About
Foundational Principles In the Community Diversity, Equity & Inclusion Technical Excellence Alumni TIAG Membership
Careers
Why Cohen & Company Our Culture Total Rewards & Benefits Intern & Entry Level Opportunities Experienced Opportunities
Contact
Akron, OH Baltimore, MD Chicago, IL Cleveland, OH Detroit, MI Milwaukee, WI New York, NY Philadelphia, PA Pittsburgh, PA St. Clair Shores, MI Youngstown, OH
Client Portal
Services Industries Knowledge Center People

About Our Services

We offer tailored solutions — whether private company or owner; public or private fund, adviser or fund service provider; or Fortune 1000 enterprise. Learn how we can help you.

Learn More

Assurance Services

Employee Benefit Plan Audits Internal Controls Investment Company Audits Private Company Audits SOC Readiness & Compliance

Tax Services

Federal Tax Planning & Compliance High Net Worth & Wealth Transfer International Filings & Structuring Investment Company Tax State & Local Tax Tax Credits & Incentives Transaction Tax Planning

Advisory Services

Business Valuations Data & Insights Digital Finance Solutions IT Strategy & Implementation M&A Advisory Outsourced Accounting Solutions Risk Assurance & Advisory Transaction Services Turnaround & Restructuring

Our Industry Expertise

Our industry experience means you can find professionals who speak your language and bring earned insights to the table. Learn how we can help you.

Learn More

Key Industries

Digital Assets Investment Companies Manufacturing Private Companies Private Equity Real Estate & Construction Technology & Life Science
VIEW THE COMPLETE LIST

Knowledge Center

Our team wants to help your team stay up to date. Browse our thought leadership, events and news for insights and a point of view on business-critical topics.

Learn More

Insights

Browse valuable articles and publications our experts have written to help you and your organization answer key questions — and consider new ones.

Read Our Insights

Events

Join us in person and online for events that address timely topics and key business considerations.

Explore Our Events

News

Find out what is happening at Cohen & Company, from industry recognitions and growth updates, to where we are contributing to important media stories.

Read Our News
People
Foundational Principles In the Community Diversity, Equity & Inclusion Technical Excellence Alumni TIAG Membership
Why Cohen & Company Our Culture Total Rewards & Benefits Intern & Entry Level Opportunities Experienced Opportunities
Akron, OH Baltimore, MD Chicago, IL Cleveland, OH Detroit, MI Milwaukee, WI New York, NY Philadelphia, PA Pittsburgh, PA St. Clair Shores, MI Youngstown, OH
Client Portal
Back to Insights

Many 2017 Cost-of-living Adjustments Increase Slightly

November 04, 2016 Federal Tax Planning & Compliance, High Net Worth & Wealth Transfer

The IRS recently issued its 2017 cost-of-living adjustments. Because inflation remains relatively in check, many amounts increase only slightly, and some stay at 2016 levels. As you implement 2016 year-end tax planning strategies, be sure to take these 2017 adjustments into account.

Individual Income Taxes

Tax-bracket thresholds increase for each filing status but, because they’re based on percentages, they increase more significantly for the higher brackets. For example, the top of the 10% bracket increases by $50 to $100, depending on filing status, but the top of the 35% bracket increases by $1,875 to $3,750, again depending on filing status.

2017 Ordinary Income Tax Brackets

The personal and dependency exemption remains unchanged at $4,050 for 2017. The exemption is subject to a phaseout, which reduces exemptions by 2% for each $2,500 (or a portion thereof) by which a taxpayer’s adjusted gross income (AGI) exceeds the applicable threshold (2% of each $1,250 for separate filers).
 
For 2017, the phaseout starting points increase by $1,250 to $2,500, to AGI of:

  • $261,500 (singles)
  • $287,650 (heads of households)
  • $313,800 (joint filers), and
  • $156,900 (separate filers).

The exemption phases out completely at:

  • $384,000 (singles),
  • $410,150 (heads of households),
  • $436,300 (joint filers), and
  • $218,150 (separate filers).

Your AGI also may affect some of your itemized deductions. An AGI-based limit reduces certain otherwise allowable deductions by 3% of the amount by which a taxpayer’s AGI exceeds the applicable threshold (not to exceed 80% of otherwise allowable deductions). The thresholds are the same as for the personal and dependency exemption phaseout.

AMT

The alternative minimum tax (AMT) is a separate tax system that limits some deductions, doesn’t permit others and treats certain income items differently. If your AMT liability is greater than your regular tax liability, you must pay the AMT.
 
Like the regular tax brackets, the AMT brackets are annually indexed for inflation. For 2017, the threshold for the 28% bracket increased by $1,500 for all filing statuses except married filing separately, which increased by half that amount.

2017 AMT Brackets
 
The AMT exemptions and exemption phaseouts are also indexed. The exemption amounts for 2017 are:

  • $54,300 for singles and heads of households, and

  • $84,500 for joint filers (increasing by $400 and $700, respectively, over 2016 amounts).

