Cereus Financial Advisors, LLC
David Haas, CFP®
Michael Dunne, CFP®
795 Franklin Avenue
Building B, Suite 205
Franklin Lakes, NJ 07417

2017 Federal Income Tax Planning

Of an estimated 148.1 million federal income tax returns filed for the 2014 tax year, just under 44 million claimed itemized deductions.

Source: Individual Income Tax Returns Publication 1304 (Complete Report), IRS.gov, 2/10/17



"Above" vs. "below" the line

Adjustments to income are deductions that are subtracted from your total, or gross, income to arrive at your adjusted gross income (AGI). These deductions are often described as "above-the-line" deductions because they are factored in above the line on which AGI is calculated. Note that you can claim any above-the-line deductions to which you are entitled regardless of whether you itemize deductions on IRS Form 1040, Schedule A.

Common above-the-line deductions

  • Educator expenses
  • Health savings account deduction
  • Moving expenses
  • Deductible part of self-employment tax
  • Contributions by self-employed individuals to SEP, SIMPLE, and qualified plans
  • Health insurance deduction (self-employed individuals)
  • Alimony paid
  • Deductible contributions to a traditional IRA
  • Student loan interest deduction
  • Deduction for qualified higher-education expenses (tuition and fees)*

*Available for 2016, but not for 2017 (absent new legislation)

Other deductions are factored in after AGI is calculated. It's important to note that these "below-the-line" deductions provide a tax benefit only if you itemize deductions on Schedule A, and generally only if your Schedule A itemized deductions are greater than your standard deduction amount. Note as well that the allowable amount of some of these deductions depends in part on the amount of your AGI. For example, medical deductions are allowed only to the extent that they exceed 10% of AGI.

Standard deduction

The standard deduction is a fixed dollar amount, indexed annually for inflation, that is determined according to your filing status (e.g., married filing jointly, single). An additional standard deduction amount applies if you (or your spouse, if you're married and file a joint return) are age 65 or older. An additional standard deduction amount also applies for individuals who are blind.

2017 Standard Deduction Amounts
Filing Status / Factors2017
Married filing jointly or qualifying widow(er)$12,700
Head of household$9,350
Married filing separately$6,350
Additional deduction for age 65+ or blind (single or head of household)$1,550
Additional deduction for age 65+ or blind (all other filing statuses)$1,250

Example:  For tax year 2017, Jack, 62, and Jill, 47, are married filing jointly. Neither is blind. They decide not to itemize their deductions. Their standard deduction is $12,700. If Jack was blind, their standard deduction would be $12,700 plus $1,250, or $13,950. If both were blind, their standard deduction would be $12,700 plus $2,500, or $15,200. If both were blind and Jack was also 65, their standard deduction would be $12,700 plus $3,750, or $16,450. If both were over 65 and blind, their standard deduction would be $12,700 plus $5,000, or $17,700.

Note:  If you can be claimed as a dependent on another taxpayer's tax return, your standard deduction in 2017 is generally limited to the greater of (a) $1,050 or (b) the sum of $350 and your earned income for the year, but not more than the standard deduction you could otherwise have claimed (if you could not be claimed as an exemption by someone else).

Itemized deductions

Itemized deductions are various deductions reported and claimed on Schedule A of your federal income tax return (Form 1040). They include certain personal expenses, such as medical expenses, mortgage interest, state taxes, charitable contributions, theft losses, and miscellaneous itemized deductions. If you have enough of these types of expenses, your itemized deductions may exceed the standard deduction to which you're entitled. In that case, itemizing deductions may be advantageous. If your itemized deductions are less than your standard deduction, you'll generally want to use the standard deduction.

There are a few things worth noting, however. First, if you file your tax return using the married filing separately status and your spouse itemizes deductions, you cannot take a standard deduction. Any deductions you take must be itemized. Second, if you are subject to the alternative minimum tax (AMT) (discussed later), you might be better off itemizing your deductions even though your total itemized deductions do not exceed your standard deduction — that's because the standard deduction is reduced to zero for AMT purposes. Finally, itemized deductions are limited once your AGI reaches a certain level.

Itemized Deduction Breakdown for 2014 Tax Year

Based on percentage of total itemized deduction dollars claimed by taxpayers for 2014 tax year.

Source: Individual Income Tax Returns Publication 1304 (Complete Report), IRS.gov, 2/10/17

2017 AGI Thresholds for Itemized Deduction Limitation
Filing StatusAGI Threshold
Married filing jointly or qualified widow(er)$313,800
Head of household$287,650
Married filing separately$156,900

Note:  Total itemized deductions must be reduced by the smaller of (a) 3% of the amount by which your AGI exceeds the AGI threshold for your filing status or (b) 80% of your itemized deductions that are affected by the limitation. Deduction amounts relating to medical and dental expenses, investment interest expenses, nonbusiness casualty and theft losses, and gambling losses are not subject to this limitation.

Timing or "bunching" deductions

For most people, income is reported in the year that it's received, while deductions are generally taken for the year in which the expenses are paid. In many cases, you can control whether you incur an expense this year or next. That means you can control the timing of your itemized deductions to some extent. For example, paying medical expenses in December rather than in January potentially accelerates the deduction for those expenses into the earlier year. Postponing major dental work — scheduled for December — to January would delay the expense and the resulting deduction until the following year.

Why would you want to do that? One reason might be if those deductions are worth more to you in one year than in the other. For example, if you're in a higher income tax bracket this year than you expect to be in next year, you may want to accelerate your deductions into the current year to help minimize your tax liability. Or, if you find that your itemized deductions typically fall just short of the standard deduction amount that applies to you, you might try "bunching" deductions in alternate years to exceed the standard deduction amount in those years.

For example, let's say that you file as single and have total itemized deductions of $6,300 for 2017 — less than the $6,350 standard deduction amount for 2017. Let's assume as well that you will be in a similar situation next year, with itemized deductions that equal your standard deduction amount. In this situation, your itemized deductions provide no tax benefit. Consider what would happen, however, if you were able to defer $1,000 in allowable deductions to next year. There would be no effect on your 2017 taxes, since you were already claiming the standard deduction amount. But next year, your itemized deductions would exceed your standard deduction amount by $1,000, giving you an additional $1,000 in deductions that would otherwise have been lost.

Bunching deductions can also help at a more granular level. Some deductions are subject to an AGI threshold. For example, medical and dental expenses are generally deductible only to the extent that unreimbursed expenses exceed 10% of your AGI. If you're close but under the AGI threshold, consider whether taking steps to "bunch" medical expenses into a single year might allow you to exceed the threshold in a given year, resulting in additional deductions that would otherwise have been lost.


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Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2020.