Significant U.S. Tax Changes for 2017

(2018 Filing Season)

Tax Cuts and Jobs Act - (2018 Changes)

The Tax Cuts and Jobs Act was signed by President Trump on December 22, 2017, and includes significant changes to personal and business taxation.  Most of the provisions of the new Act take effect for 2018, and a summary can be viewed here.

This page deals with tax changes which will be in effect for 2017, since tax returns prepared during the spring of 2018 will still follow the former code.  We will continue to update information regarding the effect of the Tax Cuts and Jobs Act as new information becomes available.

Individual Taxpayer Identification Number (ITIN) Renewal

Individual Taxpayer Identification Numbers obtained prior to January 1, 2013 and not used on three consecutive tax year's returns will need to be renewed.

Affordable Care Act

Under the Affordable Care Act, the federal government, state governments, insurers, employers, and individuals are given shared responsibility to reform and improve the availability, quality, and affordability of health insurance coverage in the United States. Starting in 2014, the individual shared responsibility provision calls for each individual to have minimum essential health coverage (known as minimum essential coverage) for each month, or qualify for an exemption. Otherwise, they are required to make a payment when filing their federal income tax return.

The provision applies to individuals of all ages, including children. The adult or married couple who can claim a child or another individual as a dependent for federal income tax purposes is responsible for making the payment if the dependent does not have coverage or an exemption.

The provision went into effect on Jan. 1, 2014. It applies to each month in the calendar year. The amount of any payment owed takes into account the number of months in a given year an individual is without coverage or an exemption.

For 2016 & 2017 the penalty for not having health coverage has increased to the higher of $695 per adult and $347.50 per child under 18 (maximum $2,085) or 2.5% of household income to a maxumum of the national average for Bronze plan coverage.  The annual national average premium for a bronze level health plan available through the Marketplace is $2,676 per year ($223 per month) for an individual and $13,380 per year ($1,115 per month) for a family with five or more members.

General Tax Provisions:

Income tax returns are due this year on April 17, 2018 unless an extension is filed and taxes are paid by that date.  Please contact us if you believe that you will need an extension for filing 2017 taxes.

Increased Scrutiny

Again this year, Internal Revenue Service has increased its scrutiny of returns filed, to ensure that fraudulent claims and false deductions are less likely to be missed.  The following areas on a return are likely to increase audit scrutiny:

  1. Amount of earnings - Normally about 1% of returns are audited but if income is over $200,000 have a 3.7% chance of audit, while income over $1,000,000 increases the likelihood of audit to 12.5%;
  2. IRS have increased matching of 1099 and W2 information to returns, and are likely to issue an audit letter if it appears that an item of income has been missed;
  3. Large charitable donations or itemized deductions increase the likelihood of audit;  It is important to maintain adequate records to support all deductions;
  4. Real estate losses, and "real estate professionals" have been targeted for additional scrutiny;
  5. Business meals, travel and entertainment are a favorite target of IRS audits;
  6. Claiming too high a vehicle business use percentage can lead to an audit;
  7. Filing a business statement showing a large loss consistently, is likely to cause IRS to challenge the business as a "hobby" where losses are not deductible;
  8. Cash businesses continue to be a favorite audit target;
  9. Any Taxpayer with foreign bank or financial assets is an increased target.  IRS has recently been very successful in levying penalties for late, absent, or inadequate reporting of foreign assets and income.
  10. IRS has been directed to look more closely at any situation where a Taxpayer has foreign currency transactions in excess of $10,000 reported by banks.

As a result of the likelihood for increased government scrutiny of all returns filed, we have this year implemented our "Prepaid Audit Assurance Program".  Under this Program, we cover the costs of representation in the event you are audited.

Summary of 2017 Changes for Individuals

Significant U.S. Tax ChangesThe following changes from 2016 have been maintained for 2017:

  • A tax bracket of 39.6% has been applied to taxable income in excess of $415,050 (single) or $466,950 (married filing jointly).

