On October 25, the IRS released Revenue Procedure 2016-55 which reports the 2017 inflation adjustments for certain tax items. Items affecting the vast majority of taxpayers are discussed below. Most of the figures have not drastically changed, and in some cases, the exclusion amounts have not changed at all from the 2016 guidance.
Standard Deduction Increases
On the 2017 Form 1040, all individuals will have a slight increase to the standard deduction. Married couples filing joint returns may claim a standard deduction of $12,700, which is an increase of $100 over 2016. For single taxpayers, and those married but filing separately, the standard deduction increased by $50 from the 2016 amount, to $6,350 for 2017. Individual taxpayers that file as head of household will see a $50 increase from 2016 by claiming a standard deduction of $9,350 on their 2017 returns.
For 2017, the standard deduction amount available for individuals that can be claimed as dependents by another taxpayer may not exceed the greater of $1,050 or the sum of $350 plus the individual’s earned income.
Personal Exemption Amount Remains Unchanged
The 2016 personal exemption amount of $4,050 was not adjusted for 2017. This exemption’s phaseout begins for individual taxpayers with an adjusted gross income (“AGI”) of $261,500, and is completely phased out at an AGI of $384,000. Those taxpayers that submit returns as married filing jointly will see the phaseout begin at an AGI of $313,800 and it will be completely phased out when AGI tops $436,300. Married couples choosing to file separate returns will be subject to the phaseout beginning at an AGI of $156,900 and it shall terminate completely at $218,150. The phaseout for heads of household filers begins at an AGI of $287,650 and will be fully phased out when AGI exceeds $410,150.
Estate and Gift Exclusion
The estates for those individuals who died in 2016 are granted a basic exclusion of $5.45 million against the federal transfer taxes: estate, gift and generation skipping. The exclusion amount for individuals that die during 2017 has been increased to $5.49 million. For married couples that are able to make use of the portability provisions, opportunities exist to carryforward unused exclusion amounts. Please contact your tax advisor to discuss the potential application of portability within your estate plan.
The 2017 annual exclusion for gifts remains unchanged at $14,000. Gifts given to any person in that amount are not included in the calculation of total taxable gifts for the year. Spouses, as a unit, may still transfer a total of $28,000 to an individual tax free by making the gift splitting election. Additional opportunities for tax-free gifting exist where a person directly pays for another’s tuition or medical expenses.
Tax Planning Opportunities
As noted above, the 2017 numbers do not show significant swings in most of these areas. However, there are still very valid reasons to consider tax planning opportunities on the horizon, especially in the estate and gift arenas. We are happy to discuss any questions or concerns you may have regarding your tax compliance or planning strategies.