2017 tax rates, income brackets inflation adjustments
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2017 inflation adjustments effects on tax deductions, exemptions and limitations


Welcome to Part 2 of the ol' blog's series on 2017 inflation adjustments,
which kicked off yesterday with the tweaked income tax brackets and rates.
Today we look at standard and itemized deductions, personal exemptions
and limitations on these tax situations that apply to some wealthier taxpayers. Note: The 2017 figures apply to 2017 returns that are due in 2018.
For comparison purposes, you'll also find 2016 amounts to be used
in filing 2016 returns due next April.


Tax-Deductions 1040 form calculator_cropped

Standard deduction amounts go up: Itemized deductions get a lot of attention. There are several of them and they require more attention by taxpayers, making this deduction option more appealing to folks who cover taxes.

But the tax deduction reality is that most taxpayers (around 70 percent) claim the standard deduction every year when they file their returns. And inflation typically affects these standard deduction amounts, which are based on your filing status and your age.

For the 2017 tax year, the Internal Revenue Service saw enough inflation to bump up the standard deduction amounts a bit.

The table below shows the standard deduction amounts that most taxpayers younger than 65 can claim on their 2017 tax returns, which they'll file in 2018. Knowing the amounts can help in your 2017 tax planning.

But since we'll be filing our 2016 tax year returns by April 18, 2017, I've also added a third column to the table that shows the current 2016 standard deduction amounts.


Filing Status
    
2017
Standard Deduction Amount
2016
Standard Deduction Amount 
Single   $6,350  $6,300
Head of Household   $9,350  $9,300
Married Filing Jointly   $12,700  $12,600
Qualifying Widow/Widower (Surviving Spouse)   
$12,700
 
$12,600
Married Filing Separately   $6,350   $6,300

 

Again, make sure you use the correct amount for the correct tax year. Column 2, the 2017 amounts, are for 2017 tax planning purposes. You won't need them to file until you do your 2017 return in 2018.

Column 3, the 2016 amounts, has figures you'll need to complete your 2016 taxes due in 2017.

Age matters for deductions: Savvy readers noted that when I talked about standard deduction amounts, I noted "most taxpayers younger than 65."

The tax code allows older filers and those who are visually impaired to claim additional standard deduction amounts. You do so by ticking a checkbox on Form 1040 or Form 1040A.

Each added standard deduction amount option is separate for each filer, meaning that an older married couple could check up to four boxes on their joint return. The total number of boxes checked then is used to determine the filer(s) standard deduction amount.

For the 2017 tax year, the additional standard deduction amount for the aged or the blind is $1,250. It goes to $1,550 for filers who are not married and not a surviving spouse. Those are the same amounts allowed for the 2016 tax year.

And if you're a 2017 taxpayer who also can be claimed as a dependent of another filer, your standard deduction amount cannot be more than the greater of either $1,050 or $350 plus your earned income. Again, relatively low inflation means these amounts are the same as for the 2016 tax year.

Itemized deduction issues: If your total itemized deduction amount is more than your allowable standard deduction amount, then by all means itemize.

You can claim on Schedule A such things as medical expenses (as long as they exceed the adjusted gross income, or AGI, threshold), a variety of state and local taxes, charitable donations and miscellaneous expenses (again with a deduction threshold to overcome).

Itemizers generally are homeowners who are paying sizable amounts of tax-deductible mortgage interest and property taxes, as well as state income or sales taxes. Philanthropic folks also can boost their itemized deduction total.

But if you file Schedule A and make a lot of money, then you'll lose some of the value of some of your itemized deductions. This is known as the Pease limitation, one of several laws named after their advocates, in this case the late Rep. Don Pease (D-Ohio) who championed the deduction limits on higher-income taxpayers.

For the 2017 tax year, the Pease limitations are, again based on filing status:

  • $261,500 for a Single taxpayer
  • $287,650 for a Head of Household filer
  • $313,800 for Married Jointly Filing couples or Surviving Spouses
  • $156,900 for Married Filing Separately spouses.

When you hit these itemized deduction income thresholds, your Schedule A amounts for home mortgage interest, state and local tax claims, charitable gifts and miscellaneous deductions is reduced by either 3 percent of your adjusted gross income in excess of your threshold amount or 80 percent of the amount of itemized deductions you otherwise could claim for the tax year.

Don't freak. The IRS has worksheet you can use if you do your taxes by paper. Most of us, though, will let our tax software or tax preparer do the necessary calculations.

The Pease amounts also apply to 2016 taxes. The income triggers for the itemized deduction limits on 2016 Schedule A filings are:

  • $259,400 for a Single taxpayer
  • $285,350 for a Head of Household filer
  • $311,300 for Married Jointly Filing couples or Surviving Spouses
  • $155,650 for Married Filing Separately spouses.

Personal exemption amount limits, too: In addition to deductions, either standard or itemized, most taxpayers also can claim an exemption amount.

For the 2017 tax year, there was not enough inflation to bump up the exemption amount. It's $4,050 for both the 2016 and 2017 tax years.

There was, however, sufficient inflation to increase the income levels at which a high-income taxpayer's personal exemption amount is reduced. Yes, richer folks get whacked again, facing a loss of some and possibly all of their personal exemptions based on their bigger AGIs. This is known in the acronym-happy tax world as PEP, or the personal exemption phaseout.

The table below shows, again based on filing status, the income level at which the 2017 PEP begins and the earnings level at which a filers loses his or her personal exemption amount.


Filing Status
 
2017 exemption
phaseout begins 
2017 exemption
eliminated
 
Single $261,500 $384,000
Head of Household  $287,650 $410,150
Married Filing Jointly $313,800 $436,300
Qualifying Widow/Widower (Surviving Spouse)   
$313,800
 
$436,300
Married Filing Separately  $156,900 $218,150

 

For the 2016 tax year, again whose returns are due on April 18, 2017, the PEP income triggers are:


Filing Status
 
2016 exemption
phaseout begins 
2016 exemption
eliminated
 
Single $259,400 $381,900
Head of Household  $285,350 $407,850
Married Filing Jointly $311,300 $433,800
Qualifying Widow/Widower (Surviving Spouse)   
$311,300
 
$433,800
Married Filing Separately  $155,650 $216,900

 

I know these are a lot of numbers, covering multiple tax years. I would apologize, but (a) it's not my fault (I'm just a messenger), and (b) it's not a surprise to most taxpayers that they have to cope with overlapping taxes in a single year.

But I do hope that these tables and explanations of figures affected by inflation in both the 2016 and 2017 tax years help as you get ready to file your 2016 return next year and simultaneously make moves to lower your 2017 tax obligation.

And stayed tuned! More inflation figures are on the way.

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