Ernst & Young Tax Guide 2018 E-Book

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 3432

Veröffentlichungsjahr: 2017

Beschreibung

Minimize your tax and maximize your 2017 return The EY Tax Guide 2018 offers professional guidance for DIY tax prep. As one of the nation's most trusted resources for tax advice, this book can help you keep more of your money while filing completely, correctly, and on time. Fully updated to reflect the latest changes to the law, this new 2018 edition cuts through impenetrable tax codes and IRS rulings to give you the answers you need quickly and easily. Whether you're a homeowner, self-employed entrepreneur, business executive, or senior citizen, you'll discover the best tax strategy for your particular situation. At-a-Glance reference sheets give you quick answers to common questions regarding new laws, breaks and deductions, and how to avoid common errors. No two tax years are alike. The laws change constantly, and even small changes can affect your return. This book cuts to the chase and tells you what's new, what it means for you, and what you can do to keep more of your money. * Get up to date on changes to tax law, and how they affect you * Identify breaks and deductions that can reduce your tax burden * Zero in on the best tax strategy for your particular situation * Find answers at a glance from globally-respected tax advisors Avoid the headaches that come with parsing IRS worksheets and documentation--EY has already done it for you! The EY Tax Guide 2018 gives you the answers you need and clarity you crave, backed by globally-trusted expertise.

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The EY Tax Guide 2018

Years of critical acclaim for America’s no. 1 tax guide...

“This is the best tax guide of the bunch . . . the most up-to-date guide.”

USA Today

“Hard to beat . . . [EY professionals] elucidate each point, giving examples, definitions and strategies that you won’t learn about from the IRS.”

Money

“This book . . . has more up-to-date information on tax changes than its competitors—or even the IRS.”

Chicago Sun-Times

“Best of the commercially available guides.”

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“Destined to become the ‘old standard,’ all written in plain English. . . . If you can afford just one tax book, this could be the one.”

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“The text-with-commentary approach makes the book both authoritative and easy-to-use.”

People

“The simplest tax guide to understand.”

CBS This Morning

“The explanations, examples, and planning advice are top-drawer.”

Orlando Sentinel

“Exceptionally detailed.”

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“An excellent book, full of clear explanations, planning hints, tax savers and sample forms.”

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“Our brand-name choice for filers with lots of questions for filing and planning situations.”

Fort Worth Star-Telegram

“. . . a veritable fountain of information.”

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“. . . the best of the bunch for return preparation.”

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2018 tax calendar

Date in 2018

Action required

January

16

Final estimated tax payment for 2017 due if you did not pay your income tax (or enough of your income tax) for that year through withholding. Use Form 1040-ES.

31

If you did not pay your last installment of estimated tax by January 16, file your income tax return for 2017 on this date and pay the entire balance due with your return, thereby avoiding any penalty for late payment of the last installment. Use Form 1040 or 1040A. However, see below for special rules for farmers and fishermen.

February

15

File a new Form W-4 if you can claim exemption from withholding.

March

1

Farmers and fishermen must file their 2017 income tax return (Form 1040) and pay all tax to avoid a penalty for underpayment of 2017 estimated taxes.

April

17

File your income tax return for 2017 (Forms 1040, 1040A, or 1040EZ) and pay any tax due.

Individuals who have a financial interest in or signature authority or other authority over certain bank, securities, or other financial accounts in a foreign country must file FinCEN Form 114.

Make your 2017 IRA contribution.

If you are not extending your return, make your Keogh or SEP-IRA contribution if you have self-employment income.

For an automatic 6-month extension, file Form 4868 and pay any tax that you estimate will be due. Then file Form 1040 or 1040A by October 15. If you get an extension, you can’t file Form 1040EZ. (You can use one Form 4868 to file for both your income tax and gift tax extensions.)

Pay the first installment of your 2018 estimated tax if you are not paying your 2018 income tax (or enough of it) through withholding tax.

If you made any taxable gifts during 2017 (more than $14,000 per donee), file a gift tax return for that year (Form 709 or 709-A) and pay any tax due.

June

15

Pay the second installment of 2018 estimated tax.

If you are a U.S. citizen or resident alien living and working (or on military duty) outside the United States and Puerto Rico, file Form 1040 and pay any tax, interest, and penalties due. Otherwise, see April 17.

September

17

Pay the third installment of your 2018 estimated tax.

Last day for employers to make a required minimum contribution to a defined benefit or money purchase plan.

October

15

If you requested an automatic 6-month extension to file your 2017 income tax return, file Form 1040 or Form 1040A and pay any tax, interest, and penalty due, and file any gift tax return if due.

If you received a 6-month extension to file FinCEN Form 114, you must file it on or before October 15.

Last day to make a Keogh or SEP-IRA contribution deductible for calendar year 2017 if you requested a 6-month extension of time to file your tax return.

December

3

If you claimed exemption from withholding in 2018 but you expect to owe income tax for 2019, you must file a new Form W-4 by December 3, 2018.

31

Last day to establish a Keogh plan for 2018.

