Background Overlay

VantagePoint
Newsletter

IRS Issues 2017 Cost-of-Living Adjustments

The newly-issued IRS cost-of-living adjustments for 2017 have been announced. Some amounts have been increased only slightly while others will remain at 2016 levels. Following is a breakdown of how these new amounts may impact individual income taxes, the Alternative Minimum Tax, education and child-related tax breaks, retirement plans, and gift and estate taxes.

Tax Bracket Threshold Adjustments for Individual Income Taxes

While tax bracket thresholds are increasing for each filing status, because these brackets are based on percentages, those who fall into the higher tax brackets will experience a more significant increase. For example, whereas the top of the 10% bracket increases by between $50 and $100, depending on filing status, the top of the 35% bracket increases more substantially by jumping from $1,875 to $3,750, also depending on filing status. 

The personal and dependency exemption remains unchanged at $4,050 for 2017. However, the exemption is subject to a phase-out, which reduces exemptions by 2% for each $2,500 (or portion thereof) by which a taxpayer’s Adjusted Gross Income (AGI) exceeds the applicable threshold (2% for each $1,250 for separate filers).

For 2017, the phase-out starting points increase by $1,250 to $2,500 to AGI of $261,500 (singles), $287,650 (heads-of-households), $313,800 (joint filers), and $156,900 (separate filers). The exemption phases out completely at $384,000 (singles), $410,150 (heads-of-households), $436,300 (joint filers), and $218,150 (separate filers). 

Your AGI may affect some of your itemized deductions, as well. An AGI-based limit reduces certain otherwise allowable deductions by 3% of the amount by which a taxpayer’s AGI exceeds the applicable threshold (not to exceed 80% of otherwise allowable deductions). The thresholds are the same as for the personal and dependency exemption phase-out.

The Alternative Minimum Tax as Indexed for Inflation

The Alternative Minimum Tax (AMT) is a separate tax system that limits some deductions, doesn’t permit others, and treats certain income items differently. If your AMT liability is greater than your regular tax liability, you must pay the AMT.

Like the regular tax brackets, the AMT brackets are annually indexed for inflation. For 2017, the threshold for the 28% bracket increased by $1,500 for all filing statuses except married filing separately, which increased by half that amount. 

The AMT exemptions and exemption phase-outs are also indexed. The exemption amounts for 2017 are $54,300 for singles and heads-of-households and $84,500 for joint filers, increasing by $400 and $700, respectively, over 2016 amounts. The inflation-adjusted phase-out ranges for 2017 are $120,700–$337,900 (singles and heads-of-households) and $160,900–$498,900 (joint filers).  The amounts for separate filers are half of those for joint filers.

Education and Child-Related Tax Breaks

The maximum benefits of various education and child-related tax breaks generally remain the same for 2017, though most of these breaks are also limited based on the taxpayer’s Modified Adjusted Gross Income (MAGI). Taxpayers whose MAGIs are within the applicable phase-out range are eligible for a partial break though breaks are eliminated for those whose MAGIs exceed the top of the range.  Married couples filing separately generally aren’t eligible for these types of credits.

The MAGI phase-out ranges generally remain the same or increase modestly for 2017, depending on the break, such as:

The American Opportunity Credit. The MAGI phase-out ranges for this education credit (with a maximum of $2,500 per eligible student) remain the same for 2017 at $160,000–$180,000 for joint filers and $80,000–$90,000 for all other filers. 

The Lifetime Learning Credit. The MAGI phase-out ranges for this education credit (with a maximum of $2,000 per tax return) increase for 2017 to $112,000–$132,000 for joint filers and $56,000–$66,000 for all other filers — up $2,000 for joint filers and $1,000 for all others.

The Adoption Credit. The MAGI phase-out ranges for this credit also increase by $1,620 for 2017, taking them up to $203,540–$243,540 for joint, head-of-household and single filers. The maximum credit increases by $110 to $13,570. 

These are only some of the education and child-related breaks that may benefit you. Keep in mind that if your MAGI is too high for you to qualify for a break for your child’s education, your child might be eligible.  

 

Understanding Retirement Plans

Only a few retirement plan-related limits increase for 2017, and the increases are only slight. In other words, you have limited, if any, opportunities to increase your retirement savings if you’ve already been contributing the maximum amount allowed.

 

Your MAGI may reduce or even eliminate your ability to take advantage of IRAs. Fortunately, IRA-related MAGI phase-out range limits will all increase for 2017.

Traditional IRAs. MAGI phase-out ranges apply to the deductibility of contributions if the taxpayer (or his or her spouse) participates in an employer-sponsored retirement plan. 

