As the new year begins so does tax time. Tax preparers said there are a few changes that will take place this year that people need to be aware of
“The tax changes for 2017 are small and there are only five changes that will affect your returns,” said Sara Garcia of New Britain’s H&R Block.” Your standard deduction will go up a smidge in 2017. Individual filers and heads of household will receive a standard deduction of $6,350 and $9,350, respectively, in 2017, up $50 from 2016. Couples filing jointly get a $100 year-over-year lift to $12,700 in 2017. Although this change isn’t liable to put a lot of extra money in your pocket, anything that can reduce your tax liability without having to lift a finger is good for you.”
One of the changes this year affects traditional and Roth IRA phase-outs as each will be adjusted higher.
“Among the various retirement tools at your disposal, the traditional IRA is among the most popular. Traditional IRAs are tax-deferred accounts, meaning you’ll pay tax once you begin making withdrawals during retirement,” Garcia said. “But, they can also provide an ancillary benefit of lowering your current-year tax liability. In 2017, the phase-out range for taking this deduction increases $1,000 to $62,000 to $72,000 for single taxpayers, and $99,000 to $119,000 for married couples filing jointly.”
Garcia added that, for those investing with a Roth IRA (a retirement account with no upfront tax deduction, but which has the ability to grow tax-free for life) the individual phase-out to be able to contribute rose $1,000 for single filers to a range of $118,000 to $133,000, while it jumped $2,000 for married couples filing jointly to a range of $186,000 to $196,000.
“This will help a few extra people to contribute to a traditional or Roth IRA in 2017 because of these modest increases,” she said. “You can make the contribution up to the filing date of April 17, 2018 (Two extra days).”
Seniors should be aware that medical expense deductions will change for some. For most Americans, your medical expenses would have had to surpass 10 percent of your adjusted gross income (AGI) before you could take a deduction. However, taxpayers 65 and older are able to use a previous threshold of just 7.5 percent of their AGI when itemizing and taking a deduction in 2016. Beginning in 2017, everyone is on the same playing field. If you’re 65 and older, your medical expenses will have to top 10 percent of your AGI before you can claim itemized medical expenses.
According to Garcia the estate tax exemption will increase slightly.
“Finally, for those of you who’ve been diligent long-term investors or perhaps think of yourselves as barons, the estate tax exemption is increasing modestly in 2017,” said Garcia. “Estates of individual decedents who pass away in 2017 will be exempt up to $5.49 million, a $40,000 increase from 2016 levels. Estate taxes generally affect a small swath of the population.”
Tax brackets will be adjusted for inflation, but inflation was nominal so the change won’t affect too many people.
For business owners some things to be aware of include that the mileage rate went down to 53.5 cents for year 2017 from 54 cents in 2016.
“They should keep good records and receipts of all income and expenses, they can also write off their mileage and deduct what is ordinary and necessary to run their business,” Garcia noted.
Business owners should be sure to take the right form of business, according to Andrew Rosenberg of Mugford & DiBella in New Britain.
“With changes to the tax laws there can be a substantial benefit to being a pass thru entity,” said Rosenberg. “Some of my clients I may have to look at the corporate structure that I have and I may decide to change it or add another corporation.”
Attorney Robert Scalise Jr. added that while preparing your 2017 return, people should work with their tax preparer to project their 2018 tax liability under the new tax law to make sure they’re on track with their withholding and estimated payments.
“Circumstances will be substantially different for many in 2018,” added Scalise.
According to turbotax.com the following information should be gathered before preparing your tax return form.
- Income from jobs: forms W-2 for you and your spouse
- Investment income—various forms 1099 (-INT, -DIV, -B, etc.), K-1s, stock option information
- Income from state and local income tax refunds and/or unemployment: forms 1099-G
- Alimony received
- Business or farming income—profit/loss statement, capital equipment information
- If you use your home for business—home size, office size, home expenses, office expenses.
- IRA/pension distributions—forms 1099-R, 8606
- Rental property income/expense—profit/loss statement, rental property suspended loss information
- Social Security benefits—forms SSA-1099
- Income from sales of property—original cost and cost of improvements, escrow closing statement, cancelled debt information (form 1099-C)
- Prior year installment sale information—forms 6252, principal and Interest collected during the year, SSN and address of payer
- Other miscellaneous income—jury duty, gambling winnings, Medical Savings Account (MSA), scholarships, etc.