Federal tax update – 2017 version
May 2017 | Christopher M. Petillo, CPA, JD, CELAOut with the old and in with the new. As another new year commences, so begins the task of sorting through the federal tax law changes. Below are a few to get you started:
Federal Estate and Gift Tax threshold increase
The Federal Estate and Gift Tax limits are now $5,490,000 as of January 1, 2017. The annual exclusion remains the same – $14,000 per recipient of a gift per year.
For those in New York State, the NYS estate tax limit increased to $5,250,000 as of April 1, 2017. If you live outside of New York, please check with your tax advisor regarding local limits.
Medical expense threshold increases from 7.5% to 10% for everyone
As per the Affordable Care Act, you can only deduct medical expenses that exceed 10% of your annual Adjusted Gross Income (up from 7.5%). Up until 2017, the 7.5% threshold had stayed intact for seniors (those under 65 were subject to the 10% rule). Now, seniors too will feel the pinch of the law change.
For example, Bernadette has an Adjusted Gross Income of $50,000. Her medical expenses were $6,500 in 2017. The most that she can deduct as an itemized deduction is $1,500. Her AGI ($50,000) times 10% is $5,000 (the deductible threshold); the expenses that exceed the $5,000 are deductible ($6,500 minus $5,000 = $1,500).
Not easy being green... but it gets more expensive after 2019
If you are considering solar panels, the 30% Federal Tax Credit stays in effect until December 31, 2019. The credit starts phasing out after 2019, decreasing to 26% in 2020, 22% in 2021 and expiring after December 31, 2021.
The credit is good for panels purchased on your main residence, as well as a second home (but not a rental property). Check with your home state to see if there are any additional incentives. New York State has offered a tax credit of 25% of the cost up to $25,000 (i.e., a $5,000 maximum credit).
For example, Dan purchases solar panels costing $30,000. His tax credit for federal Form 1040 purposes would be $9,000 ($30,000 x 30%) (IRS Form 5695). His tax credit on his New York tax return would be $5,000 (lesser of $5,000 or 25% of $30,000 = $7,500) (Claim Form IT-255). His net cost for solar power, after tax credits, would be $16,000 ($30,000 minus tax credits of $14,000 ($9,000 plus $5,000)).
ABLE accounts for persons with special needs
The Stephen Beck, Jr. Achieving a Better Life Experience (ABLE) Act was enacted to enable eligible individuals with disabilities to save money in a tax-exempt account that may be used for qualified disability expenses while still keeping their eligibility for federal public benefits.
IRC §529A (not to be confused with the college savings account) allows for the creation of a tax advantaged account for a beneficiary who has a disability that begins before age 26. The account can be used for the benefit of the beneficiaries without disrupting their Medicaid and SSI benefits.
The account can be used for qualified expenses such as education, housing, employment training, transportation, health care expenses, legal and accounting fees, and burial expenses.
Contributions are NOT tax deductible, but the income grows tax-deferred and withdrawals can be tax-free if used for a qualified expense. Some limits do apply; if the account exceeds $100,000, the assets will count for SSI purposes (but not for Medicaid purposes). Only one account can be established per beneficiary, and annual contributions are limited to $14,000.
While the New York State law has been signed (authorizing the creation of the accounts), there is not yet a mechanism to create one in New York. However, there is no longer a requirement that the account must be established in your home state. Florida, Ohio, Tennessee, Nebraska, Kentucky, Oregon and Michigan already have plans in place.
Identity theft and your tax return
Consider the following scenario: It’s tax season and you’re ready to file your tax return. Your accountant hits send to e-file for you... and it’s rejected!
Someone has already filed using your Social Security number to fraudulently claim an Earned Income Tax Credit (EITC). The thief created a bogus W-2 from a company and a fictitious dependent child, and has made off with your tax withholdings along with the EITC – which exceeds what you paid in.
If you have been victim of this crime, contact the FTC at 877-438-4338 to file a complaint. Contact the credit reporting agencies: Equifax (800-525-6285), Experian (888-397-3742) and TransUnion (800-680-7289). Submit IRS Form 14039, Identity Theft Affidavit to the IRS so that it can issue you a PIN to file your real return.