The inflation-adjusted phaseout ranges for 2017 are:

  • $120,700–$337,900 for singles and heads of households, and

  • $160,900–$498,900 for joint filers — amounts for separate filers are half of those for joint filers.

Education- and Child-related Breaks

The maximum benefits of various education- and child-related breaks generally remain the same for 2017. But most of these breaks are also limited based on the taxpayer’s modified adjusted gross income (MAGI). Taxpayers whose MAGIs are within the applicable phaseout range are eligible for a partial break — breaks are eliminated for those whose MAGIs exceed the top of the range.
 
The MAGI phaseout ranges generally remain the same or increase modestly for 2017, depending on the break. For example:
 
The American Opportunity credit. The MAGI phaseout ranges for this education credit (maximum $2,500 per eligible student) remain the same for 2017:

  • $160,000–$180,000 for joint filers, and
  • $80,000–$90,000 for other filers.

The Lifetime Learning credit. The MAGI phaseout ranges for this education credit (maximum $2,000 per tax return) increase for 2017:

  • $112,000–$132,000 for joint filers (up $2,000), and
  • $56,000–$66,000 for other filers (up $1,000).

The adoption credit. The MAGI phaseout ranges for this credit also increase for 2017:

  • $203,540–$243,540 for joint, head-of-household and single filers (up $1,620).
  • $13,570 for the maximum credit (up $110).

(Note: Married couples filing separately generally aren’t eligible for these credits.)
 
These are only some of the education- and child-related breaks that may benefit you. Keep in mind that, if your MAGI is too high for you to qualify for a break for your child’s education, your child might be eligible.

Retirement Plans

Only a few retirement-plan-related limits increase for 2017, and even those increases are only slight. Thus, you have limited, if any, opportunities to increase your retirement savings if you’ve already been contributing the maximum amount allowed:

Retirement Plan Related Limit Increases
 
Your MAGI may reduce or even eliminate your ability to take advantage of IRAs. Fortunately, IRA-related MAGI phaseout range limits all will increase for 2017.
 
Traditional IRAs. MAGI phaseout ranges apply to the deductibility of contributions if the taxpayer (or his or her spouse) participates in an employer-sponsored retirement plan:

  • For married taxpayers filing jointly, the phaseout range is specific to each spouse based on whether he or she is a participant in an employer-sponsored plan:
    • For a spouse who participates, the 2017 phaseout range limits increase to $99,000–$119,000 (up $1,000).
    • For a spouse who doesn’t participate, the 2017 phaseout range limits increase to $186,000–$196,000 (up $2,000).
  • For single and head-of-household taxpayers participating in an employer-sponsored plan, the 2017 phaseout range limits increase to $62,000–$72,000 ($1,000).

Taxpayers with MAGIs within the applicable range can deduct a partial contribution; those with MAGIs exceeding the applicable range can’t deduct any IRA contribution.
 
But a taxpayer whose deduction is reduced or eliminated can make nondeductible traditional IRA contributions. The $5,500 contribution limit (plus $1,000 catch-up if applicable and reduced by any Roth IRA contributions) still applies. Nondeductible traditional IRA contributions may be beneficial if your MAGI is also too high for you to contribute (or fully contribute) to a Roth IRA.
 
Roth IRAs. Whether you participate in an employer-sponsored plan doesn’t affect your ability to contribute to a Roth IRA, but MAGI limits may reduce or eliminate your ability to contribute:

  • For married taxpayers filing jointly, the 2017 phaseout range limits increase to $186,000–$196,000 ($2,000).
  • For single and head-of-household taxpayers, the 2017 phaseout range limits increase to $118,000–$133,000 (up $1,000).

You can make a partial contribution if your MAGI falls within the applicable range, but no contribution if it exceeds the top of the range.
 
(Note: Married taxpayers filing separately are subject to much lower phaseout ranges for both traditional and Roth IRAs.)

Gift and Estate Taxes

The unified gift and estate tax exemption and the generation-skipping transfer (GST) tax exemption are both adjusted annually for inflation. For 2017 the amount is $5.49 million (up from $5.45 million for 2016).
 
The annual gift tax exclusion remains at $14,000 for 2017. It’s adjusted only in $1,000 increments, so it typically increases only every few years. It increased to $14,000 in 2013, so it might go up again for 2018.

Impact on Year-end Tax and Retirement Planning

The 2017 cost-of-living adjustment amounts are trending higher than 2016 amounts, but only slightly. Regarding retirement-plan-related limits, only a few increased, and they increased minimally. Contact a member of your services team to discuss how these amounts may affect your year-end tax planning or retirement planning.
 
Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.

Sign Up for Our Emails & Events

Receive insights from our specialists in a variety of areas and timely information on upcoming events directly to your inbox as they go live in our online Knowledge Center.

Subscribe Today
Subscribe to our newsletter
About Contact Submit RFP Privacy Policy
LinkedIn Twitter Facebook
© 2023 Cohen & Company