CARL WATTS & ASSOCIATES

October 31, 2016

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Tax Benefits for Tax Year 2017
All of you know, either from keeping up with our newsletters, or from elsewhere in the media, that each year the Internal Revenue Service adjusts various dollar limits for certain tax benefits according to inflation.

The IRS announced on October 25 the tax year 2017 annual inflation adjustments for more than 50 tax provisions, including the tax rate schedules, and other tax changes.

Revenue Procedure 2016-55 provides details about these annual adjustments. The tax year 2017 adjustments are generally used on tax returns filed in 2018. Being informed well ahead can help your tax or financial advisor plan your tax strategy for the year.

The tax items for tax year 2017 of greatest interest to most taxpayers include the following dollar amounts:


  • The standard deduction for married filing jointly rises to $12,700 for tax year 2017, up $100 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $6,350 in 2017, up from $6,300 in 2016, and for heads of households, the standard deduction will be $9,350 for tax year 2017, up from $9,300 for tax year 2016.

  • The personal exemption for tax year 2017 remains as it was for 2016: $4,050. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $261,500 ($313,800 for married couples filing jointly). It phases out completely at $384,000 ($436,300 for married couples filing jointly.


Before your income is calculated for tax purposes on your paycheck, the IRS allows you to reduce it based on exemptions, which are standard amounts of money (defined each year by the IRS) that are not taxed.

  • For tax year 2017, the 39.6 percent tax rate affects single taxpayers whose income exceeds $418,400 ($470,700 for married taxpayers filing jointly), up from $415,050 and $466,950, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2017 are described in the revenue procedure.



This means that you can earn a little more next year before being bumped into a higher tax bracket. The increases apply across the board to all the rates, from 10 percent to 39.6 percent.

  • The limitation for itemized deductions to be claimed on tax year 2017 returns of individuals begins with incomes of $287,650 or more ($313,800 for married couples filing jointly).

  • The Alternative Minimum Tax exemption amount for tax year 2017 is $54,300 and begins to phase out at $120,700 ($84,500, for married couples filing jointly for whom the exemption begins to phase out at $160,900). The 2016 exemption amount was $53,900 ($83,800 for married couples filing jointly). For tax year 2017, the 28 percent tax rate applies to taxpayers with taxable incomes above $187,800 ($93,900 for married individuals filing separately).

The Alternative Minimum Tax parallels the regular income tax, so taxpayers whose AMT liability exceeds their regular tax liability pay the difference as AMT.


The AMT has a completely different set of calculations than the regular tax. For the regular tax, you add up your total income, subtract out various deductions to find taxable income, then calculate the tax. Against the regular tax you can claim various credits to reduce your tax even further. Taxable income for AMT purposes does not allow the standard deduction, personal exemptions, or certain types of itemized deductions. Also some income which is not subject to the regular tax is added for AMT purposes. Your tax under AMT rules may be higher than your tax under regular tax rules.

  • The tax year 2017 maximum Earned Income Credit amount is $6,318 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,269 for tax year 2016. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.


  • For tax year 2017, the monthly limitation for the qualified transportation fringe benefit is $255, as is the monthly limitation for qualified parking.

  • For calendar year 2017, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage is $695.

  • For tax year 2017 participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,250 but not more than $3,350; these amounts remain unchanged from 2016. For self-only coverage the maximum out of pocket expense amount is $4,500, up $50 from 2016. For tax year 2017 participants with family coverage, the floor for the annual deductible is $4,500, up from $4,450 in 2016, however the deductible cannot be more than $6,750, up $50 from the limit for tax year 2016. For family coverage, the out of pocket expense limit is $8,250 for tax year 2017, an increase of $100 from tax year 2016.
  • For tax year 2017, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $112,000, up from $111,000 for tax year 2016.
  • For tax year 2017, the foreign earned income exclusion is $102,100, up from $101,300 for tax year 2016.
  • Estates of decedents who die during 2017 have a basic exclusion amount of $5,490,000, up from a total of $5,450,000 for estates of decedents who died in 2016.

With all this in mind, it is now the best time for you to discuss with your tax professional the means by which you can reduce your tax burden for 2017 and enhance tax benefits that you may be entitled to.



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