2016 Tax Planning & Reference Guide

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1 2016 Tax Planning & Reference Guide The 2016 Tax Planning & Reference Guide is designed as a reference and is not intended to function as tax advice. Please consult your professional accounting advisor prior to acting on any information provided in this Guide. Securities and Advisory Services offered through Davenport & Company LLC Member: NYSE FINRA SIPC Davenport & Company LLC 901 E. Cary St., Suite 1100 Richmond, VA

2 2016 Income Tax Rates Single Individuals Taxable Income: Your Tax is: Above To Tax Rate on Excess $ 0 $ 9,275 10% of taxable income N/A 9,275 37,650 $ 927 plus 15% over $ 9,275 37,650 91,150 5,183 plus 25% over 37,650 91, ,150 18,559 plus 28% over 91, , ,350 46,279 plus 33% over 190, , , ,935 plus 35% over 413, , ,530 plus 39.6% over 415,050 Married Filing Jointly Taxable Income: Your Tax is: Above To Tax Rate on Excess $ 0 $ 18,550 10% of taxable income N/A 18,550 75,300 $ 1,855 plus 15% over $ 18,550 75, ,900 10,367 plus 25% over 75, , ,450 29,517 plus 28% over 151, , ,350 51,791 plus 33% over 231, , , ,818 plus 35% over 413, , ,578 plus 39.6% over 466,950 Married Filing Separately Taxable Income: Your Tax is: Above To Tax Rate on Excess $ 0 $ 9,275 10% of taxable income N/A 9,275 37,650 $ 927 plus 15% over $ 9,275 37,650 75,950 5,184 plus 25% over 37,650 75, ,725 14,759 plus 28% over 75, , ,675 25,896 plus 33% over 115, , ,475 55,909 plus 35% over 206, , ,289 plus 39.6% over 233,475 1

3 2016 Income Tax Rates Head of Household Taxable Income: Your Tax is: Above To Tax Rate on Excess $ 0 $ 13,250 10% of taxable income N/A 13,250 50,400 $ 1,325 plus 15% over $ 13,250 50, ,150 6,897 plus 25% over 50, , ,800 26,835 plus 28% over 130, , ,350 49,417 plus 33% over 210, , , ,258 plus 35% over 413, , ,936 plus 39.6% over 441,000 Trusts and Estates Taxable Income: Your Tax is: Above To Tax Rate on Excess $ 0 $ 2,550 15% of taxable income N/A 2,550 5,950 $ 382 plus 25% over $ 2,550 5,950 9,050 1,232 plus 28% over 5,950 9,050 12,400 2,100 plus 33% over 9,050 12, ,206 plus 39.6% over 12,400 Corporate** Taxable Income: Your Tax is: Above To Tax Rate on Excess $ 0 $ 50,000 15% of taxable income N/A 50,000 75,000 $ 7,500 plus 25% over $ 50,000 75, ,000 13,750 plus 34% over 75, , ,000 22,250 plus 39% over 100, ,000 10,000, ,900 plus 34% over 335,000 10,000,000 15,000,000 3,400,000 plus 35% over 10,000,000 15,000,000 18,333,333 5,150,000 plus 38% over 15,000,000 18,333, ,416,666 plus 35% over 18,333,333 ** For domestic corporations other than qualified personal service corporations. A qualified personal service corporation [as defined in Code Sec. 448(d)(2)] is taxed at a flat 35% of its taxable income. 2

