2017 Is Your Last Shot at This $1.14 Trillion Tax Writeoff

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It's almost time to start thinking about preparing your tax return, but taxes have been on many people's minds for months. Tax reform efforts have resulted in massive changes to key provisions, with reductions in tax rates and an increased standard deduction potentially helping many taxpayers. Yet some favorable parts of the existing tax laws are going away, and that will make your 2017 tax return the last time you can claim them.

One key tax break is available to nearly every taxpayer, and more than 90% of Americans took advantage of this provision to reduce their taxable income by a total of more than $1.14 trillion in the most recent year for which IRS data is available. That break is the personal exemption, and it was a casualty of the Republican tax reform bill. Let's look more closely at how the personal exemption works and what you'll need to do to take one final swing at the savings it offers.

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What you need to know about personal exemptions

The personal exemption is a pretty easy to understand as tax provisions go. You have the right to claim one exemption for yourself, as long as you're not someone else's dependent. Joint filers can claim a total of two exemptions for both spouses, and those who have children or other eligible dependents can claim an additional exemption per eligible person.

In order to claim someone as a dependent, that person must fall into one of two categories. First, you can claim your children as dependents if they're under age 19, a student under age 24, or disabled. Children must get half or more of their financial support from you, and those children who aren't college students must live with you for more than half the year in order for you to take them as personal exemptions. Parents, grandparents, and other people who live with you can qualify as dependents under stricter rules. You must provide more than half of their financial support, and they must have no more than $4,000 in income in their own right.

A person can only be a dependent on a single tax return. Therefore, if your parents claim you as a dependent, you can't claim a personal exemption for yourself as well.

Most taxpayers get to reduce their taxable incomes by $4,050 per exemption. So a single person with no children gets a $4,050 reduction, while a family of four could see their taxable income drop by $16,200 as a result of the provision.

What does the typical American get from personal exemptions?

The vast majority of American taxpayers take one or more personal exemptions. More than 139 million taxpayers claimed exemptions in 2015, and the total amount that they reduced their tax income by was $1.14 trillion. That amounts to an average of $8,181 in deductions for every American taxpayer. What that suggests is that typical returns claimed just over two personal exemptions on average.

Some taxpayers don't get to use all of their personal exemptions. Income limits exist that start reducing personal exemptions, and above higher income limits, no exemption is available. For single filers in the 2017 tax year, the phaseout begins at $261,500, and the exemption disappears entirely at $384,000. The numbers for joint filers are $313,800 and $436,300. For every $2,500 that you're above the lower phaseout limit, you lose 2% of your total exemption amount.

Why personal exemptions are going away

Lawmakers made the decision under tax reform to simplify tax returns by removing the provisions for personal exemptions. Instead, a higher standard deduction will apply. For those taxpayers who don't have children, the increase more than makes up for the loss of the personal exemption. But for some of those who have kids or other dependents, the rise in the standard deduction is smaller than the amount of personal exemptions that they'd otherwise be allowed to claim.

Those with children will also get added relief in the form of a larger child tax credit. In the end, the numerous offsetting provisions make every taxpayer's situation