With the New Year come new tax laws. For most taxpayers with modified adjusted gross incomes (MAGI) under $200,000 (single) and $250,000 for married couples filing jointly, income-tax rates won’t increase and most tax-relief provisions remain in effect. Here is a summary of major tax provisions that could impact you and your family.
1. Tax rates. Higher income tax, ordinary-dividend tax, and capital tax rates are in effect for 2017 for higher-income taxpayers. The 39.6-percent tax rate applies to income over a specified amount: $418,400 for single filers, $470,700 for married filers. These dollar amounts are inflation-adjusted for the 2017 tax year. The old rates ranging from 10 percent to 35 percent remain in effect for lower-income brackets.
The long-term capital gains rate is 20 percent for single filers with incomes exceeding $418,400 ($470,700 for married taxpayers filing jointly). The top rate stays at 15 percent for most other taxpayers.
2. Itemized-Deduction and Exemption phase-out. Itemized deductions and personal exemptions, which is $4,050 for 2017, will be subject to the phase-out rules. Single taxpayers with incomes exceeding $261,500 (married taxpayers exceeding $313,800) will be impacted by both of these phase-outs.
3. Medical deduction. Only medical expenses that exceed 10- percent of your adjusted gross income (AGI) will be allowed to a deduction. Also, the Flexible Spending Accounts (FSA) offered by employers has an annual cap of $2,600.
4. Medicare taxes. An additional 0.9-percent Medicare tax on earnings and 3.8-percent surtax on net investment income will be in effect for 2017. Individual taxpayers earning over $200,000 (married over $250,000) will be impacted.
6. Retirement amounts. For 2017, IRA contribution limits remain at $5,500 or $6,500 if participant is 50 or older. Annual contributions to plans such as 401(k)s will rise to a maximum $24,000; $18,000 in regular contributions, plus $6,000 in catch-up contributions for those 50-plus.
7. American Opportunity Tax Credit (AOTC). The AOTC (formerly named the Hope Credit) is extended through 2017. Within income thresholds, single taxpayers $90,000 and married filing jointly, $180,000, this provision allows a credit up to $2,500 in qualified secondary educational expenses (tuition, fees, and materials) to be deducted for qualified students.
8. Alternative Minimum Tax (AMT). The AMT is permanently “patched” (with inflation adjustments). For 2017, the AMT exemption is $54,300 for single filers and $84,500 for joint filers.
9. Estate Taxes. In 2017, the maximum estate-and-gift tax is 40 percent. The exemption amount is $5.49 million (indexed for inflation).
10. Gift Taxes. The annual gift exclusion amount remains $14,000 ($28,000 per couple).
11. Teacher Expenses. $250 “above-the-line” deduction for unreimbursed classroom expenses for educators.
12. Sales taxes. Deducting the general-sales-tax itemized deduction in lieu of taking a state income-tax deduction is extended into the 2017 tax year.
13. Child Tax Credit. You will be able to reduce your Federal income tax by up to $1,000 for each qualifying child under the age of 17, if you are below income thresholds.
All taxpayers should be aware of these changes and plan accordingly.
Barry Lisak is an IRS Enrolled Agent, meaning that he has passed special U.S. Treasury Department exams that qualify him to represent clients dealing with audits or tax-resolution cases. Any questions can be directed to him at (516) TAX-SAVE, or firstname.lastname@example.org.