Many people who violate tax laws don't do so intentionally. They may not be aware of current laws. After all, the Internal Revenue Service makes changes every year. This year is no exception. Lawmakers have until the end of the year to decide whether certain tax provisions will be renewed, so it's essential to know the current tax laws if you're doing your own taxes.
Following are some of the biggest changes thus far that could impact your 2016 taxes. Some may be beneficial to you, while others may not affect you at all or might potentially have a negative effect. Regardless, to avoid over- or underpaying, it's best to be informed.
Under the Affordable Care Act (what some people still refer to as Obamacare), you may be subject to a tax penalty if you don't have health insurance. Those penalties started out relatively low in the early years after the ACA went into effect. However, they have been increasing annually. For tax year 2016, the penalty will be almost $700 per adult, with a family maximum of over $2,000.
The income level at which people are exempt from having to pay the alternative minimum tax is increasing to $53,900 for people filing as a single person and to $83,800 for joint filers. The AMT was implemented to help prevent those making a considerable amount of money from finding loopholes to avoid paying their fair share of taxes. However, in the early days of the AMT, some middle-class taxpayers were impacted by it. The minimum level is now automatically increased each year.
Some other limits are rising in order to adjust for inflation. These include:
-- Tax brackets
-- Personal exemptions
-- Estate tax exemptions
-- Earned Income Credit
-- Standard deductions for those filing as head of household
-- The limit on pretax contributions to health savings accounts
Knowing the current tax laws can help you avoid costly fines and potentially even legal problems with the IRS. While the penalties are generally more serious if the IRS believes that a person intentionally avoided paying the taxes they owe, it's still best to avoid tangling with them altogether.
Source: USA Today, "10 biggest income tax changes to plan for in 2016," Dan Caplinger, The Motley Fool, accessed Sep. 15, 2016