What to know about tax changes in 2017
Tax time is nearly upon us again, and 2017 will bring some tax changes you need to know about. By learning about them before the new year, you'll be better able to take steps that will leave you prepared both this year and next. Let's look at the 10 biggest tax changes you should know about going into 2017.
1. Tax Day is April 18.
The Washington, D.C., holiday of Emancipation Day is on Friday, April 15, 2017. Under federal law, the tax deadline gets extended when it falls on a holiday or weekend, and so the tax deadline for most taxpayers will be the following Monday, April 18. For those states in New England that celebrate Patriot's Day, an even later April 19 deadline will apply.
2. Tax brackets are rising slightly.
Most of the tax brackets that govern different classes of taxpayers are adjusted for inflation. For 2017, these bracket amounts are rising by roughly 0.4%.
3. Standard deductions are going up for head-of-household filers.
The low inflation rate kept standard deductions for most taxpayers steady in 2017 from 2016 levels, including the single, married filing jointly, and married filing separately statuses. For those who qualify as heads of household, the standard deduction will rise $50 to $9,300 in 2017.
4. Personal exemptions are rising.
The personal exemption that taxpayers are entitled to take on their tax returns will go up by $50 in 2017. That will give everyone an exemption amount of $4,050.
5.Health savings accounts let people with high-deductible health plans set money aside on a pretax basis to cover the costs of their health care. For 2017, the contribution limit for individual policies will remain at $3,350, but the maximum contribution for family policies will rise by $100 to $6,750. A catch-up contribution of $1,000 for those 55 or older will continue to apply.
6. The Earned Income Credit is rising.
The maximum allowable Earned Income Credit will go up modestly in 2017. For those with three or more qualifying children, the maximum credit will rise to $6,269, up $27. Those with two children will get a maximum $5,572, which is up $24 from 2016, while one-child families can get up to $3,373, $14 more than last year. Those without children get just a $3 bump and can claim up to $506 for 2017.
7. The exemption from AMT is higher.
The alternative minimum tax has struck a growing number of taxpayers, making the exemption amount more important than ever. Single taxpayers will see their AMT exemptions go up $300 in 2016 to $53,900, while joint filers will see a $500 boost to $83,800.
8. The estate tax exemption is heading upward.
The lifetime exemption amount for the gift and estate tax is tied to inflation, and it is slated to rise next year as well. The exemption amount will rise to $5.45 million, up $20,000 from 2015. The limit applies to estates of those who pass away in 2017.
9. Other tax provisions could change if not renewed.
Nearly every year, lawmakers wait until the last minute to renew popular tax breaks, such as charitable distribution from IRAs, state sales tax deductions, teachers' write-offs for classroom supplies, and deductions for private mortgage insurance. As of early December, these provisions hadn't yet been renewed for 2016, but typically, lawmakers renew them retroactive to the beginning of the year. The same is likely in 2017 unless an extension provides for two years of relief rather than just one.
Many things aren't changing.
Even though the 9 things listed above are changing, many other typical annual changes aren't happening. Contribution limits to 401(k) plans, IRAs, and flexible spending arrangements are all staying the same in 20176 as they were in 2016, reflecting the minimal amount of inflation in the economy.
Most people put off tax planning to the last minute, but by knowing about these coming changes before they take effect, you can do more comprehensive tax planning that will serve you better in 2017 and beyond.