At some point during
each tax season, there is a moment when I notice a recurring
trend or theme that is unique and
fascinating to that specific tax season. So what is this year's most
For the 2016 tax season, what I found most fascinating
is the number of clients who instructed me to allocate $3 of their tax liability
to the Presidential Election Campaign Fund. With all the election craziness going on this year, more of my clients checked the Yes box in our Tax
Organizer to the question about contributing to the Presidential Election
Campaign Fund than have done so during all of my prior 25+ years of practice combined.
While most taxpayers aren't even
aware that this option exists, there is a box to check on the top right of the
first page of the
Form 1040 to designate $3 of your federal tax liability to be
earmarked for this fund. For joint filers, there is a second box for your spouse to
check as well.
Please note that checking this box does not increase
your tax liability by $3. Instead, the federal government simply allocates
$3 from your total tax liability to the Presidential Election Campaign Fund.
While your specific vote will
probably never be the one vote to determine the outcome of an election, taking
time to actually vote is critical to our democracy. Same goes for the $3 you allocate to this
fund that won't be enough on its own to make or break anyone's campaign. However, having these campaign
funds available might make a difference to a candidate who is neither a
billionaire nor entrenched as part of the political establishment. Who
knows, maybe one day someone as far removed from the political scene as a former surgeon
can go on to become president of the United States thanks in part to these public campaign funds.
According to the instructions to
the Form 1040:
Presidential Election Campaign Fund
This fund helps pay for Presidential election campaigns.
The fund reduces candidates' dependence on large
contributions from individuals and groups and places
candidates on an equal financial footing in the general
election. The fund also helps pay for pediatric medical
research. If you want $3 to go to this fund, check the
box. If you are filing a joint return, your spouse can
also have $3 go to the fund. If you check a box, your
tax or refund won't change.
Trends and Observations
Here are the most interesting trends that I observed
during the prior 4 tax seasons:
The year of the energy efficient tax credit with lots of my clients purchasing
solar panels, electric cars, and even re-charging stations for those electric cars,
including my long-time Dr. Jim who purchased all three.
With a variety of tax hikes taking hold in 2013, the trend that tax season
was higher taxes on lower income for high-income taxpayers, with many clients
getting stuck paying obscenely high balances due.
This was the first tax season that I noticed a sizable uptick in the number of
individuals taking advantage of Health Savings Accounts.
Record low interest rates meant that many homeowners refinanced
their home mortgages at least once during 2011, including all but one or two of
my clients who had a mortgage.
Generally, April 15 of each year is the due date for filing your federal
individual income tax return. If the due date falls on a Saturday, Sunday, or
legal holiday, the due date is delayed until the next business day (for example,
Friday, April 15, 2016, is Emancipation Day, so tax year 2015 returns are due
Monday, April 18, 2016. Taxpayers in Maine and Massachusetts observe Patriots'
Day on April 18, 2016, so they will have until Tuesday, April 19, 2016 to file).
Your return is considered filed timely if the envelope is properly addressed and
postmarked by the due date.
Extensions to file
- If you cannot file by the due date of your return, then you can request an
extension of time to file. To receive an automatic 6-month extension of time to
file your return, you can file
by the due date of your return. See
Topic 304 [see below]
information. However, an extension of time to file is
extension of time to pay. You will owe interest on any past-due tax and you may
be subject to a late-payment penalty if the payment of tax is not made by the
original due date of your return
[and the amount of taxes you owe
exceeds 10% of your total tax liability]
Topic 304 - Extensions of Time to File Your Tax Return
There are three ways to request an automatic extension of time to
file your U.S. individual income tax return. The request for
extension of time to file must be made by the regular due date of
your return to avoid the penalty for filing late. An extension of
time to file is
an extension of time to pay.
may file your extension in any one of three ways listed below:
Form 4868 (PDF), Application For Automatic Extension of Time To File U.S.
Individual Tax Return, using your personal computer
or through a tax professional.
File a paper Form 4868 and enclose payment of your estimate of
you file the Form 4868 electronically, be sure to have a copy of
your prior year's return; you will be asked to provide your prior
year's adjusted gross income (AGI) amount for verification purposes.
Once you file, you will receive an electronic acknowledgement that
the IRS has accepted your filing. Keep this for your records.
the Country – You are allowed two extra months (generally until
June 15) to file your return and pay any tax due without requesting
an extension if you are a U.S. citizen or resident alien, and on the
regular due date of your return you are either living outside of the
United States and Puerto Rico, and your main place of business or
post of duty is outside of the United States and Puerto Rico, or in
military or naval service on duty outside of the United States and
Out Some Articles About Extensions Written for Prior Years' Newsletters:
Below are some
informative articles we posted during April of the prior years addressing the
April 15th deadline:
the different gifting strategies that are available to reduce
your estate for estate tax purposes can be difficult. The
strategies range from the simple to the complex. As you might
imagine, a simple strategy probably will not reduce the value of
your estate as much as a complex strategy; however, the strategy
that works best for your neighbor may not work best for you.
You need to be comfortable with the level of complexity that is
created by whichever gifting strategy you use.
Part I of this article will
discuss the annual exclusion and the federal gift and estate tax exemption
amounts. Part II will discuss the various gifting strategies that work with the
annual exclusion and the federal exemption amounts.
The annual exclusion amount
under the Internal Revenue Code limits the amount of the gift that you can give
to a recipient each year without any gift tax consequence. The number of
recipients, however, is not limited. In 2016 the annual exclusion amount limits
gifts to $14,000 per recipient, or $28,000 if your spouse agrees to “split” the
gift with you. If you have enough family members, you can remove a large amount
of value from your estate without much effort.
There are two exceptions to
this limit. The first exception is for either (i) any tuition payments (but not
room and board, books or other fees) made directly to a qualified educational
institution, or (ii) any medical payments made directly to a healthcare provider
on someone else’s behalf.
The second exception is the
qualified tuition or 529 plan account. While these do not qualify for the
unlimited tuition gift tax exclusion, Congress has provided a special rule that
allows for front-end loading of contributions. You can elect to treat a gift
made in Year One as being spread equally over the ensuing five years. If you
transfer $70,000 to a 529 plan account in 2016 you can elect to treat the
contribution as five years’ worth of $14,000 annual exclusion gifts for the
beneficiary of that 529 plan account. This will require the filing of a gift tax
return to make the election but there is no gift tax due. You can also double
the 529 plan account contribution to $140,000 if you and your spouse agree to
split the gift and make the election to spread it over 5 years.
Revenue Code also provides for a gift and estate tax exemption amount which in
2016 is $5.45 million. This exemption works in tandem so that the first $5.45
million of cumulative lifetime gifts (which does not include annual exclusion
gifts) or the value of assets at death is exempt from gift and/or estate
taxation. The gift tax exemption amount used during lifetime is subtracted from
the estate tax exemption amount available upon death. Even though this
exemption amount may continue to be available at death, you may want to consider
using some or all of the exemption amount during your lifetime to remove future
appreciation from your estate. And like the annual exclusion amount, each spouse
has their own lifetime exemption.
and lifetime exemption gifts can be made outright or they can be made to a trust
for the benefit of family members. There are several types of trusts that can
be used to pass on wealth, all irrevocable and all a variation of what may be
referred to as a gifting trust.
Cohen is an attorney with Seegel Lipshutz & Lo, LLP located in the Wellesley
Office Park, 80 William Street, Suite 200, Wellesley, MA 02481. You can
reach them at: (781) 431-7700, or email Neil Cohan at:
firstname.lastname@example.org. You can learn more about Neil's firm at:
For 2015, the standard deduction for a single individual is $6,300 and
for a married couple is $12,600. A person will benefit by itemizing once
allowable deductions exceed the applicable standard deduction. Itemized
deductions include state and local income taxes (or sales taxes), real estate
taxes, mortgage interest, charitable contributions, and unreimbursed employee
For 2015, the personal exemption is $4,000. Individuals will claim a personal deduction for themselves, their spouse, and
The maximum earnings subject tosocial security taxes is $118,500
for 2015 and 2016, up from $117,000 in 2014.
The standard mileage rateis $.54 per business mile as of
January 1, 2016, down from $.575 for 2015.
The maximum annual salary deferral into a 401(k) plan or a
403(b) plan is $18,000 in 2015 and 2016, up from $17.5k in 2014. And if
you'll be 50 or older by December 31st, you can contribute an extra $6,000 into
your 401(k) or 403(b) account this year.
The maximum annual contribution to your IRA is $5,500 for
2015 and 2016. And if you turn 50 by December 31st, you can contribute an extra
$1,000 that year. You have until April 15, 2016 to make your 2015 IRA
In a shocking development, the
IRS recently announced that they will be honoring the FICA tax refunds
submitted by residency programs and individual doctors. The catch is
that only FICA taxes paid prior to 4/1/05 qualify.