The EY Tax Guide Editorial Board 2018

Chair

Gary N. Cohen

Contributing Authors

Akron

Jason M. Belot

Trish Dillinger

Kim McFarlane

Atlanta

Paul A. Mayberry

Jason C. Sweatt

Boston

Caroline Cardillo

Chester J. Godfrey

Susan B. Lambeth

Lynn McLaughlin

Buffalo

Susan R. Bork

Shieke A. Brown

Kelley C. DuVal

Chicago

Brian A. Fisk

Barbara Kirchheimer

Laura K. Rossi

Renee R. Zalatoris

Cleveland

Christopher Neuman

Columbus

Sam P. Weiler

Dallas

Mohamed Jabir

Houston

Hillary R. Ellender

Tina M. Taylor

Los Angeles

Daniel Johnson

New York

Devon N. Kulp

McLean

Arjun Mahajan

Pittsburgh

Michelle N. Ammon

Providence

Jenna Lewis

Susan Simoneau

Heather C. Spangler

Sarah Willard

San Francisco

Tony Aires

Daniel Novak

Edmond W. Zhou

Seattle

Alex Bray

Secaucus

Tom DiLorenzo

Raymond A. Echevarria

Janine Gordon

Stamford

Christopher R. Williams

Tampa

Gregory A. Rosica

Washington, D.C.

Nickolas K. Davidson

John M. Fusco

David H. Kirk

Scott T. Mackay

Justin Ransome

Ifeyinwa S. Spears

Ankur Thakkar

Kathy S. Schatz-Guthrie

Special thanks to

Mark A. Weinberger, Global Chairman and CEO; Stephen R. Howe, Americas Area Managing Partner; Mike Inserra, Americas Deputy Managing Partner, Kathryn J. Barton, Americas Vice Chair—Tax Services; Eric Solomon and Michael Mundaca, Co-Directors of National Tax; Marnix vin Rij, Global Director of Private Client Services; Steven L. Shultz, Americas Director of Private Client Services.

Special awards and acknowledgments

The EY Tax Guide is a proud recipient of a Communications Concept, Inc. 2016 Award of Excellence (Electronic Publications); 2013 Apex Grand Award for Electronic Media; a 2012 Apex Grand Award for Content Excellence for Content and Design (Brochures, Manuals & Reports category); an Independent Publisher 2016 Bronze Medal for Business Reference book, and a 2012 Axiom Award for Best Business Reference Book.

Thanks to Ron Anes, Amy Koeppl, Melissa L. Banning, and Lizzie McWilliams.

The EY global network of member firms has more than 43,000 tax practitioners worldwide, with more than 9,000 practitioners in the United States. This book draws upon the experience of many of those professionals for its content.

Copyright © 2009–2018, Ernst & Young LLP Copyright © 1989–2008 by Ernst & Young LLP and Peter W. Bernstein Corporation Copyright © 1984–1988 by Arthur Young & Company and Peter W. Bernstein Corporation

All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying or recording, or by any information storage or retrieval system, without written permission from Ernst & Young LLP. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, whether electronic, mechanical or otherwise, and including without limitation photocopying, recording, scanning, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, [phone], fax [phone], or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, [phone], fax [phone], or online at http://www.wiley.com/go/permissions. Published by John Wiley & Sons, Inc.

Notice: In the preparation of this book, every effort has been made to offer the most current, correct, and clearly expressed information available prior to publication: the Internal Revenue Code as of August 2017, the 2016 version of Internal Revenue Service Publication 17, Your Federal Income Tax (rev. Dec. 2016), updated by the author for 2017 and portions of other pertinent Internal Revenue Service publications. Readers may obtain the 2017 version of Publication 17 at www.irs.gov. Note also that inadvertent errors can occur, and tax rules and regulations often change.

Limit of Liability/Disclaimer of Warranty: The information in the text is intended to afford general guidelines on matters of interest to taxpayers. The application and impact of tax laws can vary widely, from case to case, based upon the specific or unique facts involved. Readers are encouraged to consult with professional advisors for advice concerning specific matters before making any decision, and the author and publisher disclaim any responsibility for positions taken by taxpayers in their individual cases or for any misunderstanding on the part of readers. While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. Neither the publisher nor author shall be liable for any loss of profit or any other damages, including but not limited to direct, indirect, special, incidental, consequential, or other damages.

For general information on Ernst & Young LLP's other products and services or for technical support, please contact our Customer Care Department within the United States at [phone], outside the United States at [phone] or fax [phone].

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ISBN 978-1-119-38376-5 (paper); 978-1-119-38382-6 (epdf); 978-1-119-38379-6 (epub)

ISSN 1059-809X

How to use this guide

The EY Tax Guide 2018 is an easy-to-use, step-by-step guide to preparing your own tax return. It has been designed with you in mind, and its format should help highlight information to save you time and money.

