Inflation-Adjusted Tax Brackets
This is the significant change to the tax code. Inflation typically increases the nominal income for households. The IRS pushed the minimum taxable wage for married couples filing separately from $9,275 to $9,325. On the other hand, married couples filing jointly saw the minimum taxable wage move from $18,550 to $18,650 while that of the heads of households stands at $13,350 up from $13,250.
As a whole, the tax differences resulting from the inflation adjustment are very minute. This is mainly because the rate of inflation has been relatively low and as such, the upward shift in the tax schedule hasn’t been as significant. Unless you expect significant bonuses or substantial changes in your salary, you may not need to make any year over year tax adjustments.
An Increase in Standard Deductions
People filing their taxes individually as well as heads of households will get a deduction of $6,350 and $9,350 in 2017 respectively. Compared to deductions in 2016, this is a $50 increase. For couples filing jointly, their standard deduction will rise by $100 to $12,700. Even though the change isn’t very significant, anything to reduce your tax liability is welcome.
Upward Adjustments for Both Traditional and Roth IRA Phase-outs
The traditional IRA is considered the most popular retirement tool. This is mainly because IRA accounts are tax-deferred meaning the tax liability will become due when making your retirement withdrawals. Also, these accounts can lower your current tax liability. In 2017, single taxpayers will enjoy an additional $1,000 to their 2016 contribution limit for an income range of $62,000 to $72,000. For married couples within the salary range of $99,000 to $119,000, and filing jointly, they will also be able to contribute $2,000 above their 2016 limit.
For Roth IRA, the individual phase out for single filers rose by $1,000 for those at the adjusted gross income range of $118,000 to $133,000. Couples filing jointly and whose adjusted gross income is in the range of $186,000 to $196,000 will enjoy an additional $2,000 to their contribution limit.
This change simply means that more people will be able to make contributions to both Roth IRA and traditional IRA in 2017.
Changes to Medical Expense Deductions
In 2016, a large number of Americans had to surpass the 10% threshold of their adjusted gross income before taking a deduction. On the other hand, taxpayers aged 65 and above were allowed a limit of 7.5% of their adjusted gross income to qualify for a tax deduction. Starting 2017, this has changed and now all people including the 65 year plus citizens have to meet the medical expenses threshold of 10% of their adjusted gross income for them to qualify for tax deductions.
An Increase in Estate Tax Exemption
There is a modest increase in estate tax exemptions in 2017. This is particularly for those long-term investors and property barons. Estates of individuals who pass on in 2017 will be tax exempt up to $5.49 million. This is an increase of $40,000 from 2016 levels. Generally, estate taxes affect a small population which means this change will not be widely felt. Ironically, this small group of people has attracted the attention of many legislators and policy makers who are of the opinion that the tax exemptions should be scrapped off altogether.
With all these changes in mind, it is important you take the time to compile tax information for your business and personal records. Be sure to understand your current situation and the potential changes it may undergo. Waiting for the last minute is not an option, and if you consider the tax assessment process to be overwhelming, you can enlist the help of a tax professional.