The 2017 Small Business Tax Changes Guide
In a perfect world, the tax system would remain the same from year to year. For individuals and small business owners, this would make life much easier. Unfortunately, this isn't reality.
Instead, the IRS makes a variety of changes every year. Not only do you need to understand these changes, but many of them will alter your approach in the months to come.
Our 2017 small business tax changes guide will examine the following:
- Tax Changes for 2017
- 2017 Retirement Plan Contribution Limits
- Self-employed Tax Deductions
- 2017 Tax Brackets
Tip: small business owners can better understand their situation by consulting with a certified public account. They can also consider a payroll service that automatically handles payroll taxes. Either way, you'll have professional help in regards to taxes, payroll, and any changes that could impact your business.
Tax Changes for 2017
1. Tax Brackets
Once again this year, the IRS is making changes to its tax brackets (more on this below).
For example, the 39.6 percent tax rate for single taxpayers will affect those who earn $418,400 or more in 2017. This is an increase from $415,050 in 2016.
The same holds true for married taxpayers filing jointly, with an increase from $466,950 last year to $470,700 in 2017.
2. Standard Deduction
The standard deduction for married filing jointly increases by $100 to reach $12,700 in 2017.
For single taxpayers, as well as married individuals filing separately, the standard deduction bumps from $6,300 in 2016 to $6,350 in 2017.
Finally, the heads of household standard deduction is set at $9,350 in 2017, a $50 increase when compared to 2016.
3. Alternative Minimum Tax Exemption
For 2017, the Alternative Minimum Tax is set at $54,300 and begins to phase out at $120,700 for single filers.
For married couples filing jointly, it is set at $84,500 with the phase out beginning at $160,900.
This is an increase over last year when the exemption amount was set at $53,900 (single) and $83,800 (married couples filing jointly).
4. Maximum Earned Income Credit
For 2017, the maximum Earned Income Credit will increase to $6,318 for taxpayers filing jointly for those with three or more qualifying children. Last year, it was set at $6,269.
5. Personal Exemption
The personal exemption will remain the same, but the new phase-outs now begin at $261,500, reaching its max at $436,300 for married couples filing jointly.
6. Health Coverage
For 2017, the dollar amount used to calculate the penalty for neglecting to maintain minimum essential health coverage is set at $695 or 2.5% of household income, whichever is higher.
2017 Retirement Plan Contribution Limits
As 2016 comes to an end, it's time to review your retirement plan contributions. Hopefully, you like what you see. If you don't, you still have time to contribute more money.
The government makes regular changes in regards to how much you can contribute to your retirement accounts, however, you shouldn't expect any of this for 2017. Instead, everything will remain almost identical to 2016.
Here are some important points related to 2017 retirement plan contributions:
- You can defer a maximum of $18,000 of your salary to a 401(k) plan (same as 2016).
- You can contribute a maximum of $5,500 to your Roth or traditional IRA (same as 2016).
- If you're age 50 or older, you can use the catch-up contribution to save an additional $6,000 in your 401(k).
- If you're age 50 or older, you can use the catch-up contribution to save an additional $1,000 in your IRA.
- You can contribute to a Roth IRA if you meet one of these conditions: earn less than $133,000 and are filing single; earn less than $196,000 and are married filing jointly; earn less than $10,000 and are married filing separately.
Are you able to deduct IRA contributions? If you have a traditional IRA, the answer is yes if you:
- Don't have access to a retirement plan through your employer and are under age 70 ½.
- Have access to a retirement plan at work and your adjusted gross income (AGI) is $119,000 or less for couples or $72,000 or less for singles.
- Don't have access to a retirement plan through your employer but your spouse does. In this case, you may be able to make a partial deduction in the event that you file a joint return and your adjusted gross income (AGI) is $196,000 or less.
Self-employed Tax Deductions
As a self-employed business professional, you know one thing to be true: expenses are a big part of running your business.
By tracking expenses throughout the year, it's easier to pinpoint which ones can be used as a deduction when filing your final return.
With the help of expenses as deductions, you can reduce your taxable income. Some of the most common self-employed tax deductions include:
- Self-employment tax deduction.
- Health insurance premiums.
- Home office.
- Utility expenses (such as internet and phone).
- Interest paid on business loans.
- The use of your personal vehicle for business reasons.
- Professional fees, such as web design, legal, and tax.
With so much on your plate, it can be a challenge to track business expenses throughout the year. Once you have a system for doing so, you'll always have access to an overview of where things stand. Even better, you won't have to spend a lot of time at the end of the year sorting through your bank statements to pinpoint tax deductible expenses.
2017 Tax Brackets
Tax brackets typically change from one year to the next. Although these changes are usually small, it's still important to understand the differences.
For more information and to review the 2017 tax brackets, visit this page of the Tax Foundation website.
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