1. Tax Brackets Adjusted for Inflation
Below you will find the tax brackets for 2017. But with Trump’s election and a Republican controlled House and Senate, we could be seeing drastic reductions in tax rates very soon.
Tax Rate Single Married, Filing Jointly
10% $0 $0
15% $9,326 $18,651
25% $37,951 $75,901
28% $91,901 $153,101
33% $190,651 $233,351
35% $416,701 $416,701
39.6% $418,401+ $470,701+
2. Standard Deduction Increase
Individuals will be receiving a small gift in the form of an increase to the standard deduction amount for taxable-year 2017. Accordingly, married couples filing jointly will be entitled to a $12,700 deduction; head of household and individual filers will receive standard deduction increases to $9,350 and $6,350, respectively.
3. Traditional and Roth IRA Phaseout Increase
Traditional IRAs provide you the opportunity to defer taxes while contributing toward your retirement. You can deduct amounts contributed toward your IRA from your current year’s taxable income. However, this benefit phases out at certain income levels. The phase-out lower and upper limits for this deduction, respectively, will increase in 2017 by $1,000 to: $62,000 and $72,000 for single taxpayers, and $99,000 and $119,000 for married couples filing jointly.
Roth IRAs, on the other hand, provide no up-front tax savings but do in fact grow tax-free and provide tax-free income in over the course of your retirement. If you were not eligible for Roth IRA contributions in 2016, it is possible that you may be eligible to contribute in 2017. Same as with the Traditional IRA, Roth IRA phase-outs increased by $1,000 for single filers to a range of $118,000 to $133,000, and $2,000 for married couples filing jointly to a range of $186,000 to $196,000.
4. Estate Tax Exemption Increase
Those of you who will be inheriting more than $5.45 million are in for a small windfall. On January 1, 2017, the estate tax exemption increased $40,000 to $5.49 million. This means that the estates of individuals who pass away will not be subject to any estate tax on up to $5.49 million of the estate. There may be even better news on the horizon, as well, as Donald Trump has indicated he would like to abolish the estate tax entirely. This would mean that wealth, even in excess of $5.49 million, would pass from a decedent to a beneficiary tax free.
5. Medical Expense Deduction Decrease for Seniors
Amid all these increases, seniors will be seeing a decrease to their allowable medical expense deduction. Pre-January 1, 2017, taxpayers 65 and older were able to deduct medical expenses from their taxable income if such expenses surpassed 7.5% of the taxpayer’s adjusted gross income, while the threshold for taxpayers under 65 years of age was, and still is, 10%. However, beginning this year all individuals will be subject to this 10% threshold.
6. Alternative Minimum Tax Exemption Increase
The Alternative Minimum Tax (the “AMT”) is a nasty trap that only pops up for some taxpayers but still finds a way to complicate the lives of many more. Thankfully, however, the IRS provides an exemption so that if your AMT liability is not over a certain amount you are not subject to the AMT. The exemption amount for tax year 2017 is $54,300 for individuals and $84,500 for married couples filing jointly, which amounts to an increase of $400 and $700, respectively, from the 2016 exemption amounts.