IRS - The Finance Gourmet

IRS Standard Deduction 2017

What is the standard deduction amount for 2017? The IRS updated the number and it’s a little bit higher this year.

When filing income taxes, taxpayers can choose to either itemize tax deductions, or take the standard tax deduction amount. The IRS adjusts how much the standard deduction is each year based upon inflation. The 2017 standard tax deduction amount is the same as the 2016 deduction amount for most taxpayers because of limited inflation.

2017 Standard Tax Deduction Amount

As usual, there are different deduction values depending upon how you file your income taxes.

Filing Single: The 2017 standard Deduction is $6,350, up $50 from 2016.
Married Filing Jointly: Standard deduction for married filing jointly in 2016 is $12,700, which is up $100 from 2016.
Head of Household: The head of household standard deduction is now $9,350, which is a $50 bump over the $9,300 standard deduction amount in in 2016.

If taxpayers use the standard deduction when filing taxes, the personal exemption is included in the standard tax deduction amount. However, when itemizing tax deductions the personal exemption amount is important.

For 2017, the personal exemption amount is $4,050, which is the same as it was in 2016.. However, taxpayers with incomes above $261,500 (filing single), or $313,800 (married filing jointly) are subject to phase-out of the personal exemption.

Itemize or Use Standard Tax Deduction

To decide whether to itemize deductions, or take the standard deduction, taxpayers should add up their potential itemized tax deductions, and add the personal exemption amount. If that total amount is greater than the applicable standard tax deduction, then itemizing will result in lower taxes.

For most taxpayers whose income comes mainly from salary or other employment, rather than investment income, trust income, or other income, the main determinate of whether itemizing or taking the standard deduction is best is how much mortgage interest is deductible. Typically, without deductible mortgage interest of at least $3,000 or more, the average taxpayer will not have enough deductions to making itemizing better than taking the standard deduction.

All reputable tax software, calculates whether it is better for a tax payer to itemize or not. If doing taxes by hand, then, find the big deductions first, and see if they provide anywhere near the standard deduction number. Itemized deductions are reported to the IRS on Schedule A of the Form 1040.

Other large deductions include medical expenses, but only if they exceed 9 percent of your income, and property taxes.

Deductions Without Itemizing

Many tax deductions are available without itemizing. To see a complete list, check lines 23 through 35 on IRS Form 1040. On lines 49 through 53 are various tax credits that are available whether the standard deduction or itemized deductions are used.

Common tax deductions without itemizing include: educator expenses, health savings account deduction, moving expenses, IRA deductions, student loan interest, and tuition and fees.

Common tax credits offered with, or without itemizing, include the child tax credit and education credits.

Standard Deduction with Small Business

It is still possible to take the standard deduction if you own a small business. Many small businesses files a Schedule C to report income and expenses related to the business. A Schedule C can be filed with, or without a Schedule A for itemized deductions. The results of the Schedule C are reported on Line 12 of the 1040 Form, not within Schedule A. Various businesses can have large deductions (and income) including the home office deduction.

Other Tax Information

Here is how to get an IRS tax transcript and information on what happens if you don’t file your taxes on time.

IRS Standard Mileage Rate 2016 and 2017

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Every year, the IRS updates the standard amount one can deduct for each mile driven for business or miles driven for charitable purposes. The amount of the IRS standard mileage deduction is based upon various different factors, but the price of gasoline figures most prominently into the change each year. (Things like depreciation, and wear and tear, are included, but don’t vary much from year to year.)

2017 Standard IRS Mileage Reimbursement Rate

All of the below information still counts for 2017, except for the monetary amounts.

The IRS rate per mile for business miles driven is 53.5 cents per mile, down from 54 cents per mile in 2014.

The IRS standard mileage rate for medical purpose, or for miles driven while moving is 17 cents per mile, which is down from 19 cents per mile in 2016.

The mileage deduction rate for miles driven for charity is 14 cents per mile, which is the same as 2016.

The 2016 Standard Mileage Rate Amount

The standard mileage rate for 2016 is 54 cents per mile driven for business purposes. The bad news is that this rate is down 3.5 cents from 2015 when gas prices were higher.

Remember, you may only deduct miles driven for business purposes that are not reimbursed by your employer. Although your employer is not required to use the IRS standard deduction per mile, most companies do for easier compliance. Also, remember that miles you drive commuting back and forth from your job are not tax deductible at all. However, if you are a 1099 employee (contract, non-W2 employee) you may be eligible to deduct such mileage as a business expense.

The IRS standard mileage rate for miles driven in service of charitable organizations is 14 cents per mile for 2016. Again, if you are reimbursed in anyway, you may not deduct your mileage. However, if you drive in order to do something for a charitable organization, it can be deducted, essentially as a donation to the organization. The standard rules for who does, and does not, count as a charitable organization apply.

Finally, you can deduct 19 cents per mile for mileage driven for medical or moving purposes. The rules for deducting medical expenses and moving expenses apply. So, determine whether you qualify for the deduction first, before worrying about the miles. In both cases, there is a not insignificant minimum floor of expenses required before you are entitled to any deduction, so driving your kids to the pediatrician once per year probably won’t be big enough to get deducted.

How To Deduct Mileage Using the Standard Mileage Deduction Amount

Once you have determined that your driven miles are deductible, you’ll need to keep records of all deductible miles driven. The IRS requires “contemporaneous records,” which means you need to somehow log your mileage deduction miles driven as you drive them. The best practice is to log each trip with a date, purpose, starting point and destination, and starting and ending odometer reading, although that isn’t strictly necessary. Some people keep a little mileage deduction log book in their car. Others use an app on their phone.

