MyFutureOwl.com - Powerful tools to help you make your financial future brighter

Tax Note: Calm before the Storm?

by David Van Meter, M.S.Acc., Ph.D., E.A.


MyFutureOwl.com - Tax Note: Calm before the Storm?

Over the next months we may see the beginnings of legislative maneuvers to change our tax code in a manner as sweeping as the Reagan administration tax reforms. Simpler returns for some, flatter rates for all, and the potential loss of some tried and true deductions such as state and local taxes and employee business expenses ... we have all read the opening gambits from the new administration in the news. Oddly enough, even as we stand on the brink of sweeping change to our tax laws, the tax year 2017 will see very few major changes.

Perhaps the biggest tax change in 2017 that may affect many of our clients deals with a change to the deductibility of medical costs on the Schedule A. For many years, medical costs were deductible to the extent that they exceeded 7.5% of your adjusted gross income (AGI). Then, beginning in 2015, this floor was raised to 10% of AGI for taxpayers under the age of 65, although it remained at 7.5% for seniors over the age of 65. This year, finally, the playing field is levelled once again, as all taxpayers regardless of age will be able to deduct only those medical expenses that exceed 10% of their AGI. While the future of the medical expense deduction is uncertain, given the initial proposals for tax reform, the higher floor suggests that if you know that you are going to face high medical bills, it might be advantageous to schedule these expenses so that they fall in one tax year rather than letting them accumulate over two or more tax years, if at all possible.

Low inflation and falling energy costs are driving very modest changes to tax brackets, standard deductions and mileage rates. Tax brackets have inched up marginally, ranging from a $50 increase for a single taxpayer in the lowest bracket to an increase of $3,550 for a taxpayer filing head-of-household in the highest tax bracket of 39.6%. The standard deduction has increased by $50 for single taxpayers, and $100 for taxpayers filing as married. IRA phase-outs have gone up by $1,000 for singles and $2,000 for couples. The maximum allowable EITC payment is now $6,318 for a couple filing married with three qualifying children. Finally, the IRS mileage rate fell by half a penny, to 53.5 cents per mile.

In the recently ended filing season, many taxpayers expecting one or more of the three main refundable credits (EITC, Education Credit and Child Credit) experienced some inconvenience as their refunds were not processed until after February 15th. This is a permanent change, and you can expect the same delay in your refund next year. This does not mean, however, that you need to wait until February 15th to file your taxes; we recommend that you come and see us as soon as you have received all of your tax documents.

Finally, even though the new administration has committed itself to substantial changes to our health care laws, as of now the Affordable Care Act is still the law of the land, and if you do not have statutorily adequate health insurance, you will likely face stiff penalties on your tax return for 2017. The maximum penalty currently is the higher of 2.5% of your household income, or $2,085. If you have a substantial income but do not have health insurance, you could face a penalty of thousands of dollars.

Even though the changes to the tax laws this year are minimal, changes in your own life can have a dramatic impact on your taxes, and thus we must all look ahead and plan with foresight. As usual, if you have any questions or concerns, please call Chris or Dave at (315) 823-9200.

Photo credit: Images Money @ Flickr

Van Meter and Van Meter, LLC.
Parhedros Corporation - Programming the Power of Play.