4 Maximum Long-Term Capital Gain Tax IF your net capital gain 1 is from: THEN your 2016 capital gain rate is 2 : Other gains 3, and the regular tax rate that would apply is 15% or lower 0% 4 Other gains 3 (i.e. stocks, bonds, etc.), and the regular tax rate that would apply is above 15% and below Other gains 3, and the regular tax rate that would apply is 39.6% 20% 5 Collectibles gain 28% Gain on qualified small business stock after the section 1202 exclusion Unrecaptured section 1250 gain 25% 1. Net Capital Gain is the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. A net short term gain is taxed as ordinary income at the applicable rates on pages 1 and Rates presented do not reflect the potential impact of the additional tax on unearned income. 3. Other Gains means any gain that is not collectibles gain, gain on qualified small business stock, or unrecaptured section 1250 gain. 4. Current rates have been extended as a result of the American Taxpayer Relief Act of % maximum rate as a result of the American Taxpayer relief Act of Unearned Income Tax Rates Qualified Dividends Defined as those received from domestic and qualified foreign corporations (with some exceptions such as stock holding period, consult your tax advisor to determine which dividends qualify), and will be taxed as follows for 2016 and subsequent years: 0% for taxpayers in the 10% and 15% tax brackets; 15% for taxpayers in the 25% through 35% tax brackets; and 20% for taxpayers in the 39.6% tax bracket. Any amount that the taxpayer elects to treat as investment income to support an investment interest deduction (e.g. margin interest) is not considered qualified dividend income. Additional Tax on Unearned (Investment) Income For 2016 and subsequent years, a 3.8% surtax (Unearned Income Medicare Contribution Tax) will apply to the lesser of a taxpayer s net investment income (generally interest, dividends, capital gains, annuity income, rents, royalties, and passive business income, less allowable investment expenses) or the amount the taxpayer s modified adjusted gross income exceeds the applicable threshold: $250,000 for married filing jointly or surviving spouse; $125,000 for married filing separately; $200,000 for all other filing categories. Standard Deductions & Personal Exemption 2016 Standard Deductions* Single... $ 6,300 Head of Household... 9,300 Married filing separately... 6,300 Married filing jointly... 12,600 Personal Exemption... $ 4,050 *Additional standard deductions of $1,550 are available for unmarried taxpayers who are not surviving spouses and age 65 and older and for taxpayers who are blind. The additional deduction amount for married taxpayers or a surviving spouse is $1,250. Limitations on Itemized Deductions and Phase-out of Personal Exemptions In 2016, higher income taxpayers with adjusted gross income (AGI) in excess of the following thresholds may experience reductions to allowable itemized deductions and a phase-out of personal exemptions: $311,300 for married filing jointly or surviving spouse; $155,650 for married filing separately; $285,350 for head of household; $259,400 for single. Allowable itemized deductions will be reduced by 3% of the amount that the taxpayer s AGI exceeds the applicable threshold, with a maximum reduction equal to 80% of total itemized deductions. Total personal exemptions will be reduced by 2% for each increment of $2,500 (or portion thereof) that AGI exceeds the applicable threshold (for married taxpayers filing separate returns, the reduction is based on increments of $1,250). The threshold amounts for 2016 are: $311,300 Married Filing Jointly and Surviving Spouses; $285,350 Heads of Households; $259,400 Unmarried Individuals; $155,650 Married Individuals Filing Separate Returns. Personal exemptions would be totally phased-out at AGIs of $433,800 Married Filing Jointly and Surviving Spouses; $407,850 Heads of Households; $381,900 Unmarried Individuals; $216,900 Married Filing Separate Returns. 3 15% 4 28%

