Tax Changes for 2017

2017 Tax Brackets

For 2017, the 10%, 15%, 25%, 28%, 33% and 35% brackets for ordinary income reflect an inflation adjustment.

The top bracket of 39.6% applies if taxable income exceeds:

  • $418,4000 for single taxpayers
  • $444,550 for heads of households
  • $470,700 for married taxpayers filing jointly and qualifying widows and widowers
  • $235,350 for married taxpayers filing separate returns.

2017 Capital Gains and Qualified Dividends

Depending on your filing status, taxable income, and how much of your taxable income consists of qualified dividends and eligible long-term gains, qualified dividends and long-term capital gains may entirely escape tax under the 0% rate, or be subject to capital gain rates of 15% or 20%.

The 20% capital gain rate has the same taxable income thresholds as the 39.6% ordinary income rate:

  • $418,400 for single taxpayers
  • $444,550 for heads of households
  • $470,700 for married taxpayers filing jointly and qualifying widows and widowers
  • $235,350 for married taxpayers filing separate returns.

The 0%, 15%, and 20% rates do not apply to long-term gains subject to the 28% rate (collectibles and taxed portion of small business stock) or the 25% rate for unrecaptured real estate depreciation.

2017 Individual Health Care Mandate

You are required to have minimum essential health coverage through:

  • an employer plan
  • a government program, or
  • other plan

Penalty:

If you do not have minimum essential health coverage, you will pay a penalty, unless you are exempt.

The penalty amount for 2017 is the higher of:

  1. 2.5% of household income above your filing threshold, or
  2. $695 per person in your household ($347.50 per dependent child under age 18),

up to a maximum of $2,085.

Premium Tax Credit

There is a premium tax credit available to help people with modest means pay premiums for coverage obtained from a government exchange (Marketplace). Eligibility for this advanceable, refundable tax credit depends on your household income and other factors.

Form 8962, Premium Tax Credit (PTC):

If you claimed the credit in advance when you obtained coverage, you have to reconcile what you already applied toward your premiums with what you are actually entitled to. You report the difference on Form 1040, Line 46 as an additional tax. Complete Form 8962 if you received the credit in advance and attach it to your return. See the instructions for Form 8962.

If you did not receive the credit in advance, but are eligible for a credit, you can claim it on your return. Complete Form 8962.

If you do not claim the premium tax credit and qualify for Trade Adjustment Assistance (TAA), you may qualify for the health coverage tax credit of 72.5% of the premiums.

2017 First-year expensing (Section 179) and Bonus Depreciation

For qualifying property placed in service in 2017, first-year expensing is allowed up to a limit of $510,000. The limit begins to phase out if the total cost of qualifying property exceeds $2,030,000.

Section 179 Deduction Phase-out:

If the cost of qualifying property placed in service in 2017 is more than $2,030,000, you reduce the $510,000 expensing limit dollar-for-dollar for each dollar the cost of qualifying property exceeds $2,030,000 (but not below zero).

For example, if you place machinery in service during 2016 costing $2,100,000, the $510,000 deduction limit is reduced by $70,000 to $440,000.

If the cost of the property was $2,540,000 or more, you could not take the Section 179 deduction because the $510,000 deduction limit would be completely phased out.

Bonus Depreciation:

The bonus depreciation rate for 2017 is 50%. Bonus depreciation is also called a Section 168(k) allowance and a special depreciation allowance.

2017 Standard Deduction

Your standard deduction depends on your filing status.

  • Married filing Joint return: $12,700
  • Qualifying widow(er): $12,700
  • Head of household: $9,350
  • Single: $6,350
  • Married filing separately: $6,350
  • Dependents - minimum deduction: $1,050

Additional Standard Deduction:

Individuals at least 65 or blind may claim the additional standard deduction. This is an amount that is added to the regular standard deduction to provide a larger deduction.

If you turned 65 on January 1, you are considered to be 65 as of December 31 of the previous tax year. For example, if you turned 65 on January 1, 2018, you are considered to be 65 as of December 31, 2017 and would be eligible to claim the additional standard deduction that applies to age.

Complete Blindness:

To be eligible for the additional standard deduction for blindness, you must be completely blind as of December 31. The January 1 exception discussed above for age does not apply to blindness.

Partial Blindness:

To claim the additional standard deduction if you are partially blind as of December 31, you will need to get a letter from your eye doctor certifying that you cannot see better than 20/200 in your better eye with lenses or that your filed of vision is 20 degrees or less. If your eye doctor believes your vision will never improve beyond these limits, this fact should be stated in the letter.

Additional Standard Deduction:

  • Married: amount allowed for each spouse - filing jointly or separately:
    • $1,250 for each spouse age 65 or older
    • $1,250 for each spouse who is blind

Example:

If both spouses are 65 and both are also blind, the additional standard deduction would be $5,000 computed as follows:

  • $1,250 x 2 = $2,500 for age, PLUS
  • $1,250 x 2 = $2,500 for blindness, EQUALS
  • $5,000
  • Qualifying Widow/Widower:
    • $1,250 ($2,500 for age and blindness)
  • Single or Head of Household:
    • $1,550 ($3,100 for age and blindness)

2017 Personal Exemptions

For 2017, each allowable exemption is $4,050, which is subject to a phaseout.

Phaseout of Exemptions for 2017:

If your 2017 filing status is - Phaseout applies if AGI exceeds - Exemptions Phased Out Completely if AGI exceeds -
Married filing jointly or Qualifying Widow/widower $313,800 $436,300
Head of household 287,650 410,150
Single 261,500 384,000
Married filing separately 156,900 218,150

The above Adjusted Gross Income phaseout thresholds for exemptions also apply to the phaseout of itemized deductions claimed on Schedule A (Form 1040), but there is no phaseout of deductions for the following:

  • Medical expenses
  • Investment interest
  • Casualty and theft losses
  • Gambling losses.

