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Tax-Related Inflation Adjustments for 2017

Posted on: October 18th, 2016
inflation adjustmentSelect tax thresholds adjust annually, prompting many analysts to predict the anticipated changes for the coming year. The forecasted changes for 2017 offer favorable implications for many taxpayers. In the fourth quarter of each year, the Consumer Price Index data is published with tax rate schedule and deduction projections. While tax plans will likely need a brief review to make necessary changes in response to inflation adjustments, it may be imperative to review tax matters due to other factors: Proposed changes to Section 2704 affecting business assets and presidential candidates’ proposed estate tax adjustments

The below inflation-adjusted tax provision forecast is provided by Thomson Reuters; confirmed values will be released by the Internal Revenue Service in the coming weeks.

Tax Brackets for Estates and Trusts

Estate tax exemption: A $5,490,000 estate tax exemption applies to estates of decedents who die on and after January 1, 2017. ($5,450,000 exclusion applies to estates in 2016.)

For 2017, if taxable estate or trust income is less than $2,550, the tax rate is 15% of taxable income; a tax of $382.50 plus 25% of the excess over $2,550 applies where estate or trust income equals $2,550-$6,000; $1,245 plus 28% of the excess over $6,000 where the income equals $6,000-$9,150; $2,127 plus 33% of the amount over $9,150 where income equals $9,150-$12,500; and $3,232.50 plus 39.6% of the amount over $12,500 where income is over $12,500. Investment income in the top bracket is also subject to the 3.8% Net Investment Income Tax. 

The AMT exemption for estates and trusts will be $24,100 in 2017 (up from $23,900 in 2016). The excess taxable income above which the 28% rate applies will be $187,800. The amount used to determine phaseout of the exemption will be $80,450.

Gifts

The gift tax annual exclusion remains unchanged at $14,000.

The gift tax annual exclusion for non-citizen spouses increased to $149,000 in 2017 from $148,000 in 2016.

Review Personal and Business Tax Plans

In addition to the annual inflation adjustments noted above, proposed regulations under Section 2704 will apply to virtually all business entities, including partnerships and limited liability companies (LLCs). If approved, proposed changes to Section 2704 would remove favorable discounted transfer opportunities by the end of 2016. A public hearing is slated for December 1, 2016, which would offer a very small window of year-end tax planning time. Schedule a consultation with a tax attorney to be proactive with asset management. 
 
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