2017 Tax Update.

2017 Tax Update

This Course will Cover Tax reform proposals (including the Tax Cuts and Jobs Act) Expired Tax Provisions Recent Tax Law and Procedure Changes Affordable Care Act Provisions affecting 2017 returns Inflation Adjusted amounts for 2017 – Time Permitting

GOP Tax Reform Proposal
H.R. 1, the Tax Cuts and Jobs Act, was released November 2, 2017. Differs in many ways from both the President’s proposal AND the original GOP proposal in the text Major overhaul to 1986 Tax Code, as amended NOT YET LAW – will go through many changes

1986 Reagan Tax Reform Act Took 3 years in various forms to eventually pass after introduction by Congress Introduced by Dan Rostenowski (D) Officially sponsored by Rep Richard Gephardt (D) in the House and Bill Bradley (D) in the Senate Received support by both Republicans and Democrats Passed through regular debate and amendment process

2017 H.R. 1 First piece of proposed legislation from this Congress to make it out of committee Intended to be passed as “budget reconciliation” Expedited procedure Not subject to filibuster Limited amendments Most recently used to pass the ACA (2010) and in efforts to repeal the ACA (2016 and 2017)

2017 H.R. 1 Goals: Simplify the tax code; make it easier to understand and fair. Allow American workers to keep more of their paychecks. Lower the business tax rate to make American business competitive with worldwide tax rates. Grow the economy through increased spending of disposable income. Create jobs in the U.S. by lowering taxes on corporate profit and higher income pass-through “jobs creators”. Bring back offshore profits to reinvest in the American economy.

2017 H.R. 1 Goals: Allow most individuals to file a “postcard” tax return by eliminating most deductions, credits, and exemptions. Reduce the number of tax brackets. Eliminate the AMT. If passed, how will this affect your practice long-term? How will it affect your clients?

Tax Cuts and Jobs Act Provisions: Individuals
Tax Brackets Current House Senate 39.6% 38.5% 35% 33% 32.5% 28% 25% 24% 22.5% 15% 12% 10%

Tax Brackets: SINGLE 2018 Begins House Senate 39.6% $426,701 $500,001 38.5% 35% $424,951 $200,001 33% $195,451 32.5% $170,001 28% $93,701 24% $60,001 25% $38,701 $45,001 22.5% 15% $9,526 12% 10% $1

Tax Brackets: MARRIED FILING JOINTLY 2018 Begins House Senate 39.6% $480,051 $1,000,001 38.5% 35% $424,951 $450,001 33% $237,951 $260,001 32.5% $390,801 28% $156,151 24% $120,001 25% $77,401 $90,001 22.5% 15% $19,051 12% 10% $1

House: For taxpayers in the 39.6% bracket, the 12% bracket is phased out at the rate of $6 for every $100 of AGI over : Single: $1,000,000 Joint: $1,200,000

BUT: the 39.6% tax bracket for high earners is a fallacy in the proposed legislation. Simplified example MFJ, $2 million taxable income: Income Source Income Amount Tax Rate Qual Dividends & Capital Gain $500,000 20% Passive Pass-through $1,000,000 25% Ordinary $90,000 $170,000 35% $240,000 39.6% Total/Average $2,000,000 26.352%

Reduced number of tax brackets: Budget Impact from the House provision (according to Joint Committee on Taxation [JCT]): Reduce government revenue by $1,051.2 billion Winners: Those earning $250,000 to $1,000,000. Losers: Those whose tax bracket goes up, if not offset by other provisions.

BOTH: Change the inflation indexing from the Consumer Price Index (CPI) to the “Chained Consumer Price Index” (Chained CPI) Chained CPI is a lower compound increase than CPI

Enhanced Standard Deduction Filing Status Current Both Proposed Single $6,350 $12,000 Head of Household $9,350 $18,000 Married Filing Joint $12,700 $24,000 Married Filing Separately

Enhanced Standard Deduction: House: NO extra standard deduction for 65 or blind. Current Proposed 65+/Blind Married $1,250 $0 65+/Blind Single $1.550

Enhanced Standard Deduction: Reduces # of taxpayers who itemize from roughly 1/3 to 1/10. Simplifies tax code – the vast majority of taxpayers won’t itemize. Most will no longer need to pay for tax preparation services. “Post-card” tax return.

Enhanced Standard Deduction: Budget Considerations for this provision (according to Joint Committee on Taxation [JCT]): Reduce government revenue by $921.4 billion Winners: Those claiming a standard deduction now. Losers: Those who currently itemize or lose exemptions not offset by the increased standard deduction.

Elimination of personal exemption # of Taxpayers & Dependents Current Exemption Amount Proposed Exemption Amount 1 $4,050 $0 2 $8,100 3 $12,150 4 $16,200 5 $20,250

Elimination of personal exemption: Budget Considerations for this provision (according to Joint Committee on Taxation [JCT]): Increase government revenue by $1,562.1 billion Winners: Those with small families whose increased standard deduction offsets the loss of exemptions. Losers: Those with more than 1 or 2 dependents.

Combining higher standard deduction and elimination of personal exemption:
Single, no dependents Current 2018 Proposed Standard Deduction $6,500 $12,000 Exemptions $4,050 $0 Total not subject to tax $10,550

Head of Household, 1 dependent Current 2018 Proposed Standard Deduction $9,550 $18,000 Exemptions $8,100 $0 Total not subject to tax $17,650

Head of Household, 2 dependents Current 2018 Proposed Standard Deduction $9,550 $18,000 Exemptions $12,450 $0 Total not subject to tax $22,000

Married Filing Joint, no dependents Current 2018 Proposed Standard Deduction $13,000 $24,000 Exemptions $8,100 $0 Total not subject to tax $21,100

Married Filing Joint, 2 dependents Current Proposed Standard Deduction $13,000 $24,000 Exemptions $16,200 $0 Total not subject to tax $29,200

House: Maximum rate on A PORTION of business income of individuals: 25% Applies to: Sole proprietorships Partnerships S Corporations

Maximum rate on A PORTION of business income of individuals: 25% Applies only to: 30% of net business income; OR Facts and circumstances based on (Federal short-term rate + 7%) x capital investment of business Once this method is elected, binding for 5 years

House: Maximum rate on A PORTION of business income of individuals: 25%: Special rules to prevent re-characterization of W-2 income from activity as pass-through. Default capital percentage for services in the fields of law, accounting, consulting, engineering, financial services, and performing arts = 0%. Therefore, material participation in one of these activities is not eligible for the 25% rate.

Senate: 23% deduction of Qualified Business Income from pass-through entities, limited to 50% of W-2 wages paid. Does NOT apply to accounting, health, law, professional services, performing arts, unless AGI < $500K (MFJ) or $250K (S).

JCT estimates of budget impact: reduce revenue by $448.0 billion over Winners: Those currently in the 28% or greater tax brackets with business income. Losers: Those in services businesses who will not be able to take advantage of this provision.

Tax Cuts and Jobs Act Provisions: Family & Individual Tax Credits
Enhanced child tax credit Current House Senate Child Tax Credit $1,000 $1,600 $2,000 Refundable amount Refundable amount adjusted for inflation? No Yes Phase Out Begins (MFJ) $110,000 $230,000 $1,000,000 Phase Out Begins (S, HOH) $75,000 $115,000 $500,000 Non-Child Dependent $0 $300 $500

Enhanced child tax credit JCT Budgetary Impact: reduce revenue by $640.0 billion over Winners: Those with children not over age 16. Those with non-child dependents and non-dependents living with them. Losers: Those with children over age 16 and those whose credits don’t offset the loss of exemptions.

Repeal of non-refundable credits Retirement/Disability credit Mortgage Interest credit Plug-in electric vehicle credit

Repeal of non-refundable credits JCT Budget impact: increase revenue by $4.0 billion over Winners: None Losers: Those who currently qualify for these credits.

Education Credits Current Proposed AOTC 100% first $2,000 25% next $2,000 4 years post-secondary 5 years post secondary LLC 20% of first $10,000 Repealed No limit on number of years Not allowed

Education Credits JCT Budget impact: increase revenue by $17.3 billion over Winners: Those whose student takes longer than 4 years to complete college. Losers: Adults taking advantage of the Lifetime Learning Credit.