The book explains, in clear and simple English, important aspects of the tax laws that affect you. It covers what you need to know about your taxes—from how to file your return to how to lower the tax you’ll pay next year. Throughout the book, you will find hundreds of examples illustrating how the tax laws work. Sample tax forms and schedules show you how to fill out your return line by line. Here are some of the book’s special features and how to use them:

Two Books in One

. The

EY Tax Guide 2018

is really two books. The first book is the 2016 version of the official Internal Revenue Service tax guide, Publication 17, Your Federal Income Tax, which is reproduced here. Published annually, it contains the IRS’s position on many of the tax questions taxpayers face. To make the

EY Tax Guide 2018

available to the public as quickly as possible, we have updated the text of the 2016 version of IRS Publication 17 to take into account developments during 2017. These updates are noted throughout the text. Upon release, the 2017 IRS Publication 17 can be found at

www.irs.gov

. The second book is the EY guide. Here are comments, explanations, and tax-saving tips on what the IRS tells you—and doesn’t tell you. It’s no surprise that the IRS doesn’t tell you everything, and what it does say often favors the U.S. government. Courts and tax professionals frequently differ with IRS opinions. The EY text provides you this additional material. The two books have been spliced together to give you the most well-rounded tax guide on the market. To distinguish between the two perspectives, the original IRS text appears in black throughout the book, our updates of the IRS text are underlined, and EY’s comments appear in the green boxes.

TAXSAVERS, TAXPLANNERS, TAXALERTS, AND TAXORGANIZERS

. Among this book’s biggest attractions are the more than 400

TAXSAVERS, TAXPLANNERS, TAXALERTS,

and

TAXORGANIZERS

that you’ll find appropriately placed throughout the text.

TAXSAVERS

are tips that help you slash your tax bill this year and next—legally.

TAXPLANNERS

outline ideas that help you plan better for the upcoming year.

TAXALERTS

point out tax rules and regulations that have just changed or may change in the near future; they give you important current filing advice about issues you will want to consider as you prepare your return.

TAXORGANIZERS

point out steps you can take now to make it easier to file your taxes later.

Tax Breaks and Deductions You Can Use Checklists

You will find a checklist of key tax breaks and deductions for which you may be eligible at the beginning of each chapter, immediately following the Introduction. You should review each checklist to make sure you are taking all the deductions and tax breaks that you deserve.

Companion Website

. Purchase of this guide includes access throughout the 2017 tax return filing season to

ey.com/EYTaxGuide

. This website contains up-to-date information you need about changes in the tax laws that occur throughout the year.

Special Contents

. We’ve taken great pains to ensure that this book is clearly organized for easy access. If you can’t find the section you want in the regular Contents, check the

Special Contents

. All told, there are eight of these—one each for families, homeowners, investors in stocks and bonds, investors in real estate, self-employed entrepreneurs, business executives, senior citizens, and members of the Armed Forces. Each

Special Contents

section contains a listing of the major tax issues for members of that group and tells where you can find the answers in the book. In addition, we have a table of contents at the beginning of each chapter to help you find what you need.

We have drawn from the tax experience of scores of Ernst & Young LLP partners, professionals, and staff from all parts of the United States to create this tax guide. Among the major accounting firms, only Ernst & Young LLP publishes a complete tax guide that is available to the general public. It provides the most complete and up-to-date tax information of any tax guide published.

CONTENTS

Changes in the tax law you should know about

IRS help for hurricane victims: a recap of key tax relief provisions available following Harvey, Irma, and Maria

Important 2017 tax reminders

How to avoid 25 common errors

50 of the most easily overlooked deductions

Individual tax organizer

Income and expense records you should keep in addition to your income tax return

Part 1: The income tax return

Chapter 1: Filing information

Do I Have To File a Return?

Which Form Should I Use?

Why Should I File Electronically?

When Do I Have To File?

How Do I Prepare My Return?

Where Do I File?

What Happens After I File?

Chapter 2: Filing status

Marital Status

Single

Married Filing Jointly

Married Filing Separately

Head of Household

Chapter 3: Personal exemptions and dependents

Exemptions

Phaseout of Exemptions

Social Security Numbers for Dependents

Chapter 4: Tax withholding and estimated tax

What’s New for 2018

Reminders

Introduction

Tax Withholding for 2018

Estimated Tax for 2018

Credit for Withholding and Estimated Tax for 2017

Underpayment Penalty for 2017

Part 2: Income

Chapter 5: Wages, salaries, and other earnings

Employee Compensation

Miscellaneous Compensation

Special Rules for Certain Employees

Sickness and Injury Benefits

Chapter 6: Tip income

Keeping a Daily Tip Record

Reporting Tips To Your Employer

Reporting Tips on Your Tax Return

Allocated Tips

Chapter 7: Interest income

General Information

Taxable Interest

When To Report Interest Income

How To Report Interest Income

Chapter 8: Dividends and other corporate distributions

General Information

Ordinary Dividends

Capital Gain Distributions

Nondividend Distributions

Other Distributions

How To Report Dividend Income

Chapter 9: Rental income and expenses

Introduction

Rental Income

Rental Expenses

Repairs and Improvements

Property Changed To Rental Use

Renting Part of Property

Not Rented for Profit

Personal Use of Dwelling Unit (Including Vacation Home)

Tangible Property Regulations

Depreciation

Limits on Rental Losses

How To Report Rental Income and Expenses

Chapter 10: Retirement plans, pensions, and annuities

General Information

Cost (Investment in the Contract)

Taxation of Periodic Payments

Taxation of Nonperiodic Payments

Rollovers

Special Additional Taxes

Survivors and Beneficiaries

Chapter 11: Social security and equivalent railroad retirement benefits

Are Any of Your Benefits Taxable?

