Dear Clients & Friends:
Happy New Year 2017! I wish you all a fun and healthy holiday season. I hope you will all have a chance to celebrate, relax, and spend time with loved ones. We are looking forward to touching base with each of you as we head into the new tax season.
As we say goodbye to 2016, I know many of you are curious (or anxious, as the case may be) about how the change in Presidential Administration will affect you. Any change in Presidential Administration brings the possibility, indeed the likelihood, of tax law changes. The election of Donald Trump is no exception. During the campaign, President-elect Trump outlined a number of tax proposals for individuals and businesses. However, it is important to remember that these proposals are not yet law, and it is difficult to know if and when any of these proposals would go into effect. At the same time, the end of the year may bring some tax law changes before President Obama leaves office. This letter highlights some of those possible changes with an eye on your year-end tax planning.
Individual Income Taxes. The last change to the individual income tax rates was in the American Taxpayer Relief Act of 2012 (ATRA), which raised the top individual income tax rate. Under ATRA, the current individual income tax rates are 10, 15, 25, 28, 33, 35, and 39.6 percent.
During the campaign, President-elect Trump proposed a new individual tax rate structure of 12, 25, and 33 percent:
President-elect Trump did not detail the precise income levels within which each bracket percentage would fall, instead generally estimating for joint returns a 12 percent rate on income up to $75,000, a 25 percent rate for income between $75,000 and $225,000, and 33 percent on income more than $225,000 (brackets for single filers will be half those dollar amounts), and “low-income Americans” would have a zero percent rate.
Healthcare. For individuals and employers, the Affordable Care Act (ACA) created new mandates to carry or offer insurance, or otherwise pay a penalty. If you have not been insured in 2016 for a total of two or more months, you may be subject to a penalty payable on your tax return. The annual fee for not having insurance during 2016 will be $695 per adult and $347.50 per child, or 2.5 percent of your household income above the filing threshold. If you purchased insurance for 2016 from the Healthcare Marketplace, you will receive an IRS Form 1095-A sometime in January 2017. Please be on the lookout for this form. It is necessary for the completion of your tax return.
President-elect Trump made repeal of the ACA one of the centerpieces of his campaign. At this time, how repeal may move through Congress remains to be seen. Lawmakers could vote to repeal the entire ACA or just parts. No matter the ACA’s fate, you will still be penalized for not holding a health insurance plan in 2017. For 2017, the flat fee for not having insurance will be adjusted for inflation, while the percentage option will remain at 2.5 percent.
Year-end 2016. More immediately, the calendar is quickly turning to 2017. At the end of 2015, Congress chopped up fifty-six tax extenders into three categories:
1. Twenty-two provisions were made permanent, including the American Opportunity Tax Credit (for students in their first four years of higher education) and the $250 above-the-line deduction for K-12 teachers.
2. Four provisions were extended for five years to expire on December 31, 2019.
3. And, thirty provisions were extended until the end of 2016 with the stated purpose of allowing them to permanently disappear at the end of the year.
Many of these thirty expiring extenders are not widely applicable (i.e. the classification of all racehorses as three-year property for depreciation purposes); however, some may have an impact on you. For example, in 2017, the Adjusted Gross Income floor for medical expense deduction for individuals age 65 and older will rise from 7.5 percent to 10 percent, meaning those impacted will not be able to deduct any medical expenses unless greater than 10 percent of their income. Additionally, the Tuition and Fees deduction (popular among graduate and technical students not eligible for the American Opportunity Tax Credit) will be eliminated. For the full list of expiring tax extenders, click here.
Tax Scams. One other issue to be aware of: the IRS has issued new consumer alerts providing taxpayers with tips to protect themselves from tax scams across the country. The IRS will never call about taxes owed without first mailing a bill to the taxpayer. Likewise, the New York State Department of Taxation and Finance will never send you an email asking you to validate personal information, such as your username, password, or account numbers. You can read more by clicking here.
Wrap-up. In closing, these are some additional miscellaneous items to consider:
Please call or email me if you have any questions concerning this memo. As always, I look forward to providing my assistance. Again, Happy Holidays and Happy New Year.
Charles A. Kerner, CPA