Coverdell Education Savings Accounts Current Proposed Contributions/Year $2,000 None

Coverdell Education Savings Accounts JCT Budget impact: increase revenue by $0.6 billion from Winners: None Losers: Families trying to save for college.

Other Education Provisions Current Proposed Student Loan Interest Deduction $2,500 $0 Tuition & Fees Deduction $4,000/$2,000 US Savings Bond Interest Exclusion 100% for MAGI below $147,250 MFJ; $93,150 others Tax-Free Employer Provided Education Assistance $5,250 undergrad and grad

Other Education Provisions JCT Budget impact: increase revenue by $47.5 billion from Winners: None Losers: American workers needing additional education to maintain or improve job skills. Families trying to pay for college.

Tax Cuts and Jobs Act Provisions: Deductions for Individuals
Elimination of “Pease phase out” of overall itemized deductions for high earners. Winners: High earners over $261,500 (S) and $313,800 (MFJ). Losers: None

Mortgage Interest Deduction Senate would keep $1,000,000 level, no equity debt. Mortgage type: Current House Proposed Acquisition Debt $1,000,000 $500,000 (new debt after 11/2/17) Home Equity $ $0 Principal Residence Yes 2nd Residence No

Mortgage Interest Deduction JCT Budget Impact for the elimination of all listed deductions: Increase revenue by $1,259.6 billion from This is what pays for the majority of the tax cuts going to high earners and corporations. Winners: None Losers: Those buying homes with mortgages over $500,000. The real estate market for homes priced over $600,000. Sellers of homes priced over $600,000.

Taxes Paid deduction Current Proposed State & Local Income Taxes Unlimited $0 (OR) Sales Tax Real Property Taxes $10,000 Personal Property Taxes

Taxes Paid deduction Reasoning: The justification given for eliminating the deduction for state and local income taxes is to stop the subsidization of high tax states. Winners: None Losers: Those owning real estate not used in a trade or business with high real estate taxes. Those paying high state and local taxes.

House: Deduction for Personal Casualty Losses would be REPEALED This would affect future victims of hurricanes, storms, fires, and other natural disasters, thefts, etc. Winners: None Losers: Everyone experiencing a large personal casualty.

Charitable Contributions Current Proposed Max deduction 50% of AGI 60% of AGI

Charitable Contributions Winners: Those who can afford to give more than 50% of their income away. Losers: None.

Other deductions eliminated: Medical expense Tax preparation expense Alimony paid/received (divorce occurring after 2017) Moving expense Contribution to a Medical Savings Account (MSA) Unreimbursed employee business expenses Teacher Expenses ($250) (Senate would expand this to $500)

Schedule A Itemized Current Proposed Medical Yes >10% AGI H-No (Senate would allow) State & Local Income Taxes Yes No Sales Tax Real Estate Tax Yes, $10,000 max Personal Property Tax, Foreign Tax Home Mortgage Interest Yes $1,100,000 Yes $500,000 (S would allow $1,000,000) Charitable Contributions Yes 50% of AGI Yes 60% of AGI Casualty & Loss Unreimbursed Employee Expenses Tax Prep Fees Gambling Loss

Other deductions eliminated: Winners: Recipients of alimony. Losers: Older taxpayers and those with medical issues; taxpayers cashing in IRAs and liquidating assets to pay for health care; those who deduct tax prep fees; payers of alimony; taxpayers moving for employment purposes; taxpayers taking responsibility for saving and paying for their own health care; taxpayers with unreimbursed job expenses such as mileage.

Other exclusions modified: Current Both Proposed Employer provided housing Unlimited if for the convenience of the employer $50,000, phased out for AGI > $120K Gain from sale of principal residence Must own and occupy for 2 out of 5 years prior to sale Must own and occupy for 5 out of 8 years prior to sale. Phased out when AGI > $250,000 (S); $500K (MFJ)

Other exclusions modified: Winners: None Losers: Those who need to sell their home within 5 years; those who live in employer-provided housing.

