taxes

5 higher taxes that target the wealthy

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Reduced deductions, exemptions
Reduced deductions, exemptions © Graham Prentice/Shutterstock.com

Reduced deductions, exemptions

Wealthier taxpayers also have to do extra math to figure out how much of their personal exemptions and itemized deductions they will lose. The American Taxpayer Relief Act reinstated the phaseout of these tax reduction amounts, again based on adjusted gross income.

The trigger thresholds are more than $154,950 if married filing separately in 2015 ($155,650 in 2016); $258,250 if single in 2015 ($259,400 in 2016); $284,050 if head of household in 2015 ($285,350 in 2016); or $309,900 if married filing jointly or a qualifying widow/widower in 2015 ($311,300 in 2016).

Personal exemptions -- $4,000 each for yourself, spouse and any dependents for the 2015 tax year; $4,050 in 2016 -- help reduce adjusted gross income to a lower taxable income amount. This amount is reduced incrementally once a rich taxpayer's income exceeds the filing status income trigger amount. The personal exemption phaseout, or PEP, could zero out the exemption amounts for some taxpayers.

Wealthier taxpayers who itemize also could lose some of the value of common deductions, such as mortgage interest, state and local taxes paid and charitable donations. When their income hits the earnings level trigger for their filing status, they must make a series of Schedule A calculations to determine their reduced itemized deduction amount.

Unlike the exemptions phaseout, the itemized deductions cannot be completely eliminated. However, they could be reduced enough to cause wealthier filers some tax pain.

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