You won’t feel the immediate impact of the recent changes the IRS has put into place in 2017 for another year (after you’ve file your 2016 tax return), but they’ll impact you eventually. Here’s a look at some recent adjustments that have been made for 2017 tax policies, and how they could effect how much tax you ultimately pay—and a few tips to help you prepare for future tax changes that could be in the pipeline once President-elect Trump takes office.
- Tax brackets have been adjusted for inflation. Inflation remains nominal, but as the experts at the Tax Foundation explain, tax brackets for 2017 have changed slightly compared to 2016. The move is intended to prevent “bracket creep,” a side effect of inflation that can push a person into a higher earning tax bracket, despite that the value of his or her earnings hasn’t technically increased. In 2016, for example, the 25% tax bracket caps earnings for single filers at $91,150; in 2017, that same filer can make up to $91,900 and remain in same tax bracket.
- More people may qualify for retirement contribution deductions. The income limits for who may qualify to deduct retirement contributions made to a traditional IRA or a ROTH IRA will increase in 2017. In that tax year, the phase out ranges for single filers who contribute to a traditional IRA in 2017 will increase to $62,000 to $72,000 (an increase of $1, compared to 2016); the phase out range increases $2,000 to $99,000 to $119,000 for married couples filing jointly.
Phase out ranges for ROTH IRA contributions will also increase in the 2017 tax year, to $118,000 to $133,000 for single filers; the range is $186,000 to $196,000 for married couples who file jointly. These changes could be a new opportunity for those who previously made too much money to qualify for the deduction to increase retirement savings, and lower their tax bill.
- Reduced potential to deduct medical expenses for seniors. Taxpayers under the age of 65 cannot deduct medical expenses unless they exceed 10% of their adjusted gross income (AGI) in either 2016 and 2017, but 2016 marks the last tax filing year that taxpayers who are 65 years old or older can deduct medical expenses that exceed just 7.5% of their AGI. When they file 2017, seniors’ medical expenses must also be more than 10% of their AGI to qualify for deduction.
Preparing for Tax Changes that “Could” Be In the Pipeline
You can count on the changes noted above for the 2017 tax season, but other tax changes that may be on the horizon once President-elect Trump takes office remains speculative for the time being. However, Forbes reports that if the tax changes that were discussed on the campaign trail do indeed come to fruition, they could include cutting tax brackets, eliminating personal exemptions and capping itemized deductions for married couples. Whether, when, or to what degree these changes could impact your financial life, for better or worse, remain to be seen.
But if you do believe tax policy changes will soon occur, Forbes’ contributor and tax expert Robert Wood explains that the most likely outcome is that future tax deductions will be worth less beyond the 2016 tax year. Based on that assumption, he writes that taxpayers may want to consider these steps before 2016 ends, to leverage the current advantages:
- Maximize potential charitable contributions. This may include monetary donations to qualifying charitable organizations, donating stocks that have lost value, and even donating assets of considerable value, like vehicles, to charity.
- Sell losing investments in 2016. If you’re ready to part with some losers in your portfolio, their decreased value could be worth more in overall tax advantage, compared to their value in the 2017 tax year.
- Business owners should buy. Wood says business owners who need to invest in equipment may find it more financially beneficial to do so before the year ends, and may want to consider deferring income into 2017, where possible.