Other exclusions repealed: Current Proposed Employment Achievement Awards Tax free to recipient Taxable compensation to recipient Employer dependent care assistance program Tax free up to $5,000 Taxable compensation

Other exclusions repealed: Winners: None Losers: Those who receive achievement awards; families with dependent children needing care while the parent works.

Other exclusions repealed: Current Proposed Qualified moving expense reimbursement Tax free to recipient Taxable compensation to recipient

Other exclusions repealed: Winners: None Losers: Employees moving to accept a job.

Other exclusions repealed: Ability to re-characterize ROTH contributions as traditional IRA contributions Ability to re-characterize conversions from traditional IRA to ROTH IRAs

Other exclusions repealed: Winners: None Losers: Those taking advantage of the retirement savings vehicles of IRAs and ROTH IRAs.

Repeal of Estate, Gift, and Generation Skipping Taxes Current Proposed Exclusion $5.49 Million $10 million Indexed for inflation 2023 Repealed

Repeal of Estate, Gift, and Generation Skipping Taxes Senate would double current $5.49 million exemption to $10.98 million.

Repeal of Estate, Gift, and Generation Skipping Taxes This affects the wealthiest 0.2% of Americans, those with estates over $5.49 million. Last year, approximately 5,500 estates were over $5.49 million.

Repeal of Estate, Gift, and Generation Skipping Taxes JCT Budget impact: reduce revenue by $172.2 billion over Winners: The wealthiest families in the U.S. Losers: None

House: Repeal the Alternative Minimum Tax This tax affected 4.5 million high earning American families in 2017 Senate version would maintain the AMT at higher exemption levels.

Repeal the Alternative Minimum Tax JCT Budget impact: reduce revenue by $695.5 billion over from the AMT applied to individuals, and reduce revenue by $40.3 billion over the same period from the AMT applied to corporations. Winners: High earning individuals and corporations. Losers: None

Tax Cuts and Jobs Act Provisions: Businesses
Increased Expensing (Bonus Depreciation) Current Proposed 2017 50% 100% (After 9/27/17) 2018 40% 100% 2019 30% 2020 0% Later 100% until 2022

Increased Expensing (Bonus Depreciation) JCT Budget impact: reduce revenue by $25.0 billion Winners: Businesses buying equipment. Businesses selling equipment. Losers: None

Expanded §179 Current Proposed 179 Limit $500,000 Phase Out Begins $2,000,000 $5,000,000 Both indexed for inflation

Expanded §179 JCT Budget impact: reduce revenue by $11.4 billion over Winners: Larger businesses can take advantage of 179. Losers: None

Net Operating Loss Current Proposed Regular NOL Carry Back 2 years No carryback Carry Forward 20 years Limit 100% of taxable income 90% of taxable income Certain Casualty Losses - Back 3 or 5 years 1 year, small businesses and farms only Certain Casualty Losses - Forward

Net Operating Loss JCT Budget impact: increase revenue by $156.0 billion over Winners: None Losers: Those experiencing large business losses (and casualty losses).

Like Kind Exchanges (§1031) Current Proposed Real Estate Yes Business Use Personal Property No

Like Kind Exchanges (§1031) JCT Budget impact: Increase revenue by $30.5 billion over Winners: None Losers: Business taxpayers trading in vehicles and equipment who may not qualify for Bonus or Will have to recognize §1245 gain on trade in.

Domestic Production Activities Deduction Repealed JCT Budget impact: increase revenue by $95.2 billion over Winners: None Losers: American businesses hiring workers.

No deduction allowed for transportation fringe benefits, on-premises gym or athletic facilities, or other amenities provided to employees that are primarily personal in nature and not related to the employers trade or business. OR, these benefits are deductible if included in the taxable compensation of the employee.

Transportation and other fringe benefits JCT Budget impact: increase revenue by $33.8 billion over Winners: None Losers: Employees

Self-created property no longer treated as a capital asset Income from disposition of Current Proposed Patent Capital Ordinary Invention Model or design Secret formula Process

Self-created property no longer treated as a capital asset Election to treat the following as a capital asset REPEALED Musical compositions Copyrights in musical works

Self-created property no longer treated as a capital asset JCT Budget impact: increase revenue by $0.5 billion over Winners: None Losers: Creators of intellectual property.