5 Self-Employment Tax For 2016, a tax is imposed on self-employed individuals at a rate of 15.30%, which is a combination of a 12.40% Old Age, Survivors, and Disability Insurance Tax (OASDI) and a 2.90% Medicare Tax. For 2016, the OASDI Tax is computed on the first $118,500 of self-employment income/earned income. The maximum self-employed OASDI Tax liability for 2016 is $14, (12.40% of $118,500). The 2.90% Medicare Tax is computed on the taxpayer s entire self-employment income with no cap. FICA (Social Security & Medicare) Tax FICA (Federal Insurance Contribution Act) Tax For 2016, a tax is imposed on an employee s compensation at a rate of 7.65%, which is a combination of a 6.20% Old Age, Survivors, and Disability Insurance Tax (OASDI) and a 1.45% Medicare Tax. For 2016, the OASDI Tax is computed on the first $118,500 of compensation/earned income. The maximum employee OASDI Tax liability for 2016 is $7, (6.20% of $118,500). The 2.90% Medicare Tax is computed on the taxpayer s entire compensation with no cap. Additional Medicare Tax In 2016, higher income taxpayers with earned income above the following thresholds will pay an additional Hospital Insurance Tax (Medicare) at a rate of 0.9% on earned income above the threshold amount: $250,000 for married filing jointly; $125,000 for married filing separately; $200,000 for all other filing categories. Taxation of Social Security Retirement Benefits Under current law, Social Security recipients may be subject to federal (and possibly state) income tax on 85% of their annual Social Security income. For taxpayers with provisional income (Adjusted Gross Income, excluding Social Security benefits, plus tax-exempt interest, plus 50% of Social Security benefits) less than $25,000 ($32,000 for married tax payers filing jointly), Social Security benefits are income tax free. For taxpayers with provisional income between $25,000 and $34,000 ($32,000 and $44,000 for married taxpayers filing jointly) up to 50% of Social Security benefits may be subject to income tax. For taxpayers with provisional income in excess of $34,000 ($44,000 for married taxpayers filing jointly) up to 85% of Social Security benefits may be subject to income tax. Social Security Annual Earnings Limits Individuals are eligible to receive permanently reduced Social Security retirement benefits between age 62 and their applicable full retirement age. Retirement benefits may be further reduced in years that an individual s earned income exceeds annual earning limits until the individual reaches full retirement age. For those receiving benefits before their full retirement age, $1 in benefits will be deducted for each $2 earned above the annual limit. In 2016, this limit is $15,720. In the year that full retirement age is reached, $1 in benefits will be deducted for each $3 earned above the 2016 limit of $41,880. This limit applies only to the months prior to the month in which full retirement age is reached. After full retirement age is attained, full benefits can be received with no limit on earnings. Social Security Full Retirement Age** Year of Birth* Social Security Full Retirement Age for Surviving Spouse and 2 months and 4 months and 6 months and 2 months 66 and 8 months and 4 months 66 and 10 months and 6 months and 8 months and 10 months *Individuals born on January 1st of any year should refer to the full retirement age for the previous year. ** The maximum Social Security benefit in 2016 for a worker at full retirement age is $2,685.50/month or $32,226/per year. 4

6 2016 Required Minimum Distribution Rules Individuals over age 70 ½ generally must take Required Minimum Distributions (RMDs) from IRAs and qualified retirement plans. The provision for direct transfers to charity, up to $100,000, from IRAs has been made permanent. Traditional IRA & Roth IRA Contribution Limits Year Maximum Contribution* Catch-Up Age 50+* 2016 $5,500 (will continue to be indexed) $1,000 *The maximum contribution amount equals the lesser of $5,500/$6,500 or total earned income. Traditional IRA Contribution Phase-Out If You ARE Covered by a Retirement Plan at Work Your Filing Status is Single or Head of Household Married Filing Jointly or Qualifying Widow(er) Full Deduction if Modified AGI is $61,000 or less $98,000 or less Modified AGI Phase-Out Range* Between $61,000 and $71,000 Between $98,000 and $118,000 No Deduction if Modified AGI is $71,000 or more $118,000 or more Married Filing Separately $0 Between $0 and $10,000 $10,000 or more If You ARE NOT Covered by a Retirement Plan at Work Your Filing Status is Single, Head of Household or Qualifying Widow(er) Married Filing Jointly or Separately with a spouse who is not covered by a plan at work** Married Filing Jointly with a spouse who is covered by a plan at work** Full Deduction if Modified AGI is Modified AGI Phase-Out Range* No Deduction if Modified AGI is Any Amount N/A N/A Any Amount N/A N/A $183,000 or less Between $183,000 and $193,000 $193,000 or more Married Filing Separately with a spouse who is covered by a plan at work $0 Between $0 and $10,000 $10,000 or more *If the individual s modified Adjusted Gross Income (AGI) for a taxable year is in the phase-out range, the maximum deduction for that taxable year is rounded up to the next multiple of $10 and is not reduced below $200. ** Spousal IRA Contribution - Deductibility is controlled by status of the spouse with earned income/greater earned income. Roth IRA Contribution Phase-Out Your Filing Status is Full Contribution if Modified AGI is Modified AGI Phase-Out Range* No Contribution if Modified AGI is Single or Head of Household $116,000 or less Between $116,000 and $ $131,000 or more Married Filing Jointly or Qualifying Widow(er) $183,000 or less Between $183,000 and $193,000 $193,000 or more Married Filing Separately $0 Between $0 and $10,000 $10,000 or more *If the Individual s modified Adjusted Gross Income (AGI) for taxable year is in the phase-out range, the maximum regular contribution for the taxable year is rounded up to the next multiple of $10 and is not reduced below $200. 5

