2017 income tax brackets and tax rates

Small Business Guides

4 min read

Income tax brackets and tax rates decide what portion of your personal income will go to the government. Small business owners can use projections to help with tax planning and budgeting.

Income tax and your business structure

Most business structures have flow-through taxation. If you’re a sole proprietor, an LLC, an S-Corporation, or you’re in a partnership (including a limited partnership) – your business doesn’t pay tax. Instead, you declare the income you receive from the business on your personal return and tax is calculated according to tax brackets.

The projected tax brackets and tax rates are outlined here to help you and your accountant come up with the most tax-efficient plan for 2017.

How are income tax brackets chosen?

The Internal Revenue Service adjusts tax laws based on the Consumer Price Index (CPI). The CPI is a measure of inflation and the cost of living. Changes in the CPI can influence:

  • tax brackets
  • deductions
  • exemptions and credits
  • income thresholds

When the CPI increases, tax brackets move. If your salary stays the same, you could drop into a lower tax bracket – and owe less in tax.

The tax experts at Bloomberg BNA have released their 2017 projected U.S. tax rates which, adjusted for inflation, see some taxpayers fall into a different income tax bracket, with a lower income tax rate.

Projected individual income tax brackets

Your taxable income is what you earned from work or business, rental income, awards, investment income, gambling and other business activities. It doesn’t include certain educational funds, gifts or inheritances, or payments from accidents or workers’ compensation.

Taxable income is broken into seven brackets, and each is taxed at a different rate. The projected income tax brackets and income tax rates for 2017 are:

Unmarried individual taxpayers (other than heads of households or surviving spouses)

  • $0 – $9,325 would be taxed at 10%
  • $9,326 – $37,950 would be taxed at 15%
  • $37,951 – $91,900 would be taxed at 25%
  • $91,901 - $191,650 would be taxed at 28%
  • $191,651 - $416,700 would be taxed at 33%
  • $416,701 - $418,400 would be taxed at 35%
  • More than $418,400 would be taxed at 39.6%

The portion of your income that falls into each of these brackets is taxed at the corresponding rate. So if you had taxable income of $85,000:

  • $0 – $9,325 would be taxed at 10%

  • $9,326 – $37,950 would be taxed at 15%

  • $37,951 – $85,000 would be taxed at 25%

Married filing jointly, and surviving spouses

  • $0 – $18,650 would be taxed at 10%
  • $18,651 – $75,900 would be taxed at 15%
  • $75,901 – $153,100 would be taxed at 25%
  • $153,101 - $233,350 would be taxed at 28%
  • $233,351 - $416,700 would be taxed at 33%
  • $416,701 - $470,700 would be taxed at 35%
  • More than $470,700 would be taxed at 39.6%

Heads of households

  • $0 – $13,350 would be taxed at 10%
  • $13,351 – $50,800 would be taxed at 15%
  • $50,801 – $131,200 would be taxed at 25%
  • $131,201 - $212,500 would be taxed at 28%
  • $212,501 - $416,700 would be taxed at 33%
  • $416,701 - $444,550 would be taxed at 35%
  • More than $444,550 would be taxed at 39.6%

An accountant may try to lower your taxable income by suggesting pre-tax contributions, such as a 401(k) or a flexible spending account.

Income tax exemptions and deductions

Most US taxpayers receive an automatic personal exemption of $4,050. The exemption begins to phase out as adjusted gross income passes $261,500 (or $313,800 for married couples filing jointly). It phases out completely at $384,000 ($436,300 for married couples filing jointly).

You can claim a deduction on top of your exemption. The standard deduction is the simplest to claim. Here’s what it entitles you to:

  • Married couples – standard deduction of $12,700
  • Surviving spouses – standard deduction of $12,700
  • Heads of household – standard deduction of $9,350
  • All other taxpayers – standard deduction of $6,350

You may be able to get a larger deduction by choosing to itemize your deductible expenses. This can be useful for people with:

  • varied income from investments and real estate
  • business or medical expenses

If you take this route, it's worth getting advice from a tax professional.

Alternative minimum tax

To ensure people with high income pay a minimum amount of tax, there’s the alternative minimum tax (AMT). It’s applied once income hits a threshold amount. The Bloomberg BNA forecasts for AMT exemptions are:

  • Married filing jointly, or surviving spouses – exemption of $84,500
  • Unmarried individuals (other than surviving spouses) – exemption of $54,300
  • Married individuals filing separate returns – exemption of $42,250
  • Estates and trusts – exemption of $24,100

Estate and gift tax exclusions

For 2017, the basic estate tax exclusion is projected to increase slightly to $5.49 million. The annual exclusion for gift taxes is projected to be $14,000.

Income tax brackets and income tax rates keep changing

Your tax exposure can change every year, depending on the relationship between your income and CPI. It always pays to think about where the income tax brackets will fall.

A tax professional, such as a Certified Public Accountant or Enrollled Agent, can help minimize the tax you pay while keeping you compliant with laws and regulations – at the state and federal level.