Repeal of “technical termination” of partnerships Partnership treated as continuing even if more than 50% of the capital and profits interests are sold or exchanged. JCT budget impact: increase revenue by $1.7 billion over Winners: None Losers: New partners who won’t get a step up in inside basis.

Repeal of employer-provided child care credit (currently 25% of qualified expenses for employee child care and 10% of qualified expenses for child-care resource and referral services). JCT budget impact: increase revenue by $0.2 billion over Winners: None Losers: Employers wishing to help employees with child care expenses.

Repeal of other business credits: Rehabilitation credit Work opportunity tax credit Deduction for unused business credits Modification of energy credits Modification of employee tip credit Currently applies to amount over $5.15/hour Will only apply to amount over minimum wage

Tax Cuts and Jobs Act Provisions: Businesses and Others
Many other business credit modifications Many other changes to specific industries (insurance, oil and gas, banking) Repeal of $1 million limit deduction for executive compensation Changes in taxation of foreign owned corporate investments and repatriation of profit Changes to tax exempt bonds & Exempt Organizations Repeal of the Johnson Act (prohibition of religious organizations from influencing elections and legislation)

Tax Cuts and Jobs Act Overall biggest winners:
Super wealthy – no estate tax Those currently paying AMT High earners, especially those with Pass-through income Capital gains and qualified dividends Income between $250,000 and $500,000 (S) Income between $250,000 and $1,000,000 (MFJ)

Tax Cuts and Jobs Act Overall biggest losers:
Those who itemize state and local income tax Those with high medical bills Those suffering a personal casualty Those with dependent children over age 16 (House) Those paying for college Those with large families, especially non-children dependents Some of those with no dependents Lower middle income families ($50,000 to $100,000 AGI)

Expired at End of 2016 Tuition and Fees Deduction
Qualified Mortgage Insurance Deduction Non-Business Energy Property Credit Residential Energy Efficient Property Credit Tax Free COD – Qualified Personal Residence Medical Expense deduction at 7.5% (now 10% for everyone)

Form Changes 1040: QW – child no longer needs to be a dependent. Child’s name required. New Form 8904 Credit for Oil and Gas Production from Marginal Wells Form 8863 Education Credits – TIN of institution required Form 8974 Qualified Small Business Payroll Tax Credit for Increasing Research Activities (filed with 941) Form 9100 Notice of Late Election Form 4684 Election to treat a federally declared disaster area loss as sustained in a prior year

Due Dates 1040 – April 17, 2018 Surface Transportation Act (calendar year entities) 1065 – March 15 1120 – April 17 1120-S – March 15 1041 – April 17

Due Dates FBAR FINCEN 114 – April 17
W-2 and 1099-MISC – January 31 FBAR FINCEN 114 – April 17 IRS required by PATH Act to hold up refunds containing AOTC & EITC until February 15 to help investigate fraud. PTIN Renewal - NOW

Other Information ITINs not used in prior 3 years expire at the end of 2017 Form 8867 Due Diligence required for EITC, CTC, AOTC -Complete the form -Keep all worksheets, copies of notes and documents relied on -Apply the knowledge requirement to determine who is eligible for each credit

Preparer Penalties See text

Fixing America’s Surface Transportation Act
IRS may Deny or Revoke Passports – IRC §7345 Seriously delinquent tax debts Over $50,000 Federal Tax Lien Filed Exceptions for taxpayers working to resolve tax debt (I/A, CDP hearing, Innocent Spouse)

Private Debt Collection Services IRC §6306 Inactive Tax Receivables - Lack of resources – IRS, Inability to locate taxpayer - More than one third of collection statute has passed, case not assigned to IRS employee - Over 1 year and no interaction with taxpayer

Private Debt Collection - Inactive Tax Receivables - Written notice to taxpayer and representative - Private collection agents must respect taxpayer rights and follow Fair Debt Collection Act (TIGTA says they haven’t been)

Private Debt Collection - Inactive Tax Receivables - Taxpayer may opt out in writing to private debt collection agency - Best practice: also notify IRS

Disaster Tax Relief and Airport Extension Act of 2017
Hurricanes Harvey, Irma, Maria. Eliminates 10% of AGI threshold for casualty loss. Taxpayers do not need to itemize to claim casualty loss from these storms.

