Experienced Tax
Accountant – Many of the tax changes affecting individuals and
businesses for 2017 were related to the Protecting Americans from Tax Hikes Act
of 2015 (PATH) that modified or made permanent numerous tax breaks (the
so-called "tax extenders"). To further complicate matters, some
provisions were only extended through 2016 and are set to expire at the end of
this year while others were extended through 2019. With that in mind, here's
what individuals and families need to know about tax provisions for 2017.
Personal Exemptions
The personal and
dependent exemption for tax year 2017 is $4,050.
Standard Deductions
The standard deduction
for married couples filing a joint return in 2017 is $12,700. For singles and
married individuals filing separately, it is $6,350, and for heads of household
the deduction is $9,350.
The additional standard
deduction for blind people and senior citizens in 2017 is $1,250 for married
individuals and $1,550 for singles and heads of household.
Income Tax Rates
In 2017 the top tax
rate of 39.6 percent affects individuals whose income exceeds $418,400
($470,700 for married taxpayers filing a joint return). Marginal tax rates for
2017--10, 15, 25, 28, 33 and 35 percent--remain the same as in prior years.
Due to inflation,
tax-bracket thresholds increased for every filing status. For example, the
taxable-income threshold separating the 15 percent bracket from the 25 percent
bracket is $75,900 for a married couple filing a joint return.
Estate and Gift Taxes
In 2017 there is an
exemption of $5.49 million per individual for estate, gift and
generation-skipping taxes, with a top tax rate of 40 percent. The annual
exclusion for gifts is $14,000.
Alternative Minimum Tax (AMT)
AMT exemption amounts
were made permanent and indexed for inflation retroactive to 2012. In addition,
non-refundable personal credits can now be used against the AMT.
For 2017, exemption
amounts are $54,300 for single and head of household filers, $84,500 for
married people filing jointly and for qualifying widows or widowers, and
$42,250 for married people filing separately.
Marriage Penalty Relief
The basic standard
deduction for a married couple filing jointly in 2017 is $12,700.
Pease and PEP (Personal Exemption Phaseout)
Pease (limitations on
itemized deductions) and PEP (personal exemption phase-out) limitations were
made permanent by ATRA (indexed for inflation) and affect taxpayers with income
at or above $261,500 for single filers and $313,800 for married filing jointly
in tax year 2017.
Flexible Spending Accounts (FSA)
Flexible Spending
Accounts (FSAs) are limited to $2,600 per year in 2017 (up from $2,550 in 2016)
and apply only to salary reduction contributions under a health FSA. The term
"taxable year" as it applies to FSAs refers to the plan year of the
cafeteria plan, which is typically the period during which salary reduction
elections are made.
Specifically, in the
case of a plan providing a grace period (which may be up to two months and 15
days), unused salary reduction contributions to the health FSA for plan years
beginning in 2012 or later that are carried over into the grace period for that
plan year will not count against the $2,600 limit for the subsequent plan year.
Further, employers may
allow people to carry over into the next calendar year up to $500 in their
accounts, but aren't required to do so.
Long Term Capital Gains
In 2017 taxpayers in
the lower tax brackets (10 and 15 percent) pay zero percent on long-term
capital gains. For taxpayers in the middle four tax brackets the rate is 15
percent and for taxpayers whose income is at or above $418,400 ($470,700
married filing jointly), the rate for both capital gains and dividends is
capped at 20 percent.
Individuals - Tax Credits
Adoption Credit
In 2017 a nonrefundable
(i.e. only those with a lax liability will benefit) credit of up to $13,570 is
available for qualified adoption expenses for each eligible child.
Child and Dependent Care Credit
The child and dependent
care tax credit was permanently extended for taxable years starting in 2013. If
you pay someone to take care of your dependent (defined as being under the age
of 13 at the end of the tax year or incapable of self-care) in order to work or
look for work, you may qualify for a credit of up to $1,050 or 35 percent of
$3,000 of eligible expenses.
For two or more
qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of
eligible expenses. For higher income earners the credit percentage is reduced,
but not below 20 percent, regardless of the amount of adjusted gross income.
Child Tax Credit
For tax year 2017, the
child tax credit is $1,000. A portion of the credit may be refundable, which
means that you can claim the amount you are owed, even if you have no tax
liability for the year. The credit is phased out for those with higher incomes.
Earned Income Tax
Credit (EITC)
For tax year 2017, the
maximum earned income tax credit (EITC) for low and moderate income workers and
working families increased to $6,318 (up from $6,269 in 2016). The maximum
income limit for the EITC increased to $53,930 (up from $53,505 in 2016) for
married filing jointly. The credit varies by family size, filing status, and
other factors, with the maximum credit going to joint filers with three or more
qualifying children.
Individuals - Education Expenses
Coverdell Education Savings Account
You can contribute up
to $2,000 a year to Coverdell savings accounts in 2017. These accounts can be
used to offset the cost of elementary and secondary education, as well as
post-secondary education.
American Opportunity Tax Credit
For 2017, the maximum
American Opportunity Tax Credit that can be used to offset certain higher
education expenses is $2,500 per student, although it is phased out beginning
at $160,000 adjusted gross income for joint filers and $80,000 for other
filers.
Employer-Provided
Educational Assistance
In 2017, as an
employee, you can exclude up to $5,250 of qualifying post-secondary and graduate
education expenses that are reimbursed by your employer.
Lifetime Learning Credit
A credit of up to
$2,000 is available for an unlimited number of years for certain costs of
post-secondary or graduate courses or courses to acquire or improve your job skills.
For 2017, the modified adjusted gross income threshold at which the lifetime
learning credit begins to phase out is $112,000 for joint filers and $56,000
for singles and heads of household.
Student Loan Interest
In 2017 you can deduct
up to $2,500 in student-loan interest as long as your modified adjusted gross
income is less than $65,000 (single) or $135,000 (married filing jointly). The
deduction is phased out at higher income levels. In addition, the deduction is
claimed as an adjustment to income, so you do not need to itemize your
deductions.
Individuals - Retirement
Contribution Limits
For 2017, the elective
deferral (contribution) limit for employees who participate in 401(k), 403(b),
most 457 plans, and the federal government's Thrift Savings Plan is $18,000
(same as 2016). For persons age 50 or older in 2017, the limit is $24,000
($6,000 catch-up contribution). Contribution limits for SIMPLE plans remain at
$12,500 (same as 2016) for persons under age 50 and $15,500 for anyone age 50
or older in 2017. The maximum compensation used to determine contributions
increased from $265,000 to $270,000.
Saver's Credit
In 2017, the adjusted
gross income limit for the saver's credit (also known as the retirement savings
contributions credit) for low-and-moderate-income workers is $62,000 for
married couples filing jointly, $46,500 for heads of household, and $31,000 for
married individuals filing separately and for singles.
Please call if you need
help understanding which deductions and tax credits you are entitled to or you
have questions regarding your small business accounting, ABA Tax Accounting is
always here. Call us for a free consultation at 651-300-4777.
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