to an IRA up to the lesser of: (1) a statutory dollar limit, or (2) 100% of the compensation that’s includible in his/her gross income for that year. For 2016, the statutory dollar limit is the same as it was for 2015 – $5,500, plus an additional $1,000 for those age 50 or older at the end of the year. If the individual (or spouse) is an active plan participant, the deduction phases out over a range of modified AGI (MAGI). For 2016, a taxpayer may be able to take an IRA deduction if he/she was covered by a retirement plan and his/her 2016 MAGI is less than $71,000 ($118,000 if married filing jointly or qualifying widow(er)). If the taxpayer’s spouse was covered by a retirement plan, but the taxpayer was not, he/she may be able to take an IRA deduction if 2016 MAGI is less than $194,000.
  1. Standard Deduction: For 2016, the standard deduction is $6,300 for single filers and for married persons filing separately, $12,600 for joint filers and qualifying widow(er)s, and $9,300 for heads of household.
  1. Exemptions: The 2016 exemption per individual is $4,050. Exemptions are reduced for taxpayers with AGI in excess of the applicable threshold amount ($311,300 for joint filers or a surviving spouse, $285,350 for head of household, $259,400 for single individuals, and $155,650 for married taxpayers filing separately).
  1. Alternative minimum tax: The alternative minimum tax (AMT) exemption amount for 2016 is $53,900 for a single taxpayer, $83,800 if married filing jointly or a qualifying widow(er), or $41,900 if married filing separately. The AMT exemption amount is reduced if alternative minimum taxable income exceeds threshold amounts that vary by filing status.
  1. Self-employment tax: The maximum amount of self-employment income subject to Social Security (OASDI) tax in 2016 is $118,500; there is no maximum on Medicare wage base.
  1. Health care – individual responsibility: The monthly shared responsibility payment amount has increased for 2016.  As in 2015, a taxpayer must either:
  • indicate that he/she, spouse (if filing jointly) and dependents had health care coverage for all of 2016;
  • claim an exemption from the health care coverage requirement for some or all of 2016 and attach Form 8965; or
  • make a “shared responsibility payment” if, for any month in 2016, the taxpayer, spouse (if filing jointly) or dependents did not have coverage and do not qualify for a coverage exemption.
  1. Limit on itemized deductions: Itemized deductions for taxpayers with AGI in excess of the applicable threshold ($311,300 for joint filers or a surviving spouse, $285,350 for a head of household, $259,400 for a single individual who isn’t a surviving spouse, and $155,650 for married taxpayers filing separately) may be reduced. The reduction is 3% of the amount that exceeds the threshold, not to exceed 80% of otherwise allowable deductions. The limitation does not apply to medical expenses, investment interest expense, or casualty, theft or gambling losses.
  1. Schedule C Car and Truck Expenses: The 2016 standard mileage rate for business travel is 54¢ per mile (down from 57.5¢ per mile in 2015).
  1. Depreciation: For tax years beginning in 2016, the maximum section 179 expense deduction is $500,000 ($535,000 for qualified enterprise zone property). This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,010,000.

BONUS:   There are new diligence requirements for tax preparers with regards to the Child Tax Credit, and the American Opportunity Credit for qualified education expenses.  Don’t be surprised if your tax preparer will require more details and supporting documentation to claim these credits than in prior years.

If you have any questions regarding the draft form 1040 and it’s changes, please contact our office at or 703.385.8888.

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