Key tax law changes in 2017
Tax reform is in the wind, with significant implications for both individual tax rates and the rates affecting corporations, small businesses and partnerships. From doubling standard deductions to reducing the tax rates on businesses and individuals, the proposals are dramatic and far-reaching.
However, given the difficulty of getting legislation passed in Congress, it’s an open question whether anything will actually be signed into law, or what it will look like if it does. Rest assured should any of these proposals be passed into law, we will update you on how they affect you.
Meanwhile, victims of Hurricanes Harvey and Irma benefit from a series of aid measures, including extended deadlines for filing and payments for both individuals and businesses, as well as relief from penalties. The length of the extensions and penalty relief periods vary, but in some cases extend into early next year.
For those interested in helping victims of these disasters through donations, please be aware that scammers are ready and willing to exploit your generosity. To ensure this does not happen, consider donating to well-established organizations like the Red Cross. At a minimum, check the charitable organization to see if it’s in good standing with the IRS.
Key 2017 tax information
Even though tax reform is uncertain, some tax code changes are definite and can be used to help plan your tax obligation. Here are some of these key tax measures for 2017:
- Income tax brackets: Remain unchanged, at seven brackets ranging from 10 percent to 39.6 percent. The thresholds for all brackets increased slightly from 2016 (by less than 1 percent), in line with cost-of-living adjustments. This means that if your income stayed the same compared with last year, more of it will be taxed in the lower brackets, reducing your effective tax.
- Exemptions: Personal exemptions remain unchanged at $4,050.
- Standard deductions: Increased slightly to $6,350 for individuals; $12,700 for married filing jointly; and $9,350 for heads of households.
- Traditional IRA and Roth IRA contributions: $5,500 (add $1,000 if age 55 or over).
- Annual gift deduction: Remains at $14,000.
- Kiddie tax threshold: $2,100 (amount of unearned income that can be taxed at your child’s lower tax rate).
Farewell to three tax breaks
Three significant tax breaks have expired and will no longer be available in 2017, unless Congress acts to reinstate them.
- Home mortgage insurance premium itemized deduction
Homebuyers with less than a 20 percent down payment typically have to buy home mortgage insurance to cover the bank’s risk. Until this year, the cost for this extra mortgage insurance had been lightened by a tax break allowing it to be used as an itemized deduction. This mortgage insurance deduction is no longer available in 2017.Tip: If this affects you, consider eliminating the need for the insurance by reducing the principal balance on your mortgage. If you’re unable to do this, plan now for the reduction in your itemized deductions.
- Tuition and fees deduction
A tax break allowing the deduction of up to $4,000 of college tuition and fees also expired this year. Luckily, there are many other educational tax breaks including two educational tax credits that can provide an even greater tax savings: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit.Tip: If you used the tuition and fees deduction in the past, consider a quick review of your situation to ensure you are not faced with an unexpected tax bill this season.
- 10 percent senior medical expense threshold
The bar to deduct medical expenses had been raised for seniors age 65 and older in 2017. Now the threshold for medical deductions is at 10 percent of adjusted gross income for everyone (it had been at 7.5 percent for seniors).Tip: If you’re age 65 or older, try to group as many of your medical procedures into one tax year as possible. That way it’s easier to cross the higher deduction threshold. For example, appointments near the end of the year may be rescheduled.
While saying goodbye to tax breaks is never fun, with proper tax planning you can make adjustments that put you in the best possible position. And who knows, Congress may still act to extend or revise these tax breaks.
Never-ending battle against scammers
The IRS reports it has gained ground in efforts to crack down on identity theft scammers. In a recent keynote address, IRS Commissioner John Koskinen said the number of victims of tax-related identity theft declined by about two-thirds over the last two years. Unfortunately, at the same time, scammers appear to be redoubling their efforts. There was an increase of about 400 percent in the number of attempted phishing and malware scams during the 2016 tax season.
Because of this, you need to be more vigilant than ever about the possibility of tax-related identity theft. Should you receive an email or text that looks suspicious, email firstname.lastname@example.org.
Reach out if you have any questions about how you can use tax planning to your advantage.