7 Traditional IRA to Roth IRA Conversion There are no Adjusted Gross Income limits on the conversion of IRA and qualified plan assets to a Roth. Any amount in a SEP or SIMPLE IRA may also be converted to a Roth IRA; however, a conversion from a SIMPLE IRA may be made only after the 2-year period beginning on the date the individual first participated in any SIMPLE IRA maintained by the individual s employer. The conversion is subject to income tax in the year of the conversion (reported on Form 8606), but is not subject to the 10% premature distribution penalty. Intra-plan Roth conversions from vested tax deferred balances are available within qualified retirement plans (401(k), 403(b), 457) that provide a Roth option, when allowed by the plan s controlling document. Employer-Sponsored Retirement Plans 401(k)*, 403(b)*, and 457* Salary Deferral Limits Year Maximum Employee Deferral Catch-Up Age $18,000 (will continue to be indexed) $6,000 *The Maximum combined employee/employer contribution is $53,000; $59,000 with a catch-up contribution. SIMPLE IRA* Deferral Limits Year Maximum Deferral Catch-Up Age $12,500 (will continue to be indexed) $3,000 *Generally, employers must either match employee contributions dollar-for-dollar up to 3% of the employee s compensation or make a contribution of 2% of compensation for all eligible employees, whether participating or not. SEP IRA Plans The 2016 maximum contribution limit is the lesser of 25% of compensation* or $53,000. Minimum compensation for plan eligibility is $600 in Contributions may be made into a SEP plan through the filing date of employer s tax return, including extensions. *Compensation is limited to $265,000 in Annual Gift Tax Exclusion The annual gift tax exclusion for 2016 is $14,000. Direct payments of educational or medical costs do not count against the annual gift tax exclusion. There is a special provision that allows a contributor to accelerate five years of gifting when funding a 529 College Savings Plan on behalf of a beneficiary. For example, an individual currently may contribute as much as $70,000 ($140,000 for a married couple) in a given year to a 529 Plan, instead of waiting to contribute $14,000 in each of five years. This uses the individual s annual gifting exclusion to that beneficiary for five years. Kiddie Tax The Kiddie Tax rules apply to the unearned income of dependent individuals under age 19 and all dependent, full-time students under age 24. In 2016, the child s first $1,050 of unearned income is not taxed. The next $1,050 of unearned income is taxed at the child s tax rate. The child s unearned income in excess of $2,100 is taxed at the parents highest tax rate. 6

8 Education Funding Funding Source/ Benefit Benefit Annual Limits Qualified Expenses Coverdell Education Savings Accounts 1 - Earnings are not taxed - Tax-free withdrawals for qualified expenses Maximum 2016 contribution is $2,000 (generally contributions may be made until the beneficiary turns 18) 2 - Tuition & mandatory fees - Books, supplies, x equipment - Room & board if at least half-time student - Payments to 529 Plans 529 College Savings Plans 1 - Earnings are not taxed - Tax-free withdrawals x for qualified expenses - Possible state income tax deduction (VA not NC) Maximum contribution is determined by each state s plan. 3 VA: $350,000; NC: $410,000 - Tuition & mandatory fees - Books, supplies, x equipment - Room & board if at least half-time student Traditional, Roth, SEP, and SIMPLE IRAs 4 No 10% premature distribution penalty if used for qualifying expenses N/A 2 - Tuition & mandatory fees - Books, supplies, x equipment - Room & board if at least half-time student Education Savings Bond Program 1 Interest used for qualified expenses is not taxed N/A - Tuition & mandatory fees - Payments to 529 Plans & Coverdell ESAs Student Loan Interest Interest is tax deductible Maximum deduction is $2,500 per year N/A Hope Scholarship Credit/American Opportunity Credit 5 Lifetime Learning Credit Credits directly offset the amount of federal tax due Maximum credit is $2,500 per student Maximum credit is $2,000 per family Tuition & mandatory fees Books, supplies, equipment Tuition & mandatory fees 1. Any non-taxable withdrawal is limited to the amount of qualifying education expenses. 2. Income limits apply at the time of contribution. They are not relevant for withdrawals. 3. Contributions are subject to federal gift tax rules. 4. Normal income tax rules apply on withdrawals. 5. Current rules have been extended through 2017 by the American Taxpayer Relief Act of