No 10% early distribution penalty from retirement plan (up to $100,000). Income from distribution from retirement plans may be spread over 3 years . Allows re-contribution to retirement plans for cancelled home purchases.

Extension of time to file 2016 returns – January 31, 2018

Don’t Take the Bait Avoid Spear Phishing emails
Be Alert to Account Takeover Tactics Curbing Data Breaches and Business Identity Theft Defend Against Ransomware Prevent Remote Access Takeover

Don’t Take the Bait Watch Out for the W-2 Email Scam
Protect E-Services Accounts and EFINs Protect Clients, Businesses from Cybersecurity Threats Make Data Security an Everyday Priority 10 Steps for Tax Pros with Incidents

2017 ACA Update Still the law for 2017
IRS will NOT process 2017 returns without ACA information Line 61 Box Form 8965

What are the income limits?
100% to 400% of Federal Poverty Level to receive a Premium Tax Credit For 2017: $12,060 to $48,240 for one individual. $16,240 to $64,960 for a family of two. $24,600 to $98,400 for a family of four.

How the credit is calculated
Monthly premium for SLCSP (based on ages, county of residence) - Expected monthly family contribution (based on family size and household income = Tax credit amount (limited to actual premium paid). X Number of months of actual coverage in a year.

Form 1095‐A Issued by the Health Insurance Marketplace
Sent by January 31 Shows: Documentation of coverage by month Premiums, and Advance payments of PTC Cost of ‘efficient plan’

Health Insurance Premium Tax Credit
Form 8962 Get it now: apply toward insurance premium Must reconcile on 1040 Get it later: additional credit with 1040 Increase refund Decrease amount owed

Maximum Repayment Amounts
Household Income Single All Others < 200% of FPL $300 $600 200 to 299% of FPL $750 $1,500 300 to 399% of FPL $1,275 $2.550

IRS can collect excess advance credit
Lien Levy Refund offset

Individual Shared Responsibility Provision
Each individual must either: Have minimum essential health coverage (for each month) Have an exemption Pay a penalty “Shared Responsibility Payment” Supreme Court upheld the ACA based on this tax

Calculating the ISRP Penalty/”Shared Responsibility Payment” is the greater of the following: 2 1/2 percent of your household income above filing threshold, or Your family’s flat dollar amount, which is $695 per adult and $ per child, limited to a family maximum of $2,085 for 2017.

ISRP “Penalty” 2014 $95 $47.50 $285 1% 2015 $325 $162.50 $975 2%
Year Adult Child Family % of Household Income 2014 $95 $47.50 $285 1% 2015 $325 $162.50 $975 2% 2016 & Later $695 $347.50 $2,085 2.5%

Penalty Capped at the Average Cost of a Bronze Level Health Plan
$204/month/tax family member $207/month/tax family member $223/month/tax family member $272/month/tax family member Max ISRP = 5 people $272 x 12 = $3,264/person X 5 = $16,320

Individuals living in the US subject to Shared Responsibility
U.S. Citizens Permanent residents Foreign nationals qualifying as Resident Aliens “Green card test.". “Substantial presence test." Physically present in the United States on at least: 31 days during the current year, and 183 days during the 3 year period that includes the current year and the 2 years immediately before.

US Citizens Living Abroad
Subject to Individual Shared Responsibility If not physically present 330 days within 12 month period, treated as having MEC for that 12 month period. If a bona-fide resident of foreign country, treated as having MEC for that year.