How To Report Your Benefits

Examples

Deductions Related To Your Benefits

Repayments More Than Gross Benefits

Chapter 12: Other income

Bartering

Canceled Debts

Host or Hostess

Life Insurance Proceeds

Partnership Income

S Corporation Income

Recoveries

Rents from Personal Property

Repayments

Royalties

Unemployment Benefits

Welfare and Other Public Assistance Benefits

Other Sickness and Injury Benefits

Other Income

Passive Activity Limitations and At-Risk Limitations

Part 3: Gains and losses

Chapter 13: Basis of property

Cost Basis

Adjusted Basis

Basis Other Than Cost

Chapter 14: Sale of property

Sales and Trades

Capital Gains and Losses

Chapter 15: Selling your home

Main Home

Figuring Gain or Loss

Excluding the Gain

Business Use or Rental of Home

Reporting the Sale

Special Situations

Recapturing (Paying Back) a Federal Mortgage Subsidy

CHAPTER 16: Reporting gains and losses

Reporting Capital Gains and Losses

Capital Gain Tax Rates

Part 4: Adjustments to income

CHAPTER 17: Individual retirement arrangements (IRAs)

What’s New for 2017

Traditional IRAs

Roth IRAs

CHAPTER 18: Alimony

General Rules

Instruments Executed After 1984

How To Deduct Alimony Paid

How To Report Alimony Received

Recapture Rule

Chapter 19: Education-related adjustments

Student Loan Interest Deduction

Educator Expenses

Tuition and Fees Deduction

Figuring the Deduction

Effect of the Amount of Your Income on the Amount of Your Deduction

Claiming the Deduction

Chapter 20: Moving expenses

Part 5: Standard deduction and itemized deductions

Chapter 21: Standard deduction

Standard Deduction Amount

Standard Deduction for Dependents

Who Should Itemize

Chapter 22: Medical and dental expenses

What Are Medical Expenses?

What Expenses Can You Include This Year?

How Much of the Expenses Can You Deduct?

Whose Medical Expenses Can You Include?

What Medical Expenses Are Includible?

How Do You Treat Reimbursements?

Damages for Personal Injuries

How Do You Figure and Report the Deduction on Your Tax Return?

Impairment-Related Work Expenses

Health Insurance Costs for Self-Employed Persons

Chapter 23: Taxes you may deduct

Tests To Deduct Any Tax

Income Taxes

State and Local General Sales Taxes

Real Estate Taxes

Personal Property Taxes

Taxes and Fees You Cannot Deduct

Where To Deduct

Chapter 24: Interest expense

Home Mortgage Interest

Mortgage Insurance Premiums

Investment Interest

Items You Cannot Deduct

Allocation of Interest

How To Report

Chapter 25: Contributions

Organizations That Qualify To Receive Deductible Contributions

Contributions You Can Deduct

Contributions From Which You Benefit

Contributions You Cannot Deduct

Contributions of Property

When To Deduct

Limits on Deductions

Records To Keep

How To Report

Chapter 26: Nonbusiness casualty and theft losses

Casualty

Theft

Loss on Deposits

Proof of Loss

Figuring a Loss

Deduction Limits

When To Report Gains and Losses

How To Report Gains and Losses

Chapter 27: Car expenses and other employee business expenses

Travel Expenses

Entertainment Expenses

Gift Expenses

Transportation Expenses

Recordkeeping

How To Report

Chapter 28: Tax benefits for work-related education

Qualifying Work-Related Education

Education To Meet Minimum Requirements

What Expenses Can Be Deducted

Reimbursements

Deducting Business Expenses

Recordkeeping

Chapter 29: Miscellaneous deductions

Deductions Subject to the 2% Limit

Deductions Not Subject to the 2% Limit

Nondeductible Expenses

Chapter 30: Limit on itemized deductions

Are You Subject to the Limit?

Which Itemized Deductions Are Limited?

Which Itemized Deductions Are Not Limited?

How Do You Figure the Limit?

Part 6: Figuring your taxes and credits

Chapter 31: How to figure your tax

Figuring Your Tax

Alternative Minimum Tax

Additional Medicare Tax

Net Investment Income Tax (NIIT)

Tax Figured by IRS

Chapter 32: Tax on unearned income of certain children

Which Parent’s Return to Use

Parent’s Election To Report Child’s Interest and Dividends

Tax for Certain Children Who Have Unearned Income

Chapter 33: Child and dependent care credit

Can You Claim the Credit?

How To Figure the Credit

How To Claim the Credit

Do You Have Household Employees?

Chapter 34: Credit for the elderly or the disabled

Are You Eligible for the Credit?

How To Claim the Credit

Chapter 35: Child tax credit

Qualifying Child

Amount of Credit

Claiming the Credit

Additional Child Tax Credit

Completing Schedule 8812 (Form 1040A or 1040)

Chapter 36: Education credits and other education tax benefits

Who Can Claim an Education Credit

Qualified Education Expenses

Chapter 37: Premium Tax Credit (PTC)

What Is the Premium Tax Credit (PTC)?

Who Can Take the PTC?

How To Take the PTC?

Chapter 38: Other credits including the earned income credit

Nonrefundable Credits

Refundable Credits

Earned Income Credit (EIC)

Reminders

Do You Qualify for the Credit?

Part 7: Special situations and tax planning

Chapter 39: Self-employment income: How to file Schedule C

Who Must File Schedule C

What Is Included In Net Self-Employment Earnings?

