10 Financial Resolutions and Tax Changes to Consider for 2017

March 20, 2017
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The year 2017 promises to be a time of change. Based on Trump’s campaign promises and recent actions, we can expect substantial tax reform and a significant rollback of Obamacare in the first half of the year. We will address those changes as they come. In the meantime, here are 10 of the most critical current tax rules and changes for 2017 that affect every high-net-worth taxpayer.

1. Income taxes
For 2017, income tax brackets have widened slightly due to inflation, but tax rates haven’t changed.

The standard deduction did increase slightly:

  • Married couples get $12,700, plus $1,250 for each spouse if age 65 and up.
  • Singles get $6,350, and $7,900 (not surviving spouse) if age 65 and up.
  • Heads of household get $9,350, plus $1,550 once they attain age 65.

Personal exemptions stay the same at $4,050 for taxpayers and dependents

2. Dividend and capital gains tax rates were adjusted for inflation
Dividend and capital gains rates remain the same other than being adjusted for inflation.

Investors who are in the 39.6% income tax bracket will pay a 20% tax rate for qualified dividends and long-term capital gains. The 20% top rate on dividends and long-term gains stays the same, but begins at higher amounts for:

  • Singles with taxable income above $418,400
  • Heads of household with taxable income above $444,550
  • Joint filers with taxable income above $470,700

Investors who fall between the 25% to 39.6% tax brackets will pay a 15% tax rate on qualified dividends and long-term gains. Investors in the 10% and 15% tax bracket will pay 0% tax on dividends and long-term capital gains.  Non-qualified dividends and ordinary income from taxable bonds will be taxed at an investor’s ordinary income tax rate.

3. IRA contributions always make sense when allowed
Contributions remain the same for 2017. For both traditional and Roth IRAs, investors can contribute $5,500 if they are under age 50, with a limit of $6,500 if they are over age 50. Note that the deadline to make an IRA contribution is April 18, 2017 for tax year 2016.

There are income limits for being able to deduct traditional IRA contributions, and these income limits have increased for 2017 as follows:

  • Singles and heads of household who contribute to a workplace retirement plan can claim a fully deductible contribution if their income falls below $62,000.
  • For married couples filing jointly, a spouse who contributes to a workplace retirement plan can claim a full deduction if their income falls below $99,000. From there, the deduction phases out between $99,000 to $119,000. If you can’t make a deductible IRA contribution, consider a nondeductible contribution.

Income limits pertaining to Roth IRA contributions have increased as follows:

  • Single filers earning less than $118,000 can make a full Roth IRA contribution, but contributions are eliminated for filers earning more than $133,000.
  • Married couples filing jointly can make a full contribution to a Roth IRA if their combined income is less than $186,000. However, they are ineligible to contribute if their income exceeds $196,000.

4. Maximize 401(k) contributions whenever possible
Contribution limits for 401(k), 403(b), and 457 plans remain unchanged for 2017. If an investor is under age 50, there’s an $18,000 contribution limit, with an additional $6,000 catch-up contribution limit if the investor is over age 50. The cap on SIMPLE plans remains at $12,500, and $15,500 for individuals age 50 and above. The base pay-in limit for defined contribution plans increased to $54,000.

5. Beware! Medical expense deductions and long-term care deductions have changed
Limits for deducting long-term care premiums have increased. Listed below is how much taxpayers can write off based on their age:

  • Age 71: $5,110
  • Age 61-70: $4,090
  • Age 51-60: $1,530
  • Age 41-50: $770
  • Age 40: $410

6. Health savings accounts still provide nice perks and long-term opportunities
In 2017, any health care plan with a deductible above $1,300 for individuals and $2,600 for families classifies as a high-deductible plan. For single coverage, a contribution of $3,400 can be made to an HSA. For family coverage, a contribution of up to $6,750 can be made. Investors age 55+ can make a catch-up contribution of $1,000 to an HSA.

7. Education savings can make a difference for parents and grandparents
You can contribute up to $14,000 annually to a 529 plan for a student without having the contribution count toward the gift tax. An up-front contribution toward a 529 Savings Plan can be made up to $70,000 on behalf of an individual, but this method eliminates further contributions for the next five years. The contribution doesn’t count toward gift tax. Keep in mind that there is a lot of flexibility with these accounts; the owner can transfer the funds to different family members. And if the account is not used, it can be transferred down to the next generation, which is great for estate-planning purposes.

8. Gift and estate taxes
The lifetime exclusion amount for the estate tax increased to $5.49 million per individual and portability is still available. The highest gift and estate tax rate is 40%.If taxpayers incur heavy estate-tax liability, they may qualify for an installment payment tax break. If one or more closely held businesses make up greater than 35% of an estate, $596,000 of tax can be deferred, and the IRS will charge only a 2% interest rate.

9. Good news for small businesses
Small businesses can once again use pretax funds to reimburse workers for health care costs, especially premiums for individual and family coverage. In a little noticed move, Congress late last year reauthorized Health Reimbursement Arrangements for businesses with fewer than 50 employees. As a result, these firms won’t risk large penalties on payments they provide to workers who purchase their own health insurance. Many of these firms don’t offer group health plans, and this law enables them still to offer a health care benefit.

10. Filing deadlines have changed
The filing deadline to submit 2016 tax returns is Tuesday, April 18, 2017, rather than the traditional April 15 date. In 2017, April 15 falls on a Saturday, and this would usually move the filing deadline to the following Monday—April 17. However, Emancipation Day, which is a legal holiday in the District of Columbia, will be observed on that Monday, pushing the nation’s filing deadline to Tuesday, April 18, 2017.

The following are a few other important deadlines to keep track of in 2017:

  • Taxpayers are able to request an additional six months to file their returns.
  • Employers are required to file W-2s with the federal government by January 31.
  • Partnership returns are due two-and-a-half months after year-end, and March 15 for calendar- year firms. Corporations can request a five-month extension.
  • The filing date for owners of foreign accounts has moved up to April 18.

There is one thing that we can count on. This year is sure to be filled with surprises. We will keep you updated once these changes surface.

At HFG Wealth Management, we embrace a more holistic method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

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Copyright © 2017. HFG Wealth Management, LLC. Investment advisory services offered through HFG Wealth Management, LLC – An independent Registered Investment Advisory firm registered with the SEC. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Therefore, any information presented here should only be relied upon when coordinated with individual professional advice. [ more disclosures ]