If you have any questions or comments about this topic, please contact your Legal Service Plan’s National Legal Office.
Federal Estate and Gift Tax threshold increase
The Federal Estate and Gift Tax limits are now $5,490,000 as of January 1, 2017. The annual exclusion remains the same – $14,000 per recipient of a gift per year.
For those in New York State, the NYS estate tax limit increased to $5,250,000 as of April 1, 2017. If you live outside of New York, please check with your tax advisor regarding local limits.
Medical expense threshold increases from 7.5% to 10% for everyone
As per the Affordable Care Act, you can only deduct medical expenses that exceed 10% of your annual Adjusted Gross Income (up from 7.5%). Up until 2017, the 7.5% threshold had stayed intact for seniors (those under 65 were subject to the 10% rule). Now, seniors too will feel the pinch of the law change.
For example, Bernadette has an Adjusted Gross Income of $50,000. Her medical expenses were $6,500 in 2017. The most that she can deduct as an itemized deduction is $1,500. Her AGI ($50,000) times 10% is $5,000 (the deductible threshold); the expenses that exceed the $5,000 are deductible ($6,500 minus $5,000 = $1,500).
Not easy being green... but it gets more expensive after 2019
If you are considering solar panels, the 30% Federal Tax Credit stays in effect until December 31, 2019. The credit starts phasing out after 2019, decreasing to 26% in 2020, 22% in 2021 and expiring after December 31, 2021.
The credit is good for panels purchased on your main residence, as well as a second home (but not a rental property). Check with your home state to see if there are any additional incentives. New York State has offered a tax credit of 25% of the cost up to $25,000 (i.e., a $5,000 maximum credit).
For example, Dan purchases solar panels costing $30,000. His tax credit for federal Form 1040 purposes would be $9,000 ($30,000 x 30%) (IRS Form 5695). His tax credit on his New York tax return would be $5,000 (lesser of $5,000 or 25% of $30,000 = $7,500) (Claim Form IT-255). His net cost for solar power, after tax credits, would be $16,000 ($30,000 minus tax credits of $14,000 ($9,000 plus $5,000)).
ABLE accounts for persons with special needs
The Stephen Beck, Jr. Achieving a Better Life Experience (ABLE) Act was enacted to enable eligible individuals with disabilities to save money in a tax-exempt account that may be used for qualified disability expenses while still keeping their eligibility for federal public benefits.
IRC §529A (not to be confused with the college savings account) allows for the creation of a tax advantaged account for a beneficiary who has a disability that begins before age 26. The account can be used for the benefit of the beneficiaries without disrupting their Medicaid and SSI benefits.
The account can be used for qualified expenses such as education, housing, employment training, transportation, health care expenses, legal and accounting fees, and burial expenses.
Contributions are NOT tax deductible, but the income grows tax-deferred and withdrawals can be tax-free if used for a qualified expense. Some limits do apply; if the account exceeds $100,000, the assets will count for SSI purposes (but not for Medicaid purposes). Only one account can be established per beneficiary, and annual contributions are limited to $14,000.
While the New York State law has been signed (authorizing the creation of the accounts), there is not yet a mechanism to create one in New York. However, there is no longer a requirement that the account must be established in your home state. Florida, Ohio, Tennessee, Nebraska, Kentucky, Oregon and Michigan already have plans in place.
Identity theft and your tax return
Consider the following scenario: It’s tax season and you’re ready to file your tax return. Your accountant hits send to e-file for you... and it’s rejected!
Someone has already filed using your Social Security number to fraudulently claim an Earned Income Tax Credit (EITC). The thief created a bogus W-2 from a company and a fictitious dependent child, and has made off with your tax withholdings along with the EITC – which exceeds what you paid in.
If you have been victim of this crime, contact the FTC at 877-438-4338 to file a complaint. Contact the credit reporting agencies: Equifax (800-525-6285), Experian (888-397-3742) and TransUnion (800-680-7289). Submit IRS Form 14039, Identity Theft Affidavit to the IRS so that it can issue you a PIN to file your real return.
If you have any questions or comments about this topic, please contact your Legal Service Plan’s National Legal Office.