  • For married taxpayers filing jointly, the phase-out range is specific to each spouse based on whether he or she is a participant in an employer-sponsored plan, as detailed here:
  1.  For a spouse who participates, the 2017 phase-out range limits increase by $1,000, to $99,000–$119,000. 
  2. For a spouse who doesn’t participate, the 2017 phase-out range limits increase by $2,000, to $186,000–$196,000. 
  • For single and head-of-household taxpayers participating in an employer-sponsored plan, the 2017 phase-out range limits increase by $1,000, to $62,000–$72,000. 
  • Taxpayers with MAGIs within the applicable range can deduct a partial contribution while those with MAGIs exceeding the applicable range can’t deduct any IRA contribution. 

Still, a taxpayer whose deduction is reduced or eliminated can make non-deductible traditional IRA contributions. The $5,500 contribution limit (plus $1,000 catch-up if applicable and reduced by any Roth IRA contributions) still applies. Non-deductible traditional IRA contributions may be beneficial if your MAGI is also too high for you to contribute (or fully contribute) to a Roth IRA. 

Roth IRAs. Whether or not you participate in an employer-sponsored plan doesn’t affect your ability to contribute to a Roth IRA, but MAGI limits may reduce or eliminate your ability to contribute, as follows:

  • For married taxpayers filing jointly, the 2017 phase-out range limits increase by $2,000, to $186,000–$196,000. 
  • For single and head-of-household taxpayers, the 2017 phase-out range limits increase by $1,000, to $118,000–$133,000. 
  • You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.

Married taxpayers filing separately are subject to much lower phase-out ranges for both traditional and Roth IRAs.

Changes to Gift and Estate Taxes

The unified gift and estate tax exemption and the Generation-Skipping Transfer (GST) tax exemption are both adjusted annually for inflation. For 2017, the amount is $5.49 million (up from $5.45 million for 2016). 

The annual gift tax exclusion remains at $14,000 for 2017. It’s adjusted only in $1,000 increments, so it typically increases only every few years with the last increase occurring in 2013.

The 2017 cost-of-living adjustment amounts are trending higher than 2016 amounts, but only slightly. Regarding retirement plan-related limits, only a few increased, and they increased minimally. If you’re interested in finding out how these amounts might affect your tax planning or retirement planning, contact your Untracht Early advisor today.

PLEASE READ THESE TERMS AND CONDITIONS OF USE CAREFULLY. THIS IS A LEGAL CONTRACT.

Acceptance of Terms of Use

The Untracht Early LLC (UE) client portal is offered to you on the condition of your acceptance of the terms, conditions and notices contained herein. By using the portal you agree to these terms and conditions. If you are not a client or authorized employee of UE, any use by you of the portal is prohibited.

Description of Service

The portal provides UE’s clients with access to information displayed on the portal for inquiries and deliveries of documents and communications for their account only. The information, documents and communications on the portal are provided as a convenient resource to clients, their attorneys, agents and other designated representatives (collectively, “Agents”) and may be used for informational purposes only for their account. To the extent you wish to authorize any Agents to access your account, you must sign and return the form of Authorization set forth below.

User Password and Security

Using the portal and its related services requires the use of a password and a user name. The confidentiality of your password and account is your responsibility. Any activities that occur under your account either by you or your Agents are your responsibility. You agree to notify us immediately of any unauthorized use of your account or any other breach of security. It is prohibited to use anyone else’s account without the express permission of that account holder.

Accuracy of Content and Liability Disclaimer

UE will strive to use reasonable efforts to include accurate and updated information on the portal; HOWEVER, YOU UNDERSTAND AND AGREE THAT UE IS UNDER NO OBLIGATION TO DO SO AND NEITHER UE NOR ITS SUPPLIERS, AGENTS OR REPRESENTATIVES MAKE ANY REPRESENTATION OR WARRANTY ABOUT THE SUSTAINABILITY, RELIABILITY, AVAILABILITY, TIMELINESS, AND ACCURACY OF THE INFORMATION, SOFTWARE, DOCUMENTS AND COMMUNICATIONS CONTAINED ON THE PORTAL FOR ANY PURPOSE TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW. ALL SUCH INFORMATION, SOFTWARE, DOCUMENTS AND COMMUNICATIONS ARE PROVIDED “AS IS” WITHOUT WARRANTY OR CONDITION OF ANY KIND. UE, AND ITS SUPPLIERS, AGENTS AND REPRESENTATIVES HEREBY DISCLAIM ALL WARRANTIES AND CONDITIONS WITH REGARD TO SUCH INFORMATION, SOFTWARE, DOCUMENTS AND COMMUNICATIONS, INCLUDING WITHOUT LIMITATION, ALL IMPLIED WARRANTIES OR CONDITIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE AND NON-INFRINGEMENT.

TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, IN NO EVENT SHALL UE, OR ITS SUPPLIERS, AGENTS OR REPRESENTATIVES BE LIABILE FOR ANY DIRECT, INDIRECT, PUNITIVE, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES OR ANY OTHER DAMAGES WHATSOEVER, INCLUDING WITHOUT LIMITATION, DAMAGES FOR LOSS OF USE, DATA OR PROFITS, ARISING OUT OF OR IN ANY WAY CONNECTED WITH YOUR OR YOUR AGENTS’ USE OR THE PERFORMANCE OF THE PORTAL, WITH THE DELAY OR INABILITY TO USE THE PORTAL OR RELATED SERVICES, WHETHER BASED IN CONTRACT, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, EVEN IF UE OR ITS SUPPLIERS, AGENTS AND REPRESENTATIVES HAVE BEEN ADVISED OF THE POSSIBILITY OF DAMAGES. CERTAIN STATES DO NOT PERMIT TYPES OF THESE LIMITATIONS, SO THE ABOVE LIMITATIONS MAY NOT APPLY TO YOU. IF YOU ARE DISSATISFIED WITH ANY PORTION OF THE PORTAL INFORMATION, DOCUMENTS OR COMMUNICATIONS ON THE PORTAL, OR WITH ANY OF THESE TERMS AND CONDITIONS OF USE, YOUR SOLE AND EXCLUSIVE REMEDY IS TO CEASE USING THE PORTAL AND THE INFORMATION, DOCUMENTS OR COMMUNICATIONS YOU OBTAINED FROM THE PORTAL.

Icons, Logos and Other Proprietary Material

The trademarks, logos, and service marks (collectively the “Trademarks”) displayed on the portal are registered and common law trademarks of this firm. Nothing contained on the portal should be construed as granting, by implication, or otherwise, any license or right to use any of the Trademarks displayed on the portal without the written permission of this firm. Your use of any of the Trademarks displayed on the portal or displayed on any content on the portal is strictly prohibited. You should assume that everything you see or read on the portal is copyrighted and is a trade secret and may not be used except as provided in these terms and conditions of use or in the text on the portal without the written permission of this firm or its suppliers.

Changes to Terms and Conditions of Use

UE may at any time modify the terms, conditions and notices under which the portal is offered by updating this posting. You are bound to any such modifications and should therefore periodically visit this page to review the then-current terms and conditions to which you are bound.

Confidentiality, Information Protection, and Protection Data

Notwithstanding any existing legal or contractual obligations regarding confidentiality between you and UE, you undertake to treat all knowledge relating to business secrets, which come into your possession, as confidential. You shall assure that any protected data, which comes into your possession through the use of the portal, is not transmitted to any unauthorized person. In partial consideration of the opportunity to access the resources of the portal concerning your account, you agree to maintain the strict confidentiality of access of the portal and its data to you and your authorized Agents and to indemnify and hold harmless UE and its officers, shareholders and employees and their heirs, successors and assigns from and against any and all claims, actions, demands, losses, damages, judgments, costs and expenses, including without limitation, reasonable attorneys’ fees and liabilities of every kind which may arise from your or your employees’ or agents’ use of the portal or because of violation of these terms and conditions of use.

No Unlawful or Prohibited Use

You are prohibited from using the portal to damage, disable, or overburden UE’s servers or network or impair the portal or interfere with any other party’s use of the portal. Hacking, password mining or any other means to gain unauthorized access to the portal, portal accounts, computers or network is prohibited. Posting or transmitting any unlawful, threatening, libelous, defamatory, obscene, scandalous, inflammatory, pornographic, or profane material or any material that could constitute or encourage conduct that would be considered a criminal offense, give rise to a civil liability, or otherwise violate any law is also prohibited. UE will fully cooperate with any law enforcement authorities or court order requesting or directing this firm to disclose the identity of anyone posting any such information and materials. This firm is an equal opportunity employer and values the diversity of its people.

RELEASE AND INDEMNITY. IN AGREEING TO USE, AND BY USING, THE UNTRACHT EARLY PORTAL, YOU ALSO AGREE TO, AND HEREBY DO, RELEASE AND DISCHARGE UNTRACHT EARLY FROM ANY AND ALL CLAIMS OF EVERY NATURE AND DESCRIPTION ARISING OUT OF OR RELATING TO THE POSTING OF INFORMATION ON THE PORTAL, YOUR OR YOUR AGENTS’ USE OF THE PORTAL, AND/OR ANY BREACH OF SECURITY INVOLVING THE PORTAL. YOU HEREBY AGREE TO INDEMNIFY AND DEFEND UNTRACHT EARLY, ITS AGENTS, REPRESENTATIVES AND EMPLOYEES AGAINST ANY CLAIMS, DEMANDS, LAWSUITS AND OTHER PROCEEDINGS MADE ABOUT YOU, MADE BY THOSE IN PRIVITY WITH YOU OR MADE BY THOSE ACTING IN CONCERT WITH YOU, IN ANY WAY, WITH REFERENCE TO YOU OR YOUR INFORMATION OR BY ANY THIRD PARTIES ON YOUR BEHALF (INCLUDING AGENTS) RELATING IN ANY WAY TO THE UNTRACHT EARLY PORTAL.