APPENDIX D
List of Dollar Limits and Amounts Adjusted for Inflation
Taxes are a moving target because many dollar limits and percentages change annually due to increases in inflation. However, some limits and amounts are fixed in the Tax Code and cannot be changed without an act of Congress. Still others are set by the IRS for administrative convenience and are not adjusted annually but could change at the IRS's whim. To help you plan ahead and to figure estimated taxes for 2017, where necessary, lists of items that may or may not change for the next tax year follow. The adjustments for 2017 are listed in the Supplement to the extent that these were available by February 2017.
Items Adjusted Annually for Inflation
- 401(k) plans—the annual contribution limit through salary reductions as well as the additional contribution limit for those age 50 and older by year end.
- Adoption assistance—excludable employer-provided adoption assistance for employees ($13,460 for 2016).
- Archer medical savings accounts (MSAs)—the dollar limit on contributions for plans established before 2008.
- First-year expensing (Sec. 179 deduction)—the dollar limit on the deduction, as well as the phase-out on property placed in service. For 2016, the limits are $500,000 and $1,010,000, respectively.
- Health savings accounts (HSAs)—the dollar limit on contributions as well as the definition of a high-deductible health plan (HDHP).
- IRAs and Roth IRAs—the contribution limits as well as the income limits on making contributions in certain situations.
- Medical flexible spending accounts (FSAs)—the most that employees can add annually on a pretax basis is capped at $2,550 for 2016.
- Per diem rates for travel costs—the special transportation industry meals and incidental expenses, incidental expenses only, and the high cost localities for purposes of the high-low substantiation method.
- Retirement plan contributions and benefits—the limits on making tax-advantaged contributions to qualified retirement plans.
- Shared responsibility payment—there is no penalty if the cost of employer health coverage is deemed to be unaffordable, which in 2016, is 9.66% of household income.
- Small employer health insurance credit—the amount of average compensation, originally fixed at $25,000, is $25,900 for 2016.
- Social Security wage base—the amount that is used to figure the Social Security portion of FICA and self-employment tax ($118,500 for 2016).
- Tax brackets for individuals—the amount of taxable income within each bracket may be increased annually; this impacts sole proprietors and owners of pass-through entities.
- Transportation fringe benefits—the amount excludable for free parking, and the aggregate amount excludable for transit passes or van pooling, is $255 per month in 2016.
Items Fixed by the Tax Code
- Additional Medicare tax on earned income—the threshold above which earned income is subject to this 0.9% tax is fixed according to filing status; the threshold does not change annually.
- Corporate tax rates—the amount of taxable income subject to corporate tax brackets are not increased for inflation.
- Cruise ship travel—the cost of business meetings held on cruise ships is deductible up to $2,000 if certain requirements are met.
- Dependent care assistance—employer-paid dependent care assistance is excludable up to $5,000 annually.
- Disabled access credit—the maximum amount of expenses that can be taken into account in figuring the credit is between $250 and $10,250.
- Education assistance—employer-paid education assistance for employees is capped at $5,250.
- Gifts—the deduction for business gifts is limited to $25 (exclusive of shipping)
- Net investment income tax—the additional 3.8% Medicare tax depends on modified adjusted gross income over a threshold amount that varies with filing status but the threshold does not change annually.
- Prizes and awards to employees—the maximum deduction for nonqualified award to any one employee is capped at $400 per year. Total awards (qualified and nonqualified) to any one employee is limited to $1,600 per year.
- Reforestation expenses—up to $5,000 ($10,000 if married filing jointly) can be expensed.
- Start-up costs—up to $5,000 can be deducted in the first year of business.
Items Set by the IRS
- Annual reporting by retirement plans—one-participant plans are exempt from reporting if plan assets at the end of the year do not exceed $250,000 (and this is not the final year of the plan).
- Below market loans—low- and no-interest loans can trigger taxable income to the lender; the interest rate for determining whether a loan is below the market rate is fixed by the IRS. An annual blended rate applies for below market loans outstanding for the full year (e.g., 0.73% for 2016).
- Building improvements—under a safe harbor method for small taxpayers, they can be capitalized if they do not exceed the lesser of $10,000 or 2% of the unadjusted basis of the building as long as the building's unadjusted basis is no more than $1 million.
- Dollar limits on depreciating vehicles under 6,000 pounds—the amount of depreciation each year that the vehicle is owned is capped (the year in which the vehicle is placed in service affects the applicable cap for the remainder of the period of ownership).
- Deemed depreciation for business vehicles—if expenses for business use of a personal vehicle owned by the taxpayer is figured using the IRS's standard mileage allowance, then the basis of the vehicle is reduced by a set amount per mile (e.g., 24¢ per mile in 2016).
- Group-term life insurance—the value of coverage over $50,000 that is taxable to employees.
- Home office deduction—under the simplified method, the deduction is figured at $5 per square foot up to 300 square feet of space.
- Inclusion amount—the amount of income taken into account for business use of a personal vehicle that is leased.
- Mileage allowance—the rate per mile used to determine the deduction for business use of a personal vehicle instead of deducting the actual costs.
- Per diem travel rates—the IRS sets the rate for a daily deduction covering lodging, meals, and incidental expenses for travel to high-cost areas and all other areas within the continental U.S. The General Services Administration also has per diem rates.
- Simplified Schedule C—it can only be filed if business expenses are $5,000 or less.
- Travel and entertainment costs—no receipt is required for the cost of travel and entertainment expenses under $75. However, a receipt is required for lodging costs, regardless of amount.
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