How To Determine Items of Income and Expenses

Sales of Business Property Used in Your Business

Business Tax Credit

Special Situations

How To Complete Schedule SE Line By Line, Briefly

Chapter 40: Mutual funds

Tax Treatment of Distributions

Sales, Exchanges, and Redemptions

Keeping Track of Your Basis

Gains and Losses

Holding Period

How To Figure Gains and Losses on Form 8949 and Schedule D

Capital Losses

Investment Expenses

Limit on Investment Interest Expense

Chapter 41: What to do if you employ domestic help

Reminder

Employment Taxes for Household Employers

Chapter 42: U.S. citizens working abroad: Tax treatment of foreign earned income

How To Qualify for the Foreign Earned Income Exclusion

The Foreign Earned Income Exclusion

The Foreign Housing Exclusion

Employer-Provided Meals and Lodging

Foreign Tax Credit

Chapter 43: Foreign citizens living in the United States

Determining Your Status

Election To Be Treated as a Resident

How Resident Aliens Are Taxed

Rules for Individuals Giving Up U.S. Citizenship or U.S. Residency

Dual-Status Aliens

How Nonresident Aliens Are Taxed

Departing from the United States

Chapter 44: Decedents: Dealing with the death of a family member

Personal Representative

Final Return for the Decedent

Tax Effect on Others

Chapter 45: Estate and gift tax planning

Getting Started

Estate Tax Fundamentals

How Your Estate Is Taxed

The Fundamentals of the Gift Tax

The Generation-Skipping Transfer (GST) Tax

How To Use Trusts

How To Raise Cash To Pay Estate Taxes

Concerns Regarding Community Property

Estate Planning—Steps To Take Now

Chapter 46: Everything you need to know about e-filing

Information You’ll Need to

E-File

Making Tax Payments

Methods of E-Filing

Chapter 47: If your return is examined

IRS Declaration of Taxpayer Rights

Examinations, Appeals, Collections, and Refunds

Appeals

Collections

Potential Third-Party Contacts

Claims for Refunds

Chapter 48: Rules for expensing and capitalizing tangible property used in a trade or business

Chapter 49: Net investment income tax

Chapter 50: Planning ahead for 2018 and beyond

Year-End and Ongoing Tax Planning Considerations

Affordable Care Act (ACA) Individual Provisions

Inflation Adjustments for 2018

Chapter 51: 2017 tax rate schedules

Index

EULA

List of Tables

Chapter 1

Table 1.1

Table 1.2

Table 1.3

Table 1.4

Table 1.5

Table 1.6

Table 1.7

Chapter 2

Table 2.1

Chapter 3

Table 3.1

Chapter 5

Table 5.1.

Chapter 7

Table 7.1

Chapter 8

Table 8.1

Chapter 10

Table 10.1

Chapter 13

Table 13.1

Chapter 16

Table 16.1

Chapter 17

Table 17.1

Table 17.2

Table 17.3

Chapter 18

Table 18.1

Chapter 19

Table 19.1

Table 19.2

Table 19.3

Table 19.4

Chapter 20

Table 20.1

Chapter 21

Table 21.1

Table 21.2

Table 21.3

Chapter 22

Table 22.1

Chapter 23

Table 23.1

Chapter 24

Table 24.1

Chapter 25

Table 25.1

Table 25.2

Chapter 26

Table 26.2

Chapter 27

Table 27.1

Table 27.2

Table 27.3

Chapter 34

Table 34.1

Chapter 36

Table 36.1

Table 36.2

Chapter 38

Table 38.1

Chapter 40

Table 40.1

Table 40.2

Chapter 41

Table 41.2

Table 41.3

Table 41.4

Chapter 45

Table 45.1

Guide

Cover

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Changes in the tax law you should know about

2017 has, to date, been a quiet year for tax changes, although the focus in Washington on tax reform may mean future changes are coming. On the regulatory front, President Trump issued directives early in the year that slowed the pace of tax regulatory activity within the Treasury Department and the IRS. On the legislative front, with Congress’s failure to repeal and replace the Affordable Care Act (ACA), tax reform has regained its high-priority position on the legislative agenda. The two issues had been linked by revenue and procedural concerns, but with ACA repeal put aside for now, policymakers have turned their attention to crafting a tax plan that can win enough votes to get through Congress.

Major tax reform ideas continue to be debated, many of which stem from past tax reform efforts. As of this writing, congressional tax writers and leaders were working with the Trump administration to develop a tax reform plan that would lower tax rates, eliminate many targeted tax provisions, and move the United States toward a territorial international tax regime. If tax reform does gain traction, there is a chance some provisions might be retroactive, so it will be important to check back for potential updates on tax areas that may be of interest.

There also remain a number of tax provisions that expired at the end of 2016 or are set to expire at the end of 2017. Policymakers have not taken action on them yet, in hopes of addressing them as part of the larger tax reform effort.

While these developments create challenges for taxpayers wrestling with an uncertain tax and ACA landscape, they also present opportunities to take a fresh look at existing structures and planning, in anticipation of forthcoming changes. The EY Tax Guide is a great place to start that analysis. Check our website for updated information on tax legislation enacted after this book is published at ey.com/EYTaxGuide.

