The new tax year is almost here, so now’s a good time to give a heads up about the various tax rates and contribution limits that will apply in 2017.
In 2017, some things will change and others stay put, so it’s good to know which changes might impact your situation.
Of course, Trump may enact significant changes to these rates, especially the federal tax rates, but until that happens here’s the lay of the land. In this post, we’ll cover:
- Federal income tax rates for 2017
- Standard deduction + personal exemption for 2017
- Phaseouts for 2017
- Alternative Minimum Tax
- Foreign earned income exclusion
- Retirement & tax-advantaged accounts
- Roth IRA Income Limits
- IRA Deduction Phaseouts
Federal income tax rates for 2017
Standard deduction + personal exemption for 2017
Phaseouts for 2017
Personal exemption phaseout
While the 2017 personal exemption is $4,050, it starts to phase out once you begin earning a lot and, if you earn a WHOLE lot, it will phase out completely. Here are the Adjusted Gross Income ranges where the personal exemption will phase out:
If you are a high earner who itemizes your deductions, those deductions might get capped or phased out by the Pease phaseout limits, named after former Congressman Don Pease.
The Pease phaseout limits apply to: charitable deductions, home mortgage interest, state and local tax deductions, and other misc itemized deductions. They do not apply to medical expenses, investment expenses, gambling losses, or certain theft and casualty losses.
The 2017 Pease AGI thresholds are:
If Pease limits apply, then the total of all your itemized deductions is reduced by the lesser of:
- 3% of AGI above the applicable threshold; or
- 80% of the amount of itemized deductions otherwise allowable for the tax year
Alternative Minimum Tax
AMT is a Congress-enacted parallel tax system that is intended to ensure high earners don’t take too many itemized deductions to avoid their fair share of taxes. AMT requires taxpayers to compute their tax bill twice: once using regular tax rates, then again using AMT rates. You pay the higher of the two.
AMT uses a different definition of taxable income called Alternative Minimum Taxable Income (AMTI). As with the standard deduction / personal exemption, AMT lets you exempt a defined amount from your AMTI. The 2017 exemptions amounts are:
However, the AMT exemption phases out for high earners at 25 cents per dollar earned after AMTI exceeds a certain threshold. Those thresholds for 2017 are:
AMT is charged at 26% of AMTI. However, once your AMTI exceeds a certain threshold, that rate increases to 28%. The 28% AMTI thresholds for 2017 are:
No, that’s not a typo. The threshold is $187,800 for EVERYONE except married taxpayers filing separately.
Foreign earned income exclusion
Living abroad? Congratulations, you get a nice fat exclusion. In 2017, the Foreign Earned Income Exclusion is $102,100, up from $101,300 in 2016. I’ve written previously about how to take advantage of the Foreign Earned Income Exclusion.
Retirement & tax-advantaged accounts
Most contribution limits for retirement and tax-advantaged accounts remain unchanged from 2016, with a couple exceptions for individual HSAs and max contributions to defined-contribution plans:
Roth IRA Income Limits
Remember that Roth IRAs are subject to contribution limits based on how much income you earn. As your income increases, your max contribution decreases on a sliding scale, and it eventually goes to zero:
IRA Deduction Phaseouts
IRA contributions are tax-deductible; Roth IRA contributions are not.
IRA income limits may reduce the tax deductibility of your IRA contribution on a sliding scale as your income increases, eventually reducing that tax deductibility to zero.
There are 2 flavors of this deduction phaseout: (1) when you are covered by another retirement plan at work, and (2) when you are not.
If you are already covered by another retirement plan at work (which includes a SEP-IRA, SIMPLE, or Solo 401k), then the income limits governing your IRA tax deductibility are:
On the other hand, if you are NOT covered by an existing retirement plan, then the income limits governing your IRA tax deductibility are: