(Author’s note: For a refresher on the official 2015 tax rates, click here.)
The U.S. Bureau of Labor Statistics reported today that the consumer price index (CPI) has dropped off by just .1% for the month of August. The index for all items less food and energy increased 0.1% in August, the same as the previous month. So what’s the reason for the dip? A sharp decline in the price of gasoline: before seasonal adjustment, gasoline prices declined 5.4% in August. Overall, however, over the last 12 months, the all items index rose 0.2% before seasonal adjustment.
The CPI measures the cost of goods and services. When the CPI doesn’t change much, it tends to signal that interest rates will stay put. This is important for taxpayers because the Tax Code provides for mandatory annual adjustments to certain tax items based on inflation. Of those tax items subject to mandatory annual adjustments, federal income tax brackets tend to get the most attention since have been subject to adjustment for nearly 30 years. However, inflation adjustments are now routinely included in new tax legislation which can be confusing for taxpayers. Luckily, there are tax professionals out there who can sort it all out for you.
Today, Bloomberg BNA released their predictions for the coming tax year and they’re betting on the idea that most taxpayers will find a little bit of relief in 2016. According to Bloomberg BNA, taxpayers whose income is the same compared to last year may enjoy a lower effective tax rate – and a lower tax bill – because of the inflation adjustments.
How does that translate into real life dollars? Here’s what you need to know…
The slightly higher annual CPI means that brackets (not rates) will nudge upward. Together with increases in the standard deduction and exemption amounts, taxes should decrease for many taxpayers.
(To see the brackets as images, click here.)
For 2016, the personal exemption amount is projected to be $4,050, up from $4,000 in 2015. For high-income taxpayers, the personal exemption deduction is phased out.
For 2016, the amount of the standard deduction is up slightly for Head of Household only. About 2/3 of all taxpayers will file using the standard deduction: those taxpayers who have more in itemized deductions than the standard deduction amount will file a Schedule A.
Alternative Minimum Tax (AMT)
You may recall that I was shocked in 2013 when, instead of the “band-aid” treatment for taxpayers, the AMT exemption rate was permanently subject to inflation. We’ll see that adjustment play out again in 2016.
Federal Estate Tax Exclusion
The federal estate tax exclusion for decedents dying in 2015 was $5.43 million each or, with portability, $10.86 million per married couple. [entity display=”Bloomberg” type=”organization” subtype=”company” active=”false” key=”bloomberg” natural_id=”fred/company/11849″]Bloomberg[/entity] BNA projects this amount will edge up to $5.45 million each in 2016, making the total for married couple a whopping $10.9 million.
Gift Tax Exclusion
Nothing to see here, folks: once again, the annual exclusion for federal gift tax purposes will remain at $14,000 in 2016 (same as in 2014 and 2015).
The 2016 tax projections are just one of the features from Bloomberg BNA. The full report – with lots more info including 320 figures based on the Tax Code – is available online here (downloads as a pdf).
Bloomberg BNA, a wholly owned subsidiary of Bloomberg, is a leading source of legal, regulatory, and business information for professionals. Its network of more than 2,500 reporters, correspondents, and leading practitioners delivers expert analysis, news, practice tools, and guidance — the information that matters most to professionals. Bloomberg BNA’s authoritative coverage spans a full range of legal practice areas, including tax & accounting, labor & employment, intellectual property, banking & securities, employee benefits, health care, privacy & data security, human resources, and environment, health & safety.
It’s worth noting that these are just projections. Granted, they’re educated projections and the folks at Bloomberg BNA have been doing this awhile but still: don’t count your tax chickens before they hatch. The IRS will publish the official rates and tax preference items for 2016 later this year. It happens every year – generally in October – and you can bet that I’ll have all of the information for you here with Forbes. Keep reading!Want more taxgirl goodness? Pick your poison: You can receive posts by email, follow me on twitter (@taxgirl) hang out with me on Facebook and check out my YouTube channel.