Tax changes effective for 2017

Personal exemption phaseout

Under the personal exemption phaseout, taxpayers lose 2% of their total personal exemption amount ($4,050 for 2017) for each $2,500 (or portion thereof) of adjusted gross income (AGI) in excess of an applicable threshold amount based on their tax filing status. For 2017, the phaseout begins and ends at the following amounts of AGI:

Filing status

Phaseout begins

Phaseout ends

Single

$261,500

$384,000

Married filing jointly and qualifying widow(er)

313,800

436,300

Married filing separately

156,900

218,150

Head of household

287,650

410,150

Itemized deductions limitation

The amount of itemized deductions you can claim for 2017 is reduced by 3% of the amount of your adjusted gross income (AGI) in excess of applicable thresholds, although no more than 80% of these otherwise allowable deductions will be eliminated. The thresholds are $261,500 for individual filers, $287,650 for heads of households, $313,800 for married couples filing jointly, and $156,900 for married couples filing separately.

Itemized deductions that are subject to this limitation include taxes, home mortgage interest, charitable contributions, and most miscellaneous itemized deductions. This limitation will be applied after you have used any other limitations that specifically apply with respect to affected itemized deductions, such as the AGI limitation for charitable contributions and the mortgage interest expense limitations. Medical expenses, casualty and theft losses, investment interest expense, and deductible gambling losses are not subject to this overall limitation.

Standard mileage rates

The standard mileage rate for the cost of operating your car decreased to 53½ cents a mile for all business miles driven for 2017 (the rate was 54 cents per mile in 2016). See chapter 27, Car expenses and other employee business expenses.

The standard mileage rate allowed for the use of your car for medical reasons or a qualified move decreased to 17 cents per mile for 2017 (the rate was 19 cents per mile in 2016). See chapter 22, Medical and dental expenses, and chapter 20, Moving expenses.

The standard mileage rate allowed for charitable purposes remains at 14 cents per mile for 2017. See chapter 25, Contributions.

Alternative minimum tax (AMT) exemption

The tax laws give preferential treatment to certain kinds of income and allow special deductions and credits for certain kinds of expenses. The AMT attempts to ensure that anyone who benefits from these tax advantages pays at least a minimum amount of tax. You pay AMT if it exceeds your regular tax liability for the year. The amount subject to AMT is separately computed by adding a number of preference items that essentially eliminate many of the deductions and credits that are allowed in computing your regular tax liability and subtracting an exemption amount.

The exemption amount is based on your tax filing status and is adjusted for inflation each year. For 2017, the exemption amounts increased to $54,300 for single taxpayers, $84,500 for married couples filing jointly, and $42,250 for married filing separately. The exemption phases out at higher levels of alternative minimum taxable income (AMTI). For 2017, a taxpayer’s exemption amount is reduced (but not below zero) by 25 percent of the amount by which alternative minimum taxable income exceeds the following: $120,700 (single), $160,900 (married filing jointly), and $80,450 (married filing separately).

For an explanation of the AMT, see chapter 31, How to figure your tax.

Itemized deduction for mortgage insurance premiums paid expired; not available for 2017

The itemized deduction for the cost of mortgage insurance premiums paid on a qualified personal residence expired at the end of 2016 and is not available for 2017. Although Congress had previously extended this deduction after it expired in prior tax years, no such legislation to extend it again had been passed as of the time this book went to press. A summary of this deduction is included below in case Congress acts to extend it. For updated information on this and any other tax law changes that occur after this book was published, see our website, ey.com/EYTaxGuide.

In 2016, eligible taxpayers were able to take an itemized deduction for the cost of mortgage insurance premiums paid on a qualified personal residence. The insurance must have been obtained in connection with home acquisition debt and the insurance contract must have been issued after 2006. The deduction was phased out by 10% for each $1,000 by which adjusted gross income (AGI) exceeded $100,000 ($500 and $50,000, respectively, if you were married filing separately). Therefore, the deduction was unavailable for a taxpayer with AGI over $109,000 ($54,500 if married filing separately). For more information, see Mortgage Insurance Premiums in chapter 24, Interest expense.

Exclusion from gross income of certain discharged mortgage debt further limited for 2017

The exclusion from gross income of income realized from a discharge received during 2017 of up to $2 million ($1 million if married filing separately) of qualified personal residence indebtedness is available only if that discharge was obtained pursuant to a binding written agreement entered into before 2017.

Congress had previously extended this deduction after it expired in prior tax years. However, no such legislation to extend it again and make it applicable to debt discharged based on an agreement obtained during 2017 and/or future years had been passed as of the time this book went to press. For updated information on this and any other tax law changes that occur after this book was published, see our website, ey.com/EYTaxGuide.

Qualified principal residence indebtedness is defined as acquisition indebtedness (within the meaning of Internal Revenue Code Section 163(h)(2)(B), except that the dollar limitation is $2 million) with respect to the taxpayer’s principal residence. Acquisition indebtedness generally means indebtedness incurred in the acquisition, construction, or substantial improvement of the principal residence of the individual, and secured by the residence. It also includes refinancing of such indebtedness to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced debt. The basis of the individual’s principal residence is reduced by the amount excluded from income. That will increase the amount of gain (or decrease any loss) you realize when you ultimately sell your home.

