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The following are some of the tax changes for 2016. For information on other changes, go to IRS.gov.
Accounting methods. Certain small business taxpayers may be eligible to adopt or change to the cash method of accounting and may not be required to account for inventories. For more information, see Inventories in chapter 2.
Reportable transactions. You must file Form 8886, Reportable Transaction Disclosure Statement, to report certain transactions. You may have to pay a penalty if you are required to file Form 8886 but do not do so. You may also have to pay interest and penalties on any reportable transaction understatements. Reportable transactions include:
For more information, see the Instructions for Form 8886.
Simplified method for business use of home deduction. . The IRS provides a simplified method to determine your expenses for business use of your home. For more information, see Business Use of Your Home in chapter 8.
IRA and Other Retirement Plans
Application of one-rollover-per-year limitation. Starting in 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 1-year period regardless of the number of IRAs you own. However, you can continue to make unlimited trustee-to-trustee transfers between IRAs because this type of transfer is not considered a rollover. Furthermore, there is no limit on the number of rollovers from a traditional IRA to a Roth IRA (also known as conversions). For more information, see Application of one-rollover limitation , later.
Amount of Roth IRA Contributions That You Can Make for 2016
This table shows whether your contribution to a Roth IRA is affected by the amount of your modified AGI as computed for Roth IRA purpose.
Amount of your reduced Roth IRA contribution
If the amount you can contribute must be reduced, figure your reduced contribution limit as follows.
Retirement Topics - IRA Contribution Limits
The IRA contribution limit does not apply to:
Claiming a tax deduction for your IRA contribution
Your traditional IRA contributions may be tax-deductible. The deduction may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels.
Roth IRA contribution limit
The same general contribution limit applies to both Roth and traditional IRAs. However, your Roth IRA contribution might be limited based on your filing status and income.
IRA contributions after age 70½
You can’t make regular contributions to a traditional IRA in the year you reach 70½ and older. However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of your age.
If you file a joint return, you may be able to contribute to an IRA even if you did not have taxable compensation as long as your spouse did. The amount of your combined contributions can’t be more than the taxable compensation reported on your joint return. See the formula in IRS Publication 590-A.
If neither spouse participated in a retirement plan at work, all of your contributions will be deductible.
Can I contribute to an IRA if I participate in a retirement plan at work?
You can contribute to a traditional or Roth IRA whether or not you participate in another retirement plan through your employer or business. However, you might not be able to deduct all of your traditional IRA contributions if you or your spouse participates in another retirement plan at work. Roth IRA contributions might be limited if your income exceeds a certain level.
Tax on excess IRA contributions
An excess IRA contribution occurs if you:
Excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA. The tax can’t be more than 6% of the combined value of all your IRAs as of the end of the tax year.
To avoid the excess contributions tax:
If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your modified AGI is more than $183,000 but less than $193,000. If your modified AGI is $193,000 or more, you cannot take a deduction for contributions to a traditional IRA. See How Much Can You Deduct , later.
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