9 Education Funding Funding Source/ Benefit Qualified Education Other Conditions Income Phase-Out Coverdell Education Savings Accounts 1 Grades K-12 and all undergraduate and graduate - Can contribute to Coverdell ESA and 529 Plan in the same year - Must withdraw assets by age 30 Single: $95,000-$110,000 Joint: $190,000-$220, College Savings Plans 1 - Distributions are excluded from gross income - Hope and Lifetime Learning Credits are permitted in the same year but not for the same expenses No Phase-Out Traditional, Roth, SEP, and SIMPLE N/A No Phase-Out All undergraduate 3 IRAs 2 and graduate Education Savings Bond Program 1 Applies only to qualified series EE bonds issued after 1989 and all series I bonds Single: $77,550-$92,550 Joint: $116,300-$146,300 Student Loan Interest Must have been at least half-time student in a degree program Single: $65,000-$80,000 Joint: $130,000-$160,000 Hope Scholarship Credit/American Opportunity Credit 4 1st 4 years of undergraduate -Can be claimed only for 4 years -Must be enrolled at least half-time in a degree program Single: $80,000-$90,000 Joint: $160,000-$180,000 Lifetime Learning Credit All post-secondary education when Hope Credit is unavailable 1. Any non-taxable withdrawal is limited to the amount of qualifying education expenses. 2. Normal income tax rules apply on withdrawals. 3. Income limits apply at the time of contribution. They are not relevant for withdrawals. 4. Current rules have been extended through 2017 by the American Taxpayer Relief Act of N/A Single: $55,000-$65,000 Joint: $110,000-$130,000 8

10 Gift & Estate Taxes The estate tax is imposed on the decedent s taxable estate (gross estate less deductions). The gift tax is based on the cumulative value of current and prior gifts (after a specified exclusion). For individuals dying and gifts made after 12/31/2015, the unified gift and estate tax rate schedule is as follows: 2015 Unified Rate Schedule (A) (B) (C) (D) Amount subject to tentative tax Exceeding Not Exceeding Tax on amount in column A Tax Rate on excess over amounts in column A $ 0 $ 10,000 $ 0 18% 10,000 20,000 1,800 20% 20,000 40,000 3,800 22% 40,000 60,000 8,200 24% 60,000 80,000 13,000 26% 80, ,000 18,200 28% 100, ,000 23,800 30% 150, ,000 38,800 32% 250, ,000 70,800 34% 500, , ,800 37% 750,000 1,000, ,300 39% 1,000, ,800 40% For gifts made in 2016, the annual exclusion amount is $14,000. For larger taxable gifts made during 2016, the credit against the gift tax imposed on U.S. citizens or residents effectively exempts the first $5,450,000 of cumulative transfers from federal gift and Generation Skipping Taxes (GST). Assets gifted have a carry-over cost basis equal to the lesser of the original owner s basis or the market value on the date of the gift. The credit (referred to as an exclusion) for estates of individuals dying in 2016 effectively exempts $5,450,000 from estate and Generation Skipping Taxation. Assets in an estate acquire a cost basis equal to the value on the date of estate valuation, often referred to as a stepped-up basis. For 2016 and subsequent years, the estate and gift tax exclusion has been made portable, meaning the estate of a deceased spouse can elect to make any unused portion of the deceased spouse s exclusion available to the surviving spouse to be used during his or her lifetime or at death. 9