Above-the-line deduction for qualified tuition-related expenses expired; not available for 2017

The above-the-line deduction for tuition and fees expired at the end of 2016 and is not available for 2017. Although Congress had previously extended this deduction after it expired in prior tax years, no such legislation to extend it again had been passed as of the time this book went to press. A summary of this deduction is included in below in case Congress acts to extend it. For updated information on this and any other tax law changes that occur after this book was published, see our website, ey.com/EYTaxGuide.

In 2016, you were be able to deduct as an adjustment to reduce gross income qualified education expenses you paid during the year for tuition and fees at a college, university, or other qualifying postsecondary education institution. This deduction for tuition and fees was allowed as an adjustment in figuring your AGI; therefore, it reduced your taxable income even if you did not itemize deductions. The maximum deduction was $4,000 if your modified adjusted gross income (MAGI) was less than $65,000 ($130,000 if you were married filing jointly). The maximum available deduction shrank to $2,000 if your MAGI was over $65,000 ($130,000 if filing jointly) and below $80,000 ($160,000 if filing jointly). No deduction was available if your MAGI exceeded $80,000 ($160,000 if filing jointly).

The deduction was also unavailable—regardless of your MAGI—if your filing status for the year was married filing separately or you could be claimed as a dependent on the tax return of another person. In addition, the deduction was disallowed if you or anyone else claimed an American opportunity credit or lifetime learning credit with respect to the same student.

For more information, see Tuition and Fees Deduction, in chapter 19, Education-related adjustments.

Section 179 small business expensing amounts

Section 179 of the tax code allows you to make an election to deduct all or part of the cost—up to specified yearly limits—of certain qualifying property in the year in which the property is purchased and placed in service, rather than capitalizing the cost and depreciating it over its life. “Qualifying property” is property purchased for use in a trade or business and property that would have qualified for the investment tax credit. Under the PATH Act, off-the-shelf computer software can now be treated as qualifying property. For taxable years beginning after 2015, investments in air conditioning and heating units are also treated as qualifying property. The election is made for each item of qualifying property whether to deduct, subject to the yearly limit, or capitalize and depreciate its cost.

Specified limits. The maximum amount you can elect to deduct for Section 179 property placed into service in 2017 is $510,000. For enterprise zone businesses, this amount is increased by the lesser of: (1) $35,000, or (2) the cost of Section 179 property that is qualified zone property placed in service during 2017. The allowable deduction is reduced dollar for dollar once the cost of qualifying property placed into service during 2017 exceeds $2,030,000.

For more information about the Section 179 deduction, see Depreciation and Section 179 deduction, in chapter 13, Basis of property.

Special depreciation allowance extended through 2019

A tax law passed in late 2015 (The PATH Act) extended the availability of the special depreciation allowance (also known as bonus depreciation) under Section 168(k) for property acquired after December 31, 2007, and placed in service before January 1, 2020. Fifty percent bonus depreciation is available for property placed in service during 2015, 2016, and 2017. This decreases to 40% in 2018 and 30% in 2019. The types of property that qualify for the 50% bonus or special depreciation allowance are Section 168 (tangible) property with a recovery period of 20 years or less, off-the-shelf computer software, water utility property, and qualified leasehold improvement property.

Tax benefits for adoption

The adoption credit and the maximum exclusion from income of benefits under an employer’s adoption assistance program increased to $13,570 for 2017. These benefits are phased out for taxpayers with AGI between $203,540 and $243,540. See Adoption Credit in chapter 38, Other credits including the earned income credit.

Recapture of first-time homebuyer credit for home purchased on or after April 9, 2008, and before May 1, 2010

If you claimed the first-time homebuyer credit for a home you bought on or after April 9, 2008, and before May 1, 2010, you may be required to repay the credit. If so, your annual installment will be due with your 2017 tax return. You generally must repay the credit over a 15-year period in 15 equal installments. Each installment is reported as additional tax on your tax return. However, if you sold or stopped using your home as your principal residence before the 15-year period is up, you must include all remaining annual installments as additional tax on the return for the tax year that happened. See Recapturing (Paying Back) the First-Time Homebuyer Credit in chapter 38, Other credits including the earned income credit, for additional information.

2017 disaster area tax relief

You may be eligible for tax relief if you were the victim of various storms, including Hurricanes Harvey, Irma, and Maria that occurred during 2017. The IRS website, www.IRS.gov (click on “Tax relief for victims of recent disasters”), contains links to related news releases for the victims of affected areas. A list of the 2017 Federal Disaster Declarations is available on the FEMA website at fema.gov/news/disasters.

Examples of tax relief include extensions of time to file certain tax returns and make certain tax payments, as well as the ability for those who suffered uninsured or unreimbursed losses to elect to claim them on either the return for the year the loss occurred (in this instance, the 2017 return normally filed next year), or the return filed for the prior tax year (2016). For more information about deducting disaster losses, see Disaster Area Loss in chapter 26, Nonbusiness casualty and theft loss.

Credit for alternative fuel vehicle refueling property expired; not available for 2017

Although Congress had previously extended this credit after it expired in prior tax years, no such legislation to extend this credit again had been passed as of the time this book went to press. A summary of this credit is included in below in case Congress acts to extend it. For updated information on this and any other tax law changes that occur after this book was published, see our website, ey.com/EYTaxGuide.

