The IRS has announced that there will be changes to the 2017 income tax code. Due to the inflation of the economy, there will be adjustments to more than 50 tax provisions. The adjustments made by the Internal Revenue Service will be used for the tax returns that will be filed in 2018. Before going into these adjustments and what they mean for you and me, first, we need to further understand what provisions for income taxes actually mean.
A provision for income taxes is the approximate amount a person or a business is set to pay in income taxes for the year being filed. The tax provision is obtained by multiplying the adjusted net income of the person or business by the appropriate income tax rate. The provision can vary depending on the tax planning, income, or eliminating the income tax liability.
Now that we covered what a tax provision actually means, let’s go over some of the most important changes that could apply to the average person or business.
The standard deduction is the amount that reduces the amount of income on which you are taxed, which varies depending on your filing status, according to The Fiscal Times. The standard deduction for married couples that are filing together went from $12,600 to $12,700, rising by $100. As for the deduction regarding single taxpayers and married couples that are filing separately, it went from $6,300 to $6,350, increasing by $50. Finally, the tax deduction for the head of the households will rise by $50, from $9,300 to $9,350.
The personal exemption is tax-free money taxpayers and dependents can deduct from their income. The personal exemption phase-out starts with the AGI (Adjusted Gross Income) of $261,500, a number changed from $259,400, then completely phases out at $384,000, which changed from $381,900. As for the personal exemption amount, it continues with the same $4,050 from the year 2016.
The single taxpayers who bring in an income of $418,400, which increased from $415,050, as well as the married couples that are filling together with income more than $470,700, which increased from $466,950 in the previous year, will be affected by the 39.6% tax rate.
Itemized deductions are expenses that taxpayers can claim, which decreases their taxes. The single taxpayers that bring in $287,650 or more, and the married couples filing together who bring in a joint income of $313,800 or more, are subject to limits in their itemized deductions. In the year 2016, the same applied for single taxpayers that have an income of $259,400 or more, and married couples who bring in a total income of $311,300 or more.
Earned Income Tax Credit
The earned income tax credit is a refundable tax credit for low to moderate income taxpayers and married couples who file together, particularly the ones with children. The maximum value of the earned income tax credit will rise to $6,318 for taxpayers filing together, particularly with three or more children. In 2016, the same applied, but the earned income tax credit was $6,269.
Lifetime Learning Tax Credit
The lifetime learning tax credit allows taxpayers to claim up to $2,000 for educational expenses. The credit equals 20% of the very first $10,000 of educational tuition. For the year 2017, the lifetime learning tax credit will decrease for the couples filing together with AGI (Adjusted Gross Income) of $112,000 or more, which used to be $111,000 in the previous year.
Health Care Coverage
For workers who are self-employed and have tax-deferred medical savings accounts, the health plan's’ limits non-reimbursable medical expenses to $4,500, which is an increase from $4,450 in 2016. For the self-employed workers, the minimum annual deductible for their family coverage is $4,500 as well, and, as for the maximum deductible, it cannot be more than $6,750, which is a $50 increase from the $6,700 of the previous year. For family coverage, the 2017 limit on out-of-pocket medical expenses is $8,250, which rises $100 from $8,150 of 2016.
Alternative Minimum Tax
The alternative minimum tax is an income tax forced by the federal government in addition to the baseline income tax for companies or individuals with exemptions and special circumstances. The exemption amount for the 2017 tax year is $54,300 for single taxpayers, and $84,500 for married couples filing together. For the 2016 year, the single taxpayers experienced an exemption amount of $53,900, and the married couples filing together saw an exemption amount of $83,800.
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