Other itemized deductions are reduced by 3% of adjusted gross income exceeding the applicable threshold, but the total reduction cannot exceed 80% of the deductions.

2017 Adoption Expenses

For 2017, the limit on the adoption credit as well as the exclusion for employer-paid adoption assistance is $13,570. The benefit phaseout range is modified adjusted gross income between $203,540 to $243,540.

2017 Alternative Minimum tax (AMT) Exemption and Tax Brackets

The AMT exemptions, exemption phaseout thresholds, and the dividing line between the 26% and 28% AMT brackets are adjusted for inflation. The 2017 AMT exemptions (prior to any phaseout) are:

  • $84,500 for married couples filing jointly
  • $84,500 Qualifying widows and widowers
  • $54,300 for single persons
  • $54,300 for heads of households
  • $42,250 for married persons filing separately

2017 Saver's Credit

The adjusted gross income (AGI) brackets for the 10%, 20%, and 50% credits are increased for 2017.

No credit is allowed when AGI reaches:

  • $31,000 for single taxpayers
  • $46,500 for heads of households
  • $62,000 for married persons filing jointly

2017 Annual Gift Tax Exclusion and Gift Tax and Estate Tax Exemption

  • For 2017, the annual gift tax exclusion stays at $14,000 per donee for gifts of cash or present interests.
  • The basic exemption amount for 2017 gift tax and estate tax purposes is $5,490,000.
  • The top tax rate remains at 40%.

2017 Deduction Limits for Long-Term Care Premiums

The maximum amount of age-based long-term care premiums that can be included as deductible medical expenses for 2017 (subject to the 7.5% if 65 or older or 10% AGI floor, if under 65) is:

  • $410 if you are age 40 or younger at the end of 2017
  • $770 for those age 41 through 50
  • $1,530 for those age 51 through 60
  • $4,090 for those age 61 through 70
  • $5,110 for those over age 70

2017 Foreign Earned Income and Housing Exclusions

For 2017, the maximum foreign earned income exclusion is $102,100. The limit on housing expenses that may be taken into account in figuring the housing exclusion is generally $30,630, but the limit is increased by the IRS for high cost localities.

2017 Mortgage Interest Limit for Unmarried Co-owners

In 2015, the Ninth Circuit Court of Appeals held that if unmarried individuals co-own a residence, each co-owner can deduct interest on acquisition debt of up to $1 million and home equity debt up to $100,000. This decision disagreed with the Tax Court and IRS view that the $1.1 million debt limit must be divided among the co-owners. The IRS has agreed to follow the appeals court decision.

2017 Self-employment Tax and Deduction for Portion of Self-employment tax

  • On Schedule SE for 2017, self-employment tax of 15.3% applies to earnings of up to $127,200 after the earnings are reduced by 7.65%.
  • The 15.3% rate equals 12.4% for Social Security (6.2% employee share and 6.2% employer share) plus 2.9% for Medicare (1.45% employee share and 1.45% employer share).
  • If net earnings exceed $127,200, the 2.9% Medicare rate applies to the entire amount.
  • One half of the self-employments tax may be claimed as an above-the-line deduction on the front page of Form 1040. In other words, you don't have to itemize your deductions to claim this deduction.

2017 Social Security Wage Base

  • For 2017, the maximum wage base for Social Security withholdings is $127,200.
  • The employee's share of the Social Security tax rate is 6.2% (50% x 12.4%), therefore, Social Security tax withholdings should not exceed $7,886.40 (6.2% x $127,200).
  • The employee's share of the Medicare tax rate of 1.45% (50% x 2.9%) is withheld from all wages, regardless of amount.
  • The employer also pays 1.45% of each employee's total gross wages.

2017 IRA and Roth IRA Contribution Phaseout; Rollover Limits

For 2017, the contribution limit for traditional IRAs and Roth IRAs is unchanged at $5,500, or $6,500 for those age 50 or older.

You can make only one IRA rollover (60-day rollover) every 12 months. However, there is no restriction on the number of direct transfers you can make each year. If you miss the 60-day deadline because of an event specified in Revenue Procedure 2016-47, you can complete the rollover by self-certifying your eligibility for this relief.

Traditional IRA Deduction Limit for Contributions:

The deduction limit for 2017 contributions to a traditional IRA is phased out for active plan participants with modified adjusted gross income (MAGI) between:

    • $62,000 and $72,000 for a single person or head of household,
    • or between $99,000 and $119.000 for married persons filing jointly and qualifying widows and widowers.

The phaseout range is MAGI between $186,000 - $196,000 for a spouse who is not an active plan participant and who files jointly with a spouse who is an active plan participant.

Roth IRA Contribution Limit:

The 2017 Roth IRA contribution limit is phased out for a single person or head of household with MAGI between $118,000 and $133,000 and for married persons filing jointly and qualifying widows and widowers with MAGI between $186,000 and $196,000.

2017 IRS Mileage Allowance

2017 IRS Mileage Rates:

  • Business: 53.5 cents a mile
  • Medical: 17 cents a mile
  • Moving: 17cents a mile
  • Charitable: 14 cents a mile

2017 Health Savings Accounts (HSA)

The definition of a high-deductible health plan, which is a prerequisite to funding an HSA, means a policy with a minimum deductible for 2017 of $1,300 for self-only coverage and a maximum out-of-pocket cap on co-payments and other amounts of $6,550.These limits are doubled for family coverage ($2,600/$13,100).

The contribution limit for 2017 is $3,400 for self-only coverage and $6,750 for family coverage.

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