Bloomberg BNA has released a report on projected 2016 tax rates, providing a detailed forecast of inflation-adjusted tax items.

People 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, according to the report.  At the same time, taxpayers who fail to comply with return filing and tax payment requirements will face larger penalties in 2016 because of a combination of legislative changes and upward inflation adjustments.

“Higher penalties encourage compliance and increase revenue, and taxpayers should expect the trend toward higher penalties to continue,” said Bloomberg BNA Tax & Accounting editorial director George Farrah in a statement.  

With projections for the income tax brackets, personal exemption, standard deduction, penalties, and many other amounts, the report delivers information taxpayers and tax planners need to save tax dollars in 2016.

The report includes more than 320 figures contained in over 55 Tax Code sections. The Internal Revenue Service is expected to publish its official statement of 2016 inflation adjusted amounts in a revenue procedure later this year. These amounts are based on Bureau of Labor Statistics inflation adjustments that were published Wednesday. Thomson Reuters also published its projections Wednesday (see Thomson Reuters Projects Inflation-Adjusted 2016 Income Tax Rates).

The Tax Code imposes a host of penalties for failure to file returns, failure to furnish information returns, and failure to pay tax, Bloomberg BNA noted. These penalties affect individuals, companies, trusts, and estates. Congress recently tied several of the penalties to annual inflation adjustments and dramatically increased a few, raising the specter of increasing costs for noncompliance in future years.

Tax preparers also are subject to a number of penalties that are adjusted for inflation. The 2016 projected penalty amounts are shown below. Projected amounts for other penalties are included in the full report.

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Because a higher Consumer Price Index pushes the definition of the brackets upward and also increases the standard deduction and exemption amounts, the taxes due on the same income decrease from year to year. For example, suppose married taxpayers filing jointly figure tax on $231,000. In 2015, they were in the 33% bracket and paid $51,759 in tax. In 2016, the brackets are adjusted for inflation, and they are now in the lower 28 percent bracket and will pay $51,665.50 in tax, “saving” $93.50 compared to 2015.

High-income taxpayers will enjoy a measure of relief in 2016 as well, because the top 39.6 percent tax bracket is projected to begin at $466,950 for married taxpayers filing joint returns and at $415,050 for unmarried individuals. This represents an increase from $464,850 and $413,200, respectively in 2015.

Bloomberg BNA has projected the 2016 income tax rate tables, shown below. The tables for other filing situations are included in Bloomberg BNA’s full report.

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Personal Exemption and Standard Deduction
Most taxpayers are entitled to claim a personal exemption deduction for each member of their household. For 2016, the personal exemption amount is projected to be $4,050, up from $4,000 in 2015.

The personal exemption deduction is phased out for high-income taxpayers. The projected phase-out levels are available in the full report.

When calculating their deductions, taxpayers may choose to take the higher of their itemized deductions or the standard deduction. The standard deduction amount varies depending on filing status. The projected standard deduction amounts for 2016 are shown below.

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Alternative Minimum Tax
For some taxpayers, inflation adjustments make the difference between having to pay AMT or not. The AMT exemptions were adjusted for inflation for the first time in 2013, and are projected for 2016 as shown below.

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Estate and Gift Tax Exclusions
Bloomberg BNA projects that the estate tax basic exclusion for decedents dying in 2016 will be $5.45 million. The exclusion amount, which has been adjusted for inflation since 2012, was $5.43 million in 2015. The annual gift tax exclusion remains $14,000 in 2016.

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