REG-1 [2016 vs. 2015]

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1 Miles CPA Review: REG Updates Note: Most of the changes in REG have been for the inflation-indexed $ which are generally not tested on the exams (and there s no need to memorize). Further, the exams use 2015 $ thru May 2016, and 2016 $ are testable only from July 2016 Exam Tip: None of the $ number changes on this update will be tested on the CPA exams. REG-1 [2016 vs. 2015] Ordinary Income Tax Rates - Federal Income Tax Brackets for 2016 [for reference purposes do not memorize!] Tax Rate Single 10% $0 - $9,275 15% $9,275 - $37,650 25% $37,650- $91,150 28% $91,150 - $190,150 33% $190,150 - $413,350 35% $413,350 - $415, % Over $415,050 Married Filing Jointly / Head of Household Married Filing Qualified Widow(er) Separately $0 - $18,550 $0 - $13,250 $0 - $9,275 $18,550- $75,300 $13,250 - $50,400 $9,275 - $37,650 $75,300 - $151,900 $50,400 - $130,150 $37,650- $75,950 $151,900- $231,450 $130,150 - $210,800 $75,950 - $115,725 $231,450- $413,350 $210,800 - $413,350 $115,725- $206,675 $413,350- $466,950 $413,350 - $441,000 $206,675- $233,475 Over $466,950 Over $441,000 Over $233,475 Unearned Income Limit for Kiddie Tax: $1,050 for both 2015 and 2016 Capital Gain & Qualified Dividend Tax Rates - For both 2015 and 2016, the long term capital gains tax rateand qualified dividend tax rate continues to be at 20% for taxpayers whose income exceeds the threshold for the 39.6% ordinary income tax bracket (old 15% tax rate is still applicable on income below the threshold and 0% tax rate applies for taxpayers in the 10% & 15% tax brackets) Social Security & Medicare FICA tax 15.3% Social Security and Medicare taxes for both 2015 and 2016 that includes: FICA - Social for employer plus 6.2% for employee [on max. $118,500 for both 2015 and 2016] FICA - for employer plus 1.45% for employee Beginning 2013, additional FICA-Medicare for the excess of wages & selfemployment income over $200,000 ($250,000 if MFJ) Note: This is in addition to the 1.45% payable on total wages Unearned Income Medicare Contribution Tax of 3.8% applies to net investment income for taxpayers whose modified AGI exceeds $200,000 (Single) and $250,000 (MFJ) Thus, taxpayers in the highest tax bracket will face a combined 43.4% marginal tax rate on their investment income

2 Transportation fringe benefit excludable from employee income: Upto $255/month in 2016 ($130/month in 2015, was retroactively increased to $250/month) for transit passes Upto $255/month in 2016 ($250 in 2015) for qualified parking Foreign Earned Income Exclusion: US citizens and resident aliens (green card holders) working in a foreigncountry may exclude up to $101,300 of foreign income from taxation for 2016 ($100,800 for 2015) IRA Contribution Limits: The dollar limits on contribution to Traditional and Roth IRA for 2016 remains thesame as 2015: $5,500 for single ($11,000 for MFJ) $6,500 ($13,000 for MFJ) for taxpayers aged 50 and above Standard Deduction: The amount of standard deduction available according to the filing status to taxpayeris indexed annually for inflation and is as follows: Filing Status Single/Married Filing $6,300 $6,300 Separately Married Filing Jointly/QW $12,600 $12,600 Head of Household $9,300 $9,250 Standard Deduction for Dependents: The standard deduction for dependents claimed on other taxreturns is the greater of: $ 1,050 (for both 2015 and 2016); or The dependent s earned income for the year plus $350, but cannot exceed the single standard deduction amount of $6,300 (for both 2015 and 2016) Additional Standard Deduction for blind and taxpayers who are age 65 or older: The additionalstandard deduction for taxpayers who are blind (vision less than 20/200) and taxpayers who are age 65 and above: Single or Head of Household Blind or Age 65 $1,550 Blind and over Age 65 $3,100 Married Filing Jointly One spouse blind or Age 65 $1,250 One spouse blind & Age 65 $2,500 Both spouses blind or Age 65 $2,500 Both spouses blind & Age 65 $5,000 $1,550 $3,100 $1,250 $2,500 $2,500 $5,000