11 Long-Term Care Premium Deduction Self-employed individuals including sole proprietors, partners, and more than 2% shareholders of S corporations may deduct, as a business expense, up to 100% of eligible premiums paid for qualified long-term care plans. Such payments are not imputed income to the insured. Individual taxpayers who itemize deductions may be able to deduct the lesser of the actual long-term care premiums paid or the eligible long-term care premium amounts listed below as part of total medical expenses. This deduction is subject to age-based limits, which are adjusted annually based on increases in the medical care component of the Consumer Price Index. Premium Deduction Limits or younger... $ $ $ 1, $ 3, and older... $ 4,870 Generally, a C corporation may deduct, as a business expense, all qualified long-term care premiums paid for employees, their spouses and dependents without application of the above limits. Such payments are not included as imputed income to the insured. These benefits may be offered to select individuals and do not have to be made available to all employees. Benefits paid by the insurance company to an insured are tax-free under all circumstances Medicare Part B Premium Costs Medicare participants share a portion of costs through premiums or surcharges paid on Medicare Parts B and D. For 2015 the basic Part B premium cost for most participants will stay at $ per month. However for participants whose MAGI in 2014 was less than or equal to $85,000 Single or $170,000 Joint and are newly enrolled in Medicare for 2016 or are not paying Medicare premiums as deductions from Social Security benefits, the monthly premium amount will be $ However higher income participants will pay higher Medicate Part B premiums. The chart below shows 2016 monthly premium costs for increasing levels of Modified Adjusted Gross Income (MAGI = Adjusted Gross Income plus tax exempt interest, series EE bond interest used for education, less foreign earned income). Single Married 2013 MAGI was: Part B Part D 2013 MAGI was: Part B Part D > than < than Monthly Premium Monthly Surcharge > than < than Monthly Premium Monthly Surcharge $0 $85,000* $104.90/ $0 $0 $170,000* $104.90/ $0 $85,000 $107,000 $ $12.70 $170,000 $214,000 $ $12.70 $107,000 $160,000 $ $32.80 $214,000 $320,000 $ $32.80 $160,000 $214,000 $ $52.80 $320,000 $428,000 $ $52.80 $214,000 - $ $72.90 $428,000 - $ $72.90 *The majority of Medicare participants, those who were already enrolled during 2015, paying premiums through deductions from Social Security benefits with MAGI below $85,001 Single and $170,001 Married Joint will continue to pay a monthly premium for Medicare Part B of $ However, Medicare participants below the stated income levels, newly enrolling in Medicare for 2016; participants paying premiums directly, not through deductions from Social Security benefits; and dual eligible participants (covered by Medicare and Medicaid, Medicare premiums paid by Medicaid) will be subject to a monthly premium of $

12 Taxable Equivalent Yields Federal Income Tax Bracket Tax-Free Yield (%) Taxable-Equivalent Yield (%) 10% % % % % %* %* An individual in the 35% bracket would have to purchase a taxable investment yielding more than 4.89% to outperform a 3% tax-free investment. *Taxable equivalent yields for the 35% and 39.6% tax brackets reflect the additional 3.8% surtax on unearned income, which commences in the 33% tax bracket for most filers. Uniform Lifetime Table (partial) The Uniform Lifetime Table is the table used by unmarried owners, married owners whose spouses are not more than 10 years younger, and married owners whose spouses are not the sole beneficiary of the IRA s to calculate Required Minimum Distribution. This table is not used for Inherited or Beneficiary IRA s. Age of IRA Owner or Plan Participant Life Expectancy (in years) Age of IRA Owner or Plan Participant Life Expectancy (in years) The information contained herein has been compiled from a variety of publicly available documents and web sites believed to be reliable; however, there is no guarantee as to its accuracy or completeness. All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity. Davenport & Company LLC does not provide tax or legal advice; please consult your own professionals for guidance on these matters. 11

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