The credit for qualifying alternative fuel refueling property was generally limited to the lesser of 30% of the cost of installing qualified clean-fuel vehicle refueling property in your principal home (up to $1,000 per tax year maximum) or used in your trade or business (up to $30,000 per tax year, per location).

Credits for residential qualified refueling property could not exceed the difference between your regular tax and tentative minimum tax. Credits for trade or business qualified refueling property could be carried back one year and forward 20 years. Your basis in the qualified refueling property is reduced by the amount of the credit claimed. You could not claim the credit for property used outside the United States or for property expensed under Section 179.

Credit for alternative motor vehicles expired; not available for 2017

The alternative motor vehicle credit was available for new fuel cell vehicles purchased before 2017 that are propelled by chemically combining oxygen with hydrogen and creating electricity. The base credit was $4,000 for vehicles weighing 8,500 pounds or less. Heavier vehicles qualified for up to a $40,000 credit, depending on their weight. An additional $1,000 to $4,000 credit was available to cars and light trucks to the extent their fuel economy exceeded the 2002 base fuel economy set forth in the Internal Revenue Code. The vehicle must be used predominantly in the United States to qualify for the credit. Although Congress had previously extended this credit after it expired in prior tax years, no such legislation to extend this credit again had been passed as of the time this book went to press. For updated information on this and any other tax law changes that occur after this book was published, see our website, ey.com/EYTaxGuide.

Credit for qualifying two-wheeled, plug-in electric drive motorcycles expired; not available for 2017

The credit for qualifying two-wheeled, plug-in electric drive motorcycles was limited to 10% of cost up to a maximum of $2,500. Although Congress had previously extended this credit after it expired in prior tax years, no such legislation to extend this credit again had been passed as of the time this book went to press. For updated information on this and any other tax law changes that occur after this book was published, see our website, ey.com/EYTaxGuide.

Nonbusiness energy property credit expired; not available for 2017

The credit for certain nonbusiness energy property was limited to 10 percent of the amount paid or incurred by a taxpayer for qualified energy improvements made to existing homes before 2017 (e.g., new HVAC systems, hot water systems, lighting), up to $500; but no more than $200 of such credit can be attributable to expenditures on windows.

Although Congress had previously extended this credit after it expired in prior tax years, no such legislation to extend this credit again had been passed as of the time this book went to press. For updated information on this and any other tax law changes that occur after this book was published, see our website, ey.com/EYTaxGuide.

Estate, gift, and generation-skipping transfer taxes

US citizens and residents are entitled to a $5 million lifetime exemption from estate and gift tax and a $5 million lifetime exemption from generation-skipping transfer (GST) tax. The exemptions are indexed annually for inflation. For 2017, the exemption amount is $5.49 million. There is also an annual, per-donee gift tax exclusion. For 2017, the gift tax annual exclusion amount is $14,000. The maximum tax rate on transfers of property subject to gift, estate, and GST tax is 40%. For more information on estate and gift tax, see chapter 45, Estate and gift tax planning.

Inflation adjustments for 2017

Each year, a number of tax benefits and income limitations for tax benefits are adjusted for inflation. In recent years these changes, if any, were very small due to the low rate of inflation—and this holds true for 2017. The adjustments for 2017 are as follows:

Tax Rate Tables: The income brackets for each tax rate have been increased slightly. See

chapter 51

,

Tax rate schedules

.

Personal Exemption: The personal exemption amount is $4,050 in 2017. See

chapter 3

,

Personal exemptions and dependents

.

Standard Deduction: The standard deduction for 2017 is $12,700 for married individuals filing joint returns and surviving spouses, $6,350 for unmarried individuals and married individuals filing separate returns, and $9,350 for heads of household. The additional standard deduction for blind people and senior citizens is $1,250 for married individuals or a surviving spouse, and $1,550 for unmarried individuals and not a surviving spouse. See

chapter 21

,

Standard deduction

.

The elective contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remained unchanged for 2017 from 2016 at $18,000.

For married couples filing jointly, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phaseout range is $99,000 to $119,000 for 2017; for singles and heads of household, the income phaseout range is $62,000 to $72,000.

For an IRA contributor who is not an active participant in an employer-sponsored retirement plan, but who either lives with his or her spouse or files jointly, and the spouse is an active participant, the deduction is phased out if the couple’s income is between $186,000 and $196,000 for 2017.

The AGI phaseout range for 2017 for taxpayers making contributions to a Roth IRA is $186,000 to $196,000 for married couples filing jointly or a qualifying widow(er); for singles, heads of household, or married filing separately who did not live with his or her spouse at any time during 2017, the income phaseout range is $118,000 to $133,000; and the phaseout range for married taxpayers filing separately who lived with their spouse at any time during the year is $0 to $10,000. See

chapter 17

,

Individual retirement arrangements (IRAs)

.

Saver’s Credit Limitations: The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) in 2017 is $62,000 for married couples filing jointly. For heads of household, the AGI limit is $46,500. For married individuals filing separately and for singles, the AGI limit is $31,000. See

chapter 38

,

Other credits including the earned income credit

.

Earned Income Credit: The maximum earned income credit (EIC) varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children. The credit amount and phaseout amounts are adjusted annually for inflation. See Earned Income Credit (EIC) in

chapter 38

,

Other credits including the earned income credit

.