2017 Tax Law Updates
Tax Season Kicks off January 29, 2018
The IRS announced that the country's 2018 tax season opens on January 29th. This season will feature standard inflation adjustments, tax extenders and some extenders that have now become permanent. For details on the new tax law that will impact the 2018 tax year, visit our page, "New Tax Law".
I. Inflation Adjustments
- Personal Exemptions. The personal exemption amount remains at $4,050 for 2017. Phase-outs for personal exemption amounts (sometimes called “PEP”) begins with adjusted gross incomes (AGI) of $259,400 for individuals and $311,300 for married couples filing jointly.
- Standard Deductions. The standard deduction increases to $6,350 for single taxpayers and married taxpayers filing separately. The standard deduction increases to $12,700 for married couples filing jointly and increases to $9,350 for heads of household.
- Itemized Deductions. For tax year 2017, there may be a limitation on itemized deductions for single taxpayers with incomes of $261,500 or more and for married couples filing jointly with income of $313,800 or more. This limitation, known as the Pease Limitations, will occur when a taxpayer in these income brackets has personal deductions that exceed the Standard Deduction amount.
- 39.6 percent tax bracket. This rate affects singles whose income exceeds $418,400 ($470,700 for married taxpayers filing a joint return).
- Standard mileage allowance. The business standard mileage allowance decreases from 54 cents per mile in 2016 to 53.5 cents per mile 2017. The rate for medical or moving expenses are from 19 cents in 2016 to 17 cents per mile in 2017. For miles driven in service of charitable organizations, it remains at 14 cents.
- Alternative Minimum Tax exemption. The AMT exemption is $54,300 for single and head of household filers, or $84,500 for married filing joint filers.
- Flexible Spending Accounts. The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending accounts (FSA) increases from $2,550 for 2016 to $2,600 for 2017.
- Federal Estate Tax Exemption. The exclusion amount for estates of decedents who die in 2017 is $5,450,000 before the estate is subject to federal estate tax.
Not every amount in the IRS code changed this year. The amount taxpayers can give as a gift to any one person without filing a gift tax return is still $14,000. In addition, the amount taxpayers can contribute to an IRA remains at no more than $5,500 (or $6,500 if age 50 or older) in a traditional or Roth IRA.
II. Tax Extenders
At the end of 2016, it was determined that the tax benefit prior year laws extended some deductions and credits through December 31, 2017 or permanently:
- Higher education tuition deduction. Taxpayers may still be able to deduct between $2,000 and $4,000 of qualified tuition expense.
- Educator expense deduction. Teachers can claim up to $250 of unreimbursed classroom expenses. As of 2016, this deduction has been made permanent.
- Commuting tax breaks. This extension gives taxpayers who commute by train or bus a $5 increase for a $255 monthly tax break for employer-provided subsidies as those who receive employer assistance for parking costs. The current mass transit deduction remains at $130 per month.
- Deduction for state and local income tax. This deduction has been made permanent and makes a huge difference to residents of states with a state income tax.
IRA charitable donations. IRA owners at least age 70 ½ can still make tax-free donations of up to $100,000 from IRAs to certain qualified charities.
Research and development tax credit. This has been extended through December 2017.
Deduction for small business equipment purchases of up to $2 million. This is extended and now includes computer software.
Work Opportunity Tax Credit. Taxpayers who own businessess can claim a credit equal to a certain percentage of wages paid to new hires of one of nine targeted groups. These groups include members of families receiving benefits under the Temporary Assistance to Needy Families (TANF) program, qualified veterans and ex-felons, designated community residents, vocational rehabilitation referrals, qualified summer youth employees, qualified food and nutrition recipients, qualified SSI recipients and long-term family assistance recipients..
Energy efficiency tax breaks. This includes credits for home improvements that improve energy efficiency, such as heating and cooling systems, insulation and windows. This allows for a 10 percent credit for energy efficiency improvements to existing homes, and deductions for construction of energy efficient homes and commercial buildings.