The tax changes for 2017 are small and there are only 5 changes that will affect you returns.
1. Standard deductions will increase.
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.
2. Traditional and Roth IRA phase-outs 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. 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.
For those of you 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. You can make the contribution up to the filing date of April 17, 2018 (Two extra days)
3. Medical expense deductions will change for certain seniors.
Another tax change in 2017 relates to itemizing your medical expenses with the hope of deducting them.
For the vast majority of Americans in 2016, your medical expenses would have had to surpass 10% 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% 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% of your AGI before you can claim itemized medical expenses.
4. The estate tax exemption will increase.
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. 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.
5. Tax brackets will be adjusted for inflation.
The big change, obviously, is that the individual income tax brackets have been adjusted for inflation. The good news is that inflation has been nominal, meaning there wasn't a large shift upwards in the tax schedule.
Here's what the 2016 tax bracket looks like now (the bracket you'll be using when preparing your taxes in a few months):
And here's the 2017 tax bracket: