Change is the word for 2017 in many respects. While the incoming Trump administration promises many changes related to taxes, there are already changes written into law that will affect your returns for the 2017 tax year (returns that you file in April 2018), and a few others affecting your 2016 taxes that take effect in 2017. Here are several of the changes to consider:
- Tax Credit Timing – The Protecting Americans from Tax Hikes (PATH) Act of 2015 established that the IRS cannot send out credits or refunds for overpayments until February 15 whenever the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) is claimed on the return. This provision takes effect on January 1, 2017. It doesn't affect your 2016 return amount, but it could negatively affect your cash flow if you were counting on a relatively early return to pay bills.
Healthcare Coverage – Limits are increasing for tax-deferred Medical Savings Accounts (MSAs) for the self-employed. The maximum deductible amount for out-of-pocket expenses for self-only coverage ($4,500), the deductible limit on a plan with family coverage ($6,750), and the minimum deductible amount for annual family coverage ($4,500) have all increased by $50. The limit on out-of-pocket medical expenses under family coverage ($8,250) increases by $100.
What about the Affordable Care Act (aka Obamacare)? The President-Elect has vowed to repeal it and he may have sufficient support in Congress to do so, but for now, the ACA remains the law. People who avoided signing up for health insurance in anticipation of changes are still subject to the lack-of-coverage penalty. The penalty for the 2016 tax year increased to either 2.5% of household AGI or a maximum of $2,085 ($695 per adult, $347.50 per child). For the 2017 tax year, the percentage stays the same, but the per-person fee will be inflation-adjusted.
- Deductions for Senior Medical Expenses – One potential tax advantage in medical expenses for seniors is going away in 2017. In order to claim a deduction for medical expenses when itemizing, your qualified medical expenses must be greater than 10% of your adjusted gross income (AGI). An exception to this rule allowed seniors to deduct medical expenses over 7.5% of income, but that exception ends after the 2016 tax year.
Threshold Adjustments – Thanks to relatively low inflation, the 2017 tax bracket adjustments are minimal. Adjustments range from a $50 income increase for single filers in the lowest tax bracket to a $3,550 increase to reach the 39.6% bracket filing as the Head of a Household. Standard deductions raise $50 for single filers or $100 for married couples filing jointly. The full 2017 tax brackets for use in 2018 filing may be found here.
Among the other 2017 adjustments: The phase-out for traditional and Roth IRAs will both rise by $1,000 in 2017 for single taxpayers ($2,000 for married couples filing jointly). Exemption amounts for the Alternative Minimum Tax rise to $54,300 for individual filers and $84,500 for married couples filing jointly. The maximum EITC is now $6,318 for taxpayers filing jointly who claim three or more qualifying children. For more information on adjustments, see the summary page on the IRS website.
We suggest keeping up with the headlines throughout the year to find out how much of Trump's proposed tax plans are enacted into law, and the date on which they take effect. Pay close attention to the effective date of changes — changes can be made through legislation that apply to the existing tax year even though the year is nearly complete.
Consult the IRS website periodically for any further changes, and be prepared to make any quick alterations to your withholding, investments, or other financial factors. The winds of change will be blowing in very soon.
This article was provided by our partners at moneytips.com.
To Read More From MoneyTips:
Are You "Friends" With The Internal Revenue Service?
Trump Tax Plan Could Affect Housing Market