Whatever you use, be sure that you can export the data and keep it with your tax papers for the next three years. Don’t make the mistake of assuming you can get back into an app or online log three years from now.

Deducting Miles Driven Without the Standard Mileage Rate

Of course, you do not have to use the standard mileage deduction rate. You may deduct the actual cost of operating your vehicle for business, charity, medical, or moving purposes. However, this requires detailed records, and receipts for things like vehicle maintenance such as oil changes and repairs.

Also, if you deduct the cost of a vehicle using a Section 179 deduction or with the Modified Accelerated Cost Recovery System (MACRS), you may not use the standard mileage deduction amount for 2016, or any year as a deduction.

2017 Finances and Money Issues

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Welcome to 2017!

Relax. Take a deep breath.

There. Feel better? Good. Then let’s jump in.

Finances Updated in 2017

With a new year, come some new numbers. There will be updates to the maximum 401k contributions, income limits for Roth IRAs, and others. Plus, there will be adjustments to the 2017 income tax brackets, the 2017 standard tax deduction, and more. And, of course, there is a new IRS mileage rate for 2017 as well.

What about 529 plans? There aren’t a lot of updates to those numbers each year, primarily because most facets of 529 college savings plans are administered through the states, who aren’t always as keen on changing and updating everything.

You’ll want to re-evaluate your financial plan for the new year, and you’ll want to review how your financial plan did in 2016. Plus, you’ll want to rebalance your portfolio, if you didn’t do it at the end of 2016.

Retirement Plans 2017

A big part of most retirement plans are tax-advantaged savings accounts like your 401k plan, IRA accounts, and, for some of you, 457 plans, 403(b) plans, and various differed compensation plans. All of those need adjusted and reviewed for 2017 as well.

2017 Income Taxes

A big focus for many people’s finances at the start of 2017 is the looming prospect of income taxes. Start collecting and saving your W2 forms, 1099 forms, and all those other tax forms you get in the mail. However, keep in mind that an increasing number of financial institutions, and even employers are distributing tax forms electronically. Be sure to log into all of your accounts and see if your tax forms are there to download, especially if you have signed up for paperless accounts with anyone.

Set a box, or file folder where you go through your mail so that you can put tax documents in it right away and not lose any. For electronic ones, print and download them so you have them to enter into TurboTax, or give your accountant or tax preparer.

Remember most tax forms are due to be mailed by January 31st.

Also, start thinking about whether you need (or want) to make any retirement plan contributions for 2016 still. You get until April 15th to make the contributions and still count them as a 2016 tax deduction.

Don’t Panic About Money in 2017

Does that sound like a lot?

We haven’t even scratched the surface of making smart money decisions in 2017, but don’t worry. Finance Gourmet will be bigger and better than ever in 2017 to help guide you through with financial recipes for success, and more.

It’s going to be a great 2017.

401k Contribution Limits 2016 and 2017

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401k contribution limits prevent higher income taxpayers from stuffing too much money into their 401k plans.

Each year, the IRS adjusts tax numbers due to either tax law changes, or statutorily mandated adjustments. However, in some cases, the tax amounts are tied to inflation so that they automatically adjust. In many cases, numbers are only modified for the current tax year when a certain limit or threshold is met. Limits for 401k contributions are indexed to inflation and adjusted every year in this manner, provided there is enough change caused by inflation to modify the numbers.

2016 401k Contribution Limits

The current 401k contribution limits for 2016 were set by the IRS in late 2015. These limits are tied to an economic index that measures the overall cost of living. The index is designed to rise with inflation. By tying 401k contributions to the index, Congress doesn’t have to pass a law to change the 401k income limits or maximum annual 401k contribution amounts for 2016.

The 2016 maximum 401k contributions limits are unchanged from 2015 because there wasn’t enough inflation during the year to cause an increase.

The 401k contribution limit for 2016 is $18,000 for an employee’s elective deferrals. As always, there is a 2016 catch-up contribution amount allowed for taxpayers over the age of 50. For 2016, the catch-up contribution limit is $6,000, also unchanged from 2015. So, for an employee over 50 years of age, the maximum 2016 401k contribution amount is $24,000.

Unlike traditional IRA deductions, there are no income limits for 401k contributions. However, certain businesses may restrict contributions for high-income employees, or business owners, if the plan is considered top-heavy, or otherwise fails to meet certain IRS 401k plan rules. As always, 401k contributions can only be made by salary deferral. Individual 401k plan rules vary from company to company and a maximum salary contribution is often one of those rules.

401K Contribution Limits 2017

The maximum contribution you can make to your 401k in 2017 will remain unchanged at $18,000 per year. The contribution limit for 401(k) plans are adjusted for inflation. Since there was no inflation in 2016, the numbers did not increase, similar to the non-increase in the cost of living for Social Security recipients.

Too High 401k Contributions

If your contribution percentage to a 401k plan is set too high, your plan has rules to deal with that. Typically, the plan accepts contributions from employees at their own set contribution percentage until the maximum amount is reached. At that point, no further contributions or salary reductions are made until the new tax year.

For example, someone earning $250,000 per year who sets their contribution amount at 15 percent will reach the maximum $17,500 contribution sometime during June. Once the 401k limit is reached, the plan will typically just stop taking any more contributions for the remainder of the year.

It is important for your own personal financial planning then, to decide how you want your contributions made. For example, if you want to contribute an equal amount each month over the course of the year for dollar-cost averaging, or other reasons you’ll want to set your maximum 401k contribution to $1458.33 per month. Most plans will allow you to set a specific dollar amount, or you can do the math to figure out what percentage of your salary will give you the right amount.

As always, ensure that your overall financial plan continues to make sense for you and your family. And, don’t forget to rebalance your 401k investment options according to your long-term plan as well.