TAX LAW UPDATE & INFORMATION
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Be on the Alert for more updates to the Tax Law Changes section. You can always call us to discuss your particular questions and needs. For further explanations of how any of these changes may effect you or your business, please call our office for an appointment to discuss your situation further.
Some filing due dates have changed:
Starting with 2016 returns filed in 2017. Employers are required to file W-2s with the federal government by Jan. 31, up from the prior deadlines of Feb. 28 for paper returns and March 31 for e-filings. This earlier deadline matches the date for sending copies of the forms to employees. The Jan. 31 due date also applies to 1099s reporting nonemployee compensation.
The 2017 Standard Mileage Rate:
The 2017 standard mileage rate for business driving falls to 53½¢ a mile, a 0.5¢ drop. The rate decreases to 17¢ a mile for travel for medical purposes and job-related moves. But the rate for charitable driving remains at 14¢ per mile.
$510,000 of assets can be expensed in 2017, and this figure phases out dollar for dollar once over $2,030,000 of assets are put into service during the year.
The 2017 standard deductions go up a bit. Married couples get $12,700, plus $1,250 for each spouse age 65 or older. Singles can claim $6,350…$7,900 if 65 or up. Household heads get $9,350, plus $1,550 once they reach age 65. Blind people receive $1,250 more ($1,550 if unmarried and not a surviving spouse).
High-incomers lose itemized deductions starting at a higher level in 2017. Their write-offs are slashed by 3% of the excess of AGI over $261,500 for singles, $287,650 for household heads and $313,800 for marrieds. But the total reduction can’t exceed 80% of itemizations. Medicals, investment interest, casualty losses and gambling losses (to the extent of winnings) are exempted from this cutback.
Personal exemptions stay at $4,050 for filers and their dependents in 2017. However, this tax break is phased out for upper-incomers. It is trimmed by 2% for each $2,500 of AGI over the same thresholds as for the itemized deduction phaseout.
Dividends & Long-Term Gains:
The 20% top rate on dividends and long-term gains starts at a higher amount for 2017: Singles with taxable income above $418,400, household heads over $444,550 and joint filers above $470,700. The 3.8% Medicare surtax boosts the rate to 23.8%. The regular 15% maximum rate applies for filers with incomes below these amounts, except that filers in the 10% or 15% income tax bracket still get the special 0% rate.
The Social Security wage base increases in 2017 to $127,200, up $8,700 from 2016’s cap. The Social Security tax rate on employers and employees remains at 6.2%. The employer’s share of Medicare tax stays at 1.45% of all pay. The employees’ share is 1.45%, too, but they also pay the 0.9% Medicare surtax on wages that exceed $200,000 for singles and $250,000 for married couples. This extra levy doesn’t hit employers. Self-employeds are also subject to the surtax.
Social Security recipients will see a tiny 0.3% hike in their benefits in 2017. The earnings test limits are heading up, too. People who turn 66 in 2017 do not lose any benefits if they earn $44,880 or less before they reach that age. Individuals who are 62 through 65 by the end of 2017 can make up to $16,920 before they lose any benefits. There is no earnings cap once a beneficiary turns 66. The amount needed to qualify for coverage climbs to $1,300 a quarter. So earning $5,200 anytime during 2017 will net the full four quarters of coverage.
The threshold for deducting medical expenses on Schedule A jumps to 10% of AGI for taxpayers who are age 65 or older, starting with 2017 returns filed in 2018. This higher floor, set as part of Obamacare, has applied to younger filers since 2013.
Estate & Gift Tax Exemption:
The estate and gift tax exemption for 2017 rises to $5,490,000. The rate remains 40%. The gift tax exclusion stays the same… $14,000 per donee. Up to $1,120,000 of farm or business realty can receive discount estate tax valuation.
Most key dollar ceilings on retirement plans do not change for 2017: The 401(k) contribution limit remains $18,000, but folks born before 1968 can put in $6,000 more. These payin maximums apply to 403(b) and 457 plans, too. The cap on SIMPLEs stays at $12,500… $15,500 for individuals age 50 and older. However, the payin limit for defined contribution plans goes up to $54,000. And retirement plan contributions can be based on up to $270,000 of salary.
IRAs & Roth IRAs:
The 2017 payin limits for IRAs and Roth IRAs also stay steady at $5,500, plus $1,000 as an additional catch-up contribution for taxpayers age 50 and up.
Expiring Tax Breaks as of Jan 1, 2017:
The exclusion of up to $2 million of forgiven debt on primary residences. The credit for installing energy-efficient windows and exterior doors in one’s home. The write-off for private mortgage insurance. The 30% credit for geothermal heat pumps, wind turbines and fuel cell property. Credits for biodiesel and other alternative fuels as well as two-wheeled electric vehicles Congress can extend these tax breaks this year, we will just have to wait and see.
Health Reimbursement Arrangements Now Allowed Again!
Employers can contribute annually to each employee’s HRA up to $4,950… $10,000 for family coverage. And the HRA must be funded solely by the employer to pay for or reimburse medical care expenses, including health insurance premiums, of employees and their families.
Employee Travel Reimbursement:
IRS’s simplified per diems for lodging, meals and incidentals are rising a bit. In high-cost localities, employees can get up to $282 per day free of tax, an increase of $7. In other areas, their daily stipend is capped at $189, up $4. See www.kiplinger.com/letterlinks/diems for details. Businesses using this method have the choice of applying these new rates as of Oct. 1 or waiting until Jan. 1, 2017. Firms can opt instead to use federal per diems separately figured for hundreds of cities. No change to the rates for meals and incidentals only… staying at $68 per day in high-cost areas and $57 in other locations. Self-employed individuals on travel are allowed to use these rates in lieu of keeping receipts, but their lodging expenses must be substantiated separately. They cannot use the full $282/$189 per diems. The per diem rate solely for incidentals is also unchanged at $5 a day.
Who Pays Taxes?
The tax burden on upper-incomers has gone up, according to IRS statistics. The top 1% of individual filers paid 39.5% of all federal income taxes in 2014, the most recent year the Revenue Service has analyzed. That’s up from 37.8% in 2013. They reported 20.6% of total adjusted gross income, also larger than in the prior year. Filers needed to have AGIs of at least $465,626 to qualify for the top 1% of earners. The highest 5% paid 59.97% of total income tax and accounted for 35.96% of all adjusted gross income. They each had AGI of at least $188,996. The top 10% of filers, those with AGIs of $133,445 or more, bore 70.9% of the total tax burden while bringing in approximately 47.2% of individuals’ total adjusted gross income. The bottom 50% of filers paid 2.75% of the total federal income tax take. Their share is so low because the figures don’t include Social Security tax payments and because many of them get substantial relief through refundable tax credits.
When Can I File & When are the Taxes Due this Year?
The Revenue Service will begin accepting 2016 tax returns on Jan. 23. And the filing deadline for individual returns will be April 18 this year because of the weekend and the Emancipation Day holiday in Washington, D.C.
Some refunds will be held up. Starting with 2016 returns filed in 2017, IRS is mandated by law to wait until Feb. 15 before doling out refunds to taxpayers who claim either the earned income tax credit or the refundable child tax credit.
The annual cap on deductible contributions to HSAs rises to $3,400 in 2017 for self-only coverage. The ceiling for account owners with family coverage remains $6,750. Individuals born before 1963 can put in an additional $1,000. Minimum policy deductibles stay at $2,600 for families and $1,300 for singles. The limits on out-of-pocket costs, such as deductibles and copayments, stay steady at $13,100 for people with family coverage and $6,550 for individual coverage.
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