  • Capital gains will be taxed at 20% for taxpayers in the high 39.6% tax bracket. 0% for those in the 10% and 15% brackets, and 15% for all middle income brackets.
  • Net Investment Income Tax (NIIT) of 3.8% will be based on investment income and reported on form 8960 and will affect U.S. citizens and residents only, where income exceeds 200,000 (single) or $250,000 (married filing jointly) or $125,000 (married filing separately). For NIIT purposes, net losses from property dispositions cannot be less than zero (and therefore cannot offset other investment income).
  • Itemized Deductions (except for medical and investment expenses) will be phased down by 3% of the income over threshold as noted below.
  • Personal exemptions are phased out totally by 2% of income above thresholds.
  • Medical and dental expenses must exceed 10% of adjusted gross income to be counted as itemized deductions.
  • A .9% Medicare Tax is payable on earned income over the above thresholds used for NIIT on form 8959.

In addition:

  • Health Savings Account (HSA) contribution limits for 2017 are $3,400 for self only and $6,750 for family.  An additional $1,000 is available for those over 50 years of age.
  • Maximum elective deferral in 401(k), 403(b) 457 and Thrift plans is $18,000, with an additional $6,000 for those age 50 and up.
  • Maximum elective deferral in SIMPLE 401(k) and SIMPLE IRA plans is $12,500, with an additional $3,000 for those age 50 and up.
  • Maximum contribution limit to Traditional and Roth IRA accounts is $5,500, with an additional $1,000 for those age 50 and up.
  • The estate & gift tax exclusion amount is $5,490,000, with estates over the threshold taxed at a maximum of 40%.
  • Annual Gift tax exclusion amounts are:
    • $14,000 per donee;
    • $149,000 gift to noncitizen spouse.

The following table summarizes the income levels at which the new taxes are levied or exemptions reduced for 2017:

Filing Status NIIT AND MEDICARE TAX (Modified Adjusted Gross Income)

ITEMIZED DEDUCTIONS & PERSONAL EXEMPTION

(Adjusted Gross Income)

NEW HIGH INCOME TAX AND CAPITAL GAINS RATES (taxable INCOME)
Head of Household $200,000 $287,650 $439,000
Single $200,000 $261,500 $413,200
Married Filing Jointly $250,000 $313,800 $464,850
Married Filing Separately $125,000 $156,900 $232,425
  • Legally married same sex spouses must file a joint return (or must file using “married filing separately) This subjects all legally married people to the same benefits, and the “marriage penalty”.
  • Individuals must file 2017 Income tax returns at these levels.
    Single individual (also individuals treated as unmarried for tax purposes $10,400
    Single individual, 65 or older $11,950
    Married individual, separate return $4,050
    Married couple, joint return $20,800
    Married couple, joint return, one spouse 65 or older $22,050
    Married couple, joint return, both spouses 65 or older $23,300
    Head of household $13,400
    Head of household, 65 or older $14,950
    Qualifying widow(er) (surviving spouse) $16,750
    Qualifying widow(er) (surviving spouse), 65 or older $18,000
  • Basic standard deduction amounts for 2017 (subject to phase out as noted above):
    Filing Status 2017 Standard Deduction Amount
    Married filing jointly and surviving spouses $12,700
    Married filing separately $6,350
    Head of household filers $9,350
    Single filers $6,350
  • The 2017 personal exemption is $4,050, but this is reduced if income is over $156,900 (married filing separately), $261,500 (single), $287,650 (head of household) and $313,800 (married filing jointly).  Itemized deductions are also reduced when income exceeds the above thresholds. 
  • "Kiddie" tax amount for 2017 is $2,100
  • The 2017 standard mileage rate for business use of a car is 53.5 cents per mile, 17 cents for medical and moving, 14 cents for charitable mileage.
  • Per diem rates under the high-low method of substantiating lodging & meals expenses are at $282 for high-cost localities and $189 for low-cost localities.
  • The transportation fringe benefit exclusion amount for employer provided transit passes and parking is $260 per month.
  • The FICA and self-employment maximum earnings for 2017 are $127,200.
  • The maximum section 179 deduction for 2017 is $510,000 and the investment limitation is $2,030,000,
  • The maximum earned income credit for eligible taxpayers with no children is $506, with one qualifying child $3,373, with two qualifying children $5,572, and with three or more qualifying children $6,269.
  • The child tax credit is $1,000.
  • Education credits:  The Hope Scholarship credit is $2,500, and the American Opportunity and Lifetime Learning credits are $2,000, and begin to phase out at $117,250 for MFJ returns and $78,150 for others
  • The 2017 threshold for "Nanny Tax" reporting is $2,000.

Please contact us to review the impact of these or other changes as they may apply to your specific situation.