3 Itemized Deduction = Medical Expenses + Taxes + Interest + Charity + Casualty + Job Expenses &MiscDeductions + Misc Others Note: The phase-out of itemized deductions that was suspended in 2012 was imposed again from the year 2013 ( No need to memorize ): 2016 Phase-out 2015 Phase-out Single $259,400 $258,250 Married Filing Jointly $311,300 $309,900 Itemized deductions are reduced by 3% of the amount which the taxpayer s AGI exceeds the above amounts Itemized deductions may not be reduced below 80% of the amount allowed before the phase-out Standard Mileage Rate: The 2016 standard mileage rates for various deductions are as follows: Standard mileage rate for deduction of business related vehicle expenditure is 54 per mile in 2016 (57.5 in 2015) For taxpayers use of personal vehicle for charitable purposes, the mileage rate is unchanged from the 2015 rate of 14 per mile For use of personal vehicle for medical reasons or moving expenses, the mileage rate is 19 per mile for 2015 as opposed to 23 per mile for 2015 Personal Exemption Personal Exemption for 2016 is $4,050 ($4,000 for 2015). Phase-out limits in 2015: 2016 Phase-out 2015 Phase-out Single $259,400 - $381,900 $258,250 - $380,750 Married Filing Jointly/QW $311,300 - $433,800 $309,900 - $432,400 Personal exemption is reduced by 2% for every $2.5k or portion thereof AMT Exemption and phase-out: 2016 Filing Status AMT Exemption AMT Exemptions begins to phase-out Single or Head of Household $53,900 $119,700 Married Filing Jointly & $83,800 $159,700 Qualifying Widower Married Filing Separately $41,900 $79,850 Adoption Credit: The American Taxpayer Relief Act enacted on Jan 2, 2014, permanently extended theadoption credit and adoption assistance program. The maximum credit allowed or the excludable assistance is $13,460 for 2016 ($13,400 for 2015) Earned Income Credit: The maximum amount of investment income allowed in order to qualify for earnedincome credit is $3,400 (for both 2015 and 2016)

4 REG-2 [2016 vs. 2015] Section 179 expense (optional election, not mandatory): For both 2015 and 2016, expense the cost ofdepreciable personal property (and off-the-shelf software) upto $500,000. Reduced $ by $ for amount placed during the year exceeding $2,000,000. Hence, Section 179 does not apply if purchases > $2,500,000 Bonus depreciation: For both 2015 and 2016, additional first-year depreciation of 50% on all property witha MACRS life of 20 years or less is allowed REG-4 [2016 vs. 2015] S Corp Built-in Gains Tax: 35% tax must be paid by S Corp s for unrealized built-in gains on sale of property within 5 years of S Election. [General rules were 10 years. Changed to 7 years for followed by 5years since the year 2011] Gift Tax Exclusion Amount: $14,000 (for both 2015 and 2016) Gift and/or Estate Value Life-time exclusion: Upto $5.45 million of gross estate can be exempted fromestate taxation in 2016 ($5.43 million in 2014) Estates & Trusts: Income Tax Brackets for 2016 [for reference purposes do not memorize!] Tax Rate Tax Bracket 15% $0 - $2,500 25% $2,500 - $5,900 28% $5,900 - $9,050 33% $9,050 - $12, % Over $12,300

5 REG ERRATA 2016 (EFFECTIVE 01/01/2013) Topic: REG-3>Taxation of C Corporations>Calculating Tax>Penalty Taxes>Accumulated Earnings Tax>Pg. R Original: Tax rate of 15% on undistributed income subject to the following deductions/limits: Correction: Tax rate of 20% on undistributed income subject to the following deductions/limits: 2. Original: Calculation> Accumulated Taxable Income x 15% = Accumulated Earnings Tax Correction: Calculation>Accumulated Taxable Income x 20% = Accumulated Earnings Tax Topic: REG-3>Taxation of C Corporations>Calculating Tax>Penalty Taxes>Personal Holding Companies Tax>Pg. R Original: PHC Tax rate of 15% on undistributed income subject to the following deductions: Correction: PHC Tax rate of 20% on undistributed income subject to the following deductions: