IRS Inflation Adjustments For 2017

Tax season is upon us. Returns for partnerships and S corporations are due on March 15, 2017, and returns for individuals and C corporations are due on April 18, 2017. You should be aware that some tax deductions, exemptions, exclusions, limitations, and credits will be different than last year.

The Internal Revenue Service's tax year 2017 annual inflation adjustments affect more than 50 tax provisions, including tax rate schedules and other changes. Revenue Procedure 2016-55 provides details about these annual adjustments.

Some of these inflation adjusted provisions have changed from 2016 and some have remained the same. The adjusted items for tax year 2017 of greatest interest to most taxpayers include the following:

• The standard deduction for married filing jointly rises to $12,700 for tax year 2017, up $100 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $6,350 in 2017, up from $6,300 in 2016, and for heads of households, the standard deduction will be $9,350 for tax year 2017, up from $9,300 for tax year 2016.
• The personal exemption for tax year 2017 remains as it was for 2016: $4,050.  However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $261,500 ($313,800 for married couples filing jointly). It phases out completely at $384,000 ($436,300 for married couples filing jointly.)
• For tax year 2017, the 39.6 percent tax rate affects single taxpayers whose income exceeds $418,400 ($470,700 for married taxpayers filing jointly), up from $415,050 and $466,950, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2017 are described in the revenue procedure.
• The limitation for itemized deductions to be claimed on tax year 2017 returns of individuals begins with incomes of $287,650 or more ($313,800 for married couples filing jointly).
• The Alternative Minimum Tax exemption amount for tax year 2017 is $54,300 and begins to phase out at $120,700 ($84,500, for married couples filing jointly for whom the exemption begins to phase out at $160,900). The 2016 exemption amount was $53,900 ($83,800 for married couples filing jointly).  For tax year 2017, the 28 percent tax rate applies to taxpayers with taxable incomes above $187,800 ($93,900 for married individuals filing separately).
• The tax year 2017 maximum Earned Income Credit amount is $6,318 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,269 for tax year 2016. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
• For tax year 2017, the monthly limitation for the qualified transportation fringe benefit is $255, as is the monthly limitation for qualified parking.
• For calendar year 2017, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage is $695.
• For tax year 2017 participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,250 but not more than $3,350; these amounts remain unchanged from 2016. For self-only coverage the maximum out of pocket expense amount  is $4,500, up $50 from 2016. For tax year 2017 participants with family coverage, the floor for the annual deductible is $4,500, up from $4,450 in 2016, however the deductible cannot be more than $6,750, up $50 from the limit for tax year 2016. For family coverage, the out of pocket expense limit is $8,250 for tax year 2017, an increase of $100 from tax year 2016.
• For tax year 2017, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $112,000, up from $111,000 for tax year 2016.
• For tax year 2017, the foreign earned income exclusion is $102,100, up from $101,300 for tax year 2016.
• Estates of decedents who die during 2017 have a basic exclusion amount of $5,490,000, up from a total of $5,450,000 for estates of decedents who died in 2016.
• The annual gift tax exclusion remains unchanged for calendar year 2017. The first $14,000 of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts made during that year.

IRS Announces 2017 Mileage Allowance Rates

Internal Revenue Bulletin: 2016-52
December 27, 2016
Notice 2016–79
2017 Standard Mileage Rates

The IRS has announced that the optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) will decrease by 0.5¢ to 53.5¢ per mile for business travel after 2016. This rate can also be used by employers to provide tax-free reimbursements to employees who supply their own autos for business use, under an accountable plan, and to value personal use of certain low-cost employer-provided vehicles. And, the rate for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction will decrease by 2¢ to 17¢ per mile.

See IRS Notice 2016-79, 2016-52 IRB; IR 2016-169 (December 27, 2016).

Background

Rev. Proc. 2010–51, 2010–51 I.R.B. 883, provides rules for computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes, and for substantiating, under § 274(d) of the Internal Revenue Code and § 1.274–5 of the Income Tax Regulations, the amount of ordinary and necessary business expenses of local transportation or travel away from home. Taxpayers using the standard mileage rates must comply with Rev. Proc. 2010–51. However, a taxpayer is not required to use the substantiation methods described in Rev. Proc. 2010–51, but instead may substantiate using actual allowable expense amounts if the taxpayer maintains adequate records or other sufficient evidence.

Standard Mileage Rates

The standard mileage rate for transportation or travel expenses is 53.5 cents per mile for all miles of business use (business standard mileage rate). See section 4 of Rev. Proc. 2010–51. The standard mileage rate is 14 cents per mile for use of an automobile in rendering gratuitous services to a charitable organization under § 170. See section 5 of Rev. Proc. 2010–51. The standard mileage rate is 17 cents per mile for use of an automobile (1) for medical care described in § 213, or (2) as part of a move for which the expenses are deductible under § 217. See section 5 of Rev. Proc. 2010–51.

Basis Reduction Amount

For automobiles a taxpayer uses for business purposes, the portion of the business standard mileage rate treated as depreciation is 23 cents per mile for 2013, 22 cents per mile for 2014, 24 cents per mile for 2015, 24 cents per mile for 2016, and 25 cents per mile for 2017. See section 4.04 of Rev. Proc. 2010–51.

Maximum Standard Automobile Cost

For purposes of computing the allowance under a FAVR plan, the standard automobile cost may not exceed $27,900 for automobiles (excluding trucks and vans) or $31,300 for trucks and vans. See section 6.02(6) of Rev. Proc. 2010–51.

Effective Date

IRS Notice 2016-79 is effective for (1) deductible transportation expenses paid or incurred on or after January 1, 2017, and (2) mileage allowances or reimbursements paid to an employee or to a charitable volunteer (a) on or after January 1, 2017, and (b) for transportation expenses the employee or charitable volunteer pays or incurs on or after January 1, 2017.