October Newsletter

As fall approaches, Congress has not made a decision on pending tax legislation that could impact 2015. In the meantime, presented here are estimated tax figures for 2016 based upon the Consumer Price Index. There are also articles on a recent IRS error in handling some educator expense deductions and a review of the B-Corp phenomena. Ideas to help create a satisfying retirement round out this month’s newsletter.

As always, should you know of someone who may benefit from this information please feel free to forward this newsletter to them.

Preview Key 2016 Tax Figures

2016 compassWhile official numbers for 2016 are not yet released by the Internal Revenue Service (IRS), many figures are formulas set within the Internal Revenue Code (IRC) or are based on the Consumer Price Index (CPI) published by the Department of Labor. Using the release of recent CPI figures, a number of reference sources are projecting key figures for 2016. While many are unchanged from 2015 they are noted here for your planning purposes.

Tax Brackets: While the actual income brackets for tax rates are not set for 2016, the rate of inflation that impacts the income levels for each tax rate is anticipated to raise the income brackets by approximately 0.4 – 0.5%.

Personal Exemption: $4,050 in 2016 ($4,000 in 2015)

Standard Deductions:

Deduction Tax Year 2016 Tax Year 2015
Head of Household
Married Filing Joint
Married Filing Separately
Dependents (kiddie tax)
65 or Blind: Married
Add $1,250
Add $1,250
Add $1,550
Add $1,550

Other Key figures:

Estate & Gift Tax Exclusion
$5.45 million
$5.43 million
Annual Gift Tax Exclusion
Roth and Traditional IRA Contribution Limit

Caution: Remember, these are early figures using the recently announced Consumer Price Index. Official numbers are released by the IRS later in the year.

B-Corps; What are They?

Kickstarter, a popular crowdsource company that helps new inventors raise money to fund their creative projects, recently announced they are becoming a Benefit Corporation. While many of us may not know what this means, the move by Kickstarter is becoming more popular. Here is what you need to know.

Benefit Corporation defined

Per benefitcorp.net:

A Benefit Corporation voluntarily meets standards of corporate purpose, accountability, and transparency.

Bullet Purpose: Benefit Corporations have a corporate purpose to create a materially positive impact on society and the environment.
Bullet Accountability: Benefit Corporations are required to consider the impact of their decisions not only on shareholders but also on workers, community, and the environment.
Bullet Transparency: Benefit Corporations are required to make available to the public, except in Delaware, an annual benefit report that assesses their overall social and environmental performance against a third party standard.
Seedlings on coins

How is this different?

When a traditional company takes actions that do not maximize their value, they can be vulnerable to owner lawsuits. To solve this problem, some states allow companies to legally organize themselves as B-Corps or Benefit Corporations. The B-Corp formation provides the company legal protection from shareholders while pursuing a social mission. This social mission is made public. Here are some examples;

Arrow Patagonia (outdoor gear): Commitment to the environment
Arrow King Arthur Flour (baked goods and flour): Sustainable living environment; ending child hunger
Arrow Ben and Jerry (ice cream): Advance new models of social justice that are sustainable and replicable
Arrow Kickstarter: Commitment to arts and culture
Click here to see the Benefit Corporation Charter of Kickstarter

Other things to note

Arrow Benefit Corporations can be private OR publicly owned.
Arrow The profits may or may not be as high as a typically organized corporation.
Arrow Benefit Corporations often give part of their profits to a worthy cause.

While an investment in a B-Corp may not be profit maximizing, you may feel a little better about where you put your money. As with any investment, please understand your risks and ask for help before investing.

IRS Erroneously Denies Educator Deduction Claims

During its annual review of the tax filing season, the Treasury Inspector General for Tax Administration (TIGTA) discovered the IRS was incorrectly denying educator expense deductions for some taxpayers.

Teacher DeskThe deduction

In 2014, qualified educators could reduce their income by up to $250 for classroom related expenses. This deduction is available whether or not a taxpayer itemizes their deductions.

The problem

The IRS was denying the deduction if the taxpayer could be claimed as a dependent on someone else’s tax return. This denial impacted young teachers and others who could use the tax benefit.

After TIGTA notified the IRS of their concerns, the IRS acknowledged their error and updated processing procedures for their tax examiners. Unfortunately, not before denying over $53,000 in deductions.

What you need to know

The $250 educator expense deduction is one of the tax provisions that is repeatedly expiring only to be extended once again by late Congressional action. As of now the benefit is not available in 2015. In all likelihood, the benefit will be available once again. In the meantime,

Paperclip Bullet Point If you took the deduction in 2014 and you are challenged by the IRS, ask for help. A quick review and clarifying letter should help you retain your deduction.
Paperclip Bullet Point If the tax law is extended unchanged into 2015, remember you can take the deduction even if you can be claimed as a dependent on someone else’s tax return.

Seven Ideas to Create a Satisfying Retirement

You’ve done your retirement homework. Your assets are reviewed, you have planned your financial needs, and your retirement tax plan is in place. Are you ready to enjoy retirement? Probably, but not without a plan to address what happens to many after they retire; boredom. Here are some ideas.
Icon Go to school. Many colleges and communities offer classes for retired students. Pick topics of interest and take advantage of this cost effective way to stay alert through learning. Many classes can have built in activities. Examples could be local history classes with field trips, photography classes, writing, and gardening. As an added benefit, you will meet others with your shared interest while you continue learning.
Icon Pick up part-time work. If you are outgoing, why not pick up a few hours at a local retail establishment.
Icon Volunteer. Many retirees volunteer at libraries, museums, and parks. Others volunteer at their local church, deliver meals, and help young people with literacy. The possibilities are endless.
Retired couple on beach
Icon Schedule physical activity. Staying physically active will keep your body and mind in shape. Create a weekly routine that keeps you moving. Volunteer to take the grand kids to swimming lessons while the parents are working. Bike or walk to do every-day chores.
Icon Look for combinations. With a little creativity you can combine some of these ideas. For example, if you coached your kids in soccer why not consider refereeing kids games? You might earn a little pay, stay connected with kids, and get some physical activity.
Icon Get Connected. When you retire, many of your social connections will change. This is especially true for work connections and availability of friends that are still working. Look for other ways to make new connections. Use some of the ideas here to actively get connected with others that share your interests. Participate in community events. Reach out through volunteer efforts to meet new people.
Icon Blend in your dreams. If you’ve always dreamed of moving to a new place in retirement, you may want to test-drive it first. A dream move, may turn out to be different than you anticipated. You may miss your kids and friends. Services and connections you take for granted may become a problem. By renting a place and staying in the new location prior to committing, you will be prepared with a fall back if it does not work.

These are but a few ideas to help transition into a satisfying retirement. There are many resources to provide additional ideas.

As always, should you have any questions or concerns regarding your situation please feel free to call.

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