The year 2016 did not generate major tax law changes. However, the year 2017 promises to be a challenging one for tax practitioners, as President Trump and Congressional Republicans have promised to enact a significant tax reform package in 2017.
Even if there is no new law in 2017, tax practitioners still will have to cope with a number of tax changes that go into effect for the first time this year or apply for the first time for tax returns filed this year.
Tax planning should always be an essential focus when reviewing your personal situation. However, when planning ahead for 2017 and beyond, most experts are watching for possible major changes.
Tax Law Changes that Take Effect in 2017
Congress did not enact an extenders package to revive tax provisions that expired at the end of 2016.
Provisions that changed or expired at the end of 2016 include:
Higher Floor Beneath Medical Expenses for Seniors
For tax years beginning after Dec. 31, 2016, the floor beneath the itemized deduction for medical expenses of taxpayers who are age 65 or older increases from 7.5% of AGI to 10% of AGI. (Code Sec. 213(a), Code Sec. 213(f)).
Some Taxpayers May Need New ITINs
Any individual filing a U.S. tax return is required to state their taxpayer identification number on that return. Generally, a taxpayer identification number is the individual's Social Security number. However, in the case of individuals who are not eligible to be issued an SSN, but who still have a tax filing obligation, the IRS issues individual taxpayer identification numbers for use in connection with the individual's tax filing requirements. (Reg. § 301.6109-1(d)(3)(i)).
Revised Due Dates for Partnership and C Corporation Returns
Under the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (P.L. 114-41), effective generally for returns for tax years beginning after Dec. 31, 2015 (i.e., for 2016 tax year returns filed in 2017), calendar year partnerships, as well as S corporations, must file their returns by the 15th day of the third month after the end of the tax year. (Code Sec. 6072(b)) For prior returns, partnerships had to file by the 15th day of the fourth month after the end of the tax year.
C corporations generally must file by the 15th day of the fourth month (it had been the third month) after the end of the tax year. However, for C corporations with fiscal years ending on June 30, the filing date continues to be the 15th day of the third month after the end of the tax year. Corporations with short tax years ending anytime in June are treated as if the short year ended on June 30, and they must file by the 15th day of the third month after the end of the tax year. For C corporations with fiscal years ending on June 30, the deferred filing due date won't apply until tax years beginning after Dec. 31, 2025.
Safe Harbor for De Minimis Errors on Information Returns and Payee Statements
Effective for returns and statements required to be filed after December 31, 2016, the 2015 PATH Act established a de minimis safe harbor from penalties for the failure to file correct information returns and for failure to furnish a correct payee statements. If the error is $100 or less ($25 or less in the case of errors involving tax withholdings), the issuer of the information return is not required to file a corrected return and no penalty is imposed.
However, if any person receiving payee statements requests a corrected statement, the penalty for failure to file a correct information return and the penalty for failure to furnish a correct payee statement continues to apply in the case of de minimis errors on that statement.
Strengthened Tax Credits
In 2016 for individuals, the Child Tax Credit, American Opportunity Tax Credit and the Earned Income Tax Credit were all strengthened and made permanent.
Changes to the PATH Act
The PATH (Protecting Americans from Tax Hikes) Act helps detect and safeguard individuals, families, and businesses that are impacted by tax fraud.
Here are some notable items from the PATH Act for 2017:
- A deduction for state and local general sales tax in lieu of state income tax was extended and made permanent.
- You can deduct either your state and local income taxes or your state and local general sales taxes—but not both. This is a very important break for millions of people who live in states with no state income tax.
- Individuals at least 70½ years of age can still exclude from gross income qualified charitable distributions from IRAs of up to $100,000 per year.
- Please remember to double check on what counts as a qualified charity and distribution before using this tax strategy.
- Permanent deduction for educator expenses.
- An eligible educator can deduct as much as $250 of unreimbursed costs of classroom supplies, such as books, computer equipment and software. This applies to a kindergarten through grade 12 teacher, instructor, counselor, principal or aide in school for at least 900 hours during a school year. This is especially valuable since they can deduct it from their total income, using line 23 on Form 1040, rather than as a miscellaneous itemized deduction, according to the IRS.
Stay Informed and Financially Confident with Chatterton & Associates
For 2016, taxpayers faced a fairly stable tax environment. An essential part of maintaining your overall financial health is attempting to keep your tax liability to a minimum.
Managing wealth involves careful planning and keeping updated and informed of any changes that affect investors.
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