Exemptions Form 8965 used to report or claim a coverage exemption

2017 Affordable Care Act Update
Employer mandate Large employers must provide health insurance to employees and dependents or more employees 2016 & Later - 50 or more Penalty: $2,000/employee after 30 (Indexed for inflation, the amount is $2,260 for 2017)

2017 Tax Brackets Filing Status 10% 15% 25% 28% 33% 35% 39.6% S $0
$9,326 $37,951 $91,901 $190,651 $416,701 $418,401 MFJ/QW $18,651 $75,901 $153,101 $233,351 $470,701 MFS $76,551 $116,676 $208,351 $235,351 HOH $13,351 $50,801 $131,201 $212,501 $444,551 CAP GAINS* 0% 20%

2017 Exemption Phased out for high income taxpayers
$4,050 Phased out for high income taxpayers Beginning at 261,500 (S), $313,800 (MFJ)

Standard Deduction Single $6,350 HOH $9,350 MFJ $12,700 MFS $6,350
65/Blind Married $1,250 65/Blind Single $1,550

Standard Deduction Dependents no earned income $1,050
(must file a tax return if > $1,050) Dependents w/ earned income $350 + earned income, not more than $6,350 (S)

Filing Threshold Single ($4,050 + $6,350) = $10,400
HOH ($4,050 + $9,350) = $13,400 MFJ ($4,050 + $4,050 + $12,700) = $20,800 MFS ($4,050 + $6,305) = $10,400 $4,050 if spouse itemizes Taxpayer with at least $400 of self-employed earnings must file a return because of the self-employment (SE) tax.

Itemized Deductions Medical – 10% of AGI
Overall Itemized Phase-out if AGI > S: $261,500 HOH: $287,650 MFS: $156,900 MFJ: $313,800

Itemized Deductions Some deductions NOT subject to phase-out
Medical and dental expenses Investment interest Casualty and theft losses Gambling losses

AMT Tentative minimum tax = Sum Of:
26% of first $187,800 ($93,900 MFS) of AMTI + 28% of AMTI over threshold Exemption: S, HOH $54,300 MFJ, QW $84,500 MFS $42,250 Child $7,400 + earned income (max $54,300) All exemptions subject to phase-out

Adoption Credit Non-refundable $13,570 max
MAGI $203,540 to $243,540 Phase-out

Foreign Income Exclusion
Maximum = $102,100 Must meet either the Physical Presence Test (330 days/12 consecutive months), or Bona-Fide Resident Test & NOT have an “abode” in the US

Long Term Care Insurance
Age at end of year Deductible Premium Limit 40 or less $410 41 – 50 $770 51 – 60 $1,530 61 – 70 $4,090 > 70 $5,110

Student Loan Interest $2,500 max Phase-out:
Single/HOH $65,000 - $80,000 MFJ $135,000 - $165,000

EITC Max investment income = $3,450 One $3,400 $39,617 $45,207 Two
Children Max EITC S, HOH, QW MFJ One $3,400 $39,617 $45,207 Two $5,616 $45,007 $50,597 Three or more $6,318 $48,340 $53,930 None $510 $15,001 $20,600

Child Tax Credit Under age 17 Max $1,000
Reduced when AGI exceeds threshold S, HOH, QW $75,000 MFS $55,000 MFJ $110,000

Kiddie Tax Unearned income over $2,100
Taxed at parent’s highest marginal rate Form 8615 Child under age of 18, OR Under 24 and full-time student Did not have earned income > half of child’s support

Household Employers FICA - $2,000 or more/year
FUTA - $1,000 or more in any quarter Sch H W-2

Social Security One Quarter Earnings = $1,300 Max Earnings $127,200
Benefits increased 0.3%, 2.0% for 2018 Reduction of benefits Under full retirement age: $16,920 Full retirement age year: $44,880

IRA/Roth Contribution Limits
$5,500 $1,000 additional If 50 or older

Qualified Plan Deferrals
401(k), 403(b), SARSEP $18,000 SIMPLE IRA, SIMPLE 401(k) $12,500 457 State & Local Govt Catch-up (age 50 or more) 401(k), 403(b), 457 $6,000 Catch-up SIMPLE IRA, SIMPLE 401(k) $3,000

Gifts/Estates Estate/Gift threshold $5,490,000
Portability requires a 706 Annual Gift Exclusion $14,000 Gift Splitting requires a 709

Mileage Business 53.5 cents Medical 17.0 cents Moving 17.0 cents
Charitable 14.0 cents

2017 Tax Update.

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