5 tax changes for 2017 you'll want to know about

Tax planning isn't something most Americans want to think about as we head into the holidays, but having a year-round plan that takes into account the various tax laws can save you a lot of hassle and a little green come tax time. It can be especially helpful when considering that roughly 80% of all taxpayers wind up receiving a refund from the federal government.

However, what you know about the U.S. tax code may be changing in the upcoming year. Just a few weeks ago the Internal Revenue Service released its tax changes for 2017, and there are quite a few updates you'll want to be aware of.

But before we dive into what's different in 2017, keep in mind that the tax changes for 2017 aren't pertinent to the taxes you'll file in the coming months for fiscal 2016. The tax changes for 2017 pertain to the tax preparation you'll do in 2018 for calendar year 2017, so don't confuse the two.

1. Tax brackets will be adjusted for inflation

The big change, obviously, is that the individual income tax brackets have been adjusted for inflation. The good news is that inflation has been nominal, meaning there wasn't a large shift upwards in the tax schedule.

Here's what the 2016 tax bracket looks like now (the bracket you'll be using when preparing your taxes in a few months):

Tax RateSingleMarried, Filing JointlyMarried, Filing SeparatelyHead of Household
10%$0 to $9,275$0 to $18,550$0 to $9,275$0 to $13,250
15%$9,276 to $37,650$18,551 to $75,300$9,276 to $37,650$13,251 to $50,400
25%$37,651 to $91,150$75,301 to $151,900$37,651 to $75,950$50,401 to $130,150
28%$91,151 to $190,150$151,901 to $231,450$75,951 to $115,725$130,151 to $210,800
33%$190,151 to $413,350$231,451 to $413,350$115,726 to $206,675$210,801 to $413,350
35%$413,351 to $415,050$413,351 to $466,950$206,676 to $233,475$413,351 to $441,000

Data source: IRS. Table by author.

And here's the 2017 tax bracket:

Tax RateSingleMarried, Filing JointlyMarried, Filing Separately Head of Household
10%$0 to $9,325$0 to $18,650$0 to 9,325$0 to $13,350
15%$9,326 to $37,950$18,651 to $75,900$9,326 to $37,950$13,351 to $50,800
25%$37,951 to $91,900$75,901 to $153,100$37,951 to $76,550$50,801 to $131,200
28%$91,901 to $191,650$153,101 to $233,350$76,551 to $116,675$131,201 to $212,500
33%$190,651 to $416,700$233,351 to $416,700$116,676 to $208,350$212,501 to $416,700
35%$416,701 to $418,400$416,701 to $470,700$208,351 to $235,350$416,701 to $444,550

Data source: IRS. Table by author.

You'll note the differences are very minute, meaning you probably won't need to make any year-over-year tax changes unless you expect significant changes in your salary or a large bonus. Inflation tends to dictate tax bracket changes, and we've been trending well below the long-term average for inflation for many years.

2. Standard deductions will increased

Here's some good news from the IRS: Your standard deduction will go up a smidge in 2017. Individual filers and heads of household will receive a standard deduction of $6,350 and $9,350, respectively, in 2017, up $50 from 2016. Couples filing jointly get a $100 year-over-year lift to $12,700 in 2017. Although this change isn't liable to put a lot of extra money in your pocket, anything that can reduce your tax liability without having to lift a finger is good news.

3. Traditional and Roth IRA phase-outs will be adjusted higher

Among the various retirement tools at your disposal, the traditional IRA is among the most popular. Traditional IRAs are tax-deferred accounts, meaning you'll pay tax once you begin making withdrawals during retirement. But, they can also provide an ancillary benefit of lowering your current-year tax liability. In 2017, the phase-out range for taking this deduction increases $1,000 to $62,000 to $72,000 for single taxpayers, and $99,000 to $119,000 for married couples filing jointly.

For those of you investing with a Roth IRA -- a retirement account with no upfront tax deduction, but which has the ability to grow tax-free for life -- the individual phase-out to be able to contribute rose $1,000 for single filers to a range of $118,000 to $133,000, while it jumped $2,000 for married couples filing jointly to a range of $186,000 to $196,000. In other words, a few extra people should be able to contribute to a traditional or Roth IRA in 2017 because of these modest increases.

Doctor Writing With Smiling Piggy Bank Getty
Image source: Getty Images.

4. Medical expense deductions will change for certain seniors

Another tax change in 2017 relates to itemizing your medical expenses with the hope of deducting them.

For the vast majority of Americans in 2016, your medical expenses would have had to surpass 10% of your adjusted gross income (AGI) before you could take a deduction. However, taxpayers 65 and older are able to use a previous threshold of just 7.5% of their AGI when itemizing and taking a deduction in 2016. Beginning in 2017, everyone is on the same playing field. If you're 65 and older, your medical expenses will have to top 10% of your AGI before you can claim itemized medical expenses.

5. The estate tax exemption will increase (slightly)

Finally, for those of you who've been diligent long-term investors or perhaps think of yourselves as barons, the estate tax exemption is increasing modestly in 2017. Estates of individual decedents who pass away in 2017 will be exempt up to $5.49 million, a $40,000 increase from 2016 levels. Estate taxes generally affect a small swath of the population, but that hasn't stopped President-elect Donald Trump from suggesting that they should be scrapped in their entirety.

5 ridiculously simple ways to lower your taxes
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5 ridiculously simple ways to lower your taxes

1. Contribute more to a retirement account

If you put money into a traditional IRA or 401(k) plan, you'll benefit in two ways. First, you'll get the financial security that comes with having savings available in retirement, and the earlier in life you start contributing, the more opportunity you'll give your money to grow. But you'll also benefit from a tax perspective, because the amount you contribute will go in pre-tax. What this means is that if you make $50,000 a year but put $5,000 into your 401(k), you'll only pay taxes on $45,000 of income. Talk about a win-win!

PeopleImages.com via Getty Images

2. Donate items you no longer use

Is your basement or hall closet overflowing with clothing, tools, and gadgets you don't need? If you donate those items to a registered charity, you'll get to claim a deduction on your taxes. All you need to do is obtain an itemized receipt of what you give away to verify your donation, and you're all set.

sirastock via Getty Images

3. Open a flexible spending account

Medical care can be a huge expense for some families. Americans spent an estimated $416 billion on out-of-pocket medical expenses in 2014, and that number is expected to climb to $608 billion by 2019. But if you sign up for a healthcare flexible spending account (FSA), you'll get to pay for eligible medical expenses, like copays and prescription drugs, with pre-tax dollars. For 2016, you can allocate up to $2,550 to an FSA, which means that if your effective tax rate is 25%, you'll save $637 by contributing the maximum. But don't make the mistake of overfunding your FSA. The money you contribute goes in on a use-it-or-lose-it basis, so if you put in the full $2,550 but only rack up $2,000 in eligible expenses, you'll have to kiss that remaining $550 goodbye.

Image Source via Getty Images

4. Use pre-tax dollars to pay for child care

Childcare is one of the greatest expenses families with young children face. The average American household currently spends $10,192 a year on full-time day care center care, $7,700 a year on regular after-school babysitting, and $28,900 on a full-time nanny. The good news, however, is that you can shave a fair amount of money off your tax bill by opening a dependent care FSA. Similar to a healthcare FSA, a dependent care FSA allows you to allocate pre-tax dollars to pay for eligible child care expenses, which include preschool and summer camp. For 2016, a couple filing a joint tax return can contribute up to $5,000 a year in pre-tax dollars. If you max out that limit and your effective tax rate is 25%, you'll save $1,250 in taxes. The only catch is that like a healthcare FSA, if you end up spending less during the year on eligible expenses than what you put in, you'll forfeit your remaining balance.

Caiaimage/Paul Bradbury via Getty Images

5. Sign up for commuter benefits

Traffic and rail delays can be a huge source of daily aggravation. But if your commute can't serve the purpose of helping you relax and ease in and out of your workday, it can at least help you lower your taxes. All you need to do is sign up for commuter benefits through your employer, and you'll get to use pre-tax dollars to pay for the costs you already incur. For 2016, you can allocate up to $255 per month in pre-tax dollars for transit and up to $255 a month for parking for a combined total of $510. If you hit that maximum and your effective tax rate is 25%, you'll save $1,530 a year on your taxes.

Nobody likes paying taxes, and there's certainly no reason to pay more than you have to. With a few smart moves, you can lower the amount you ultimately fork over to the IRS and keep more money in your pocket.

Compassionate Eye Foundation/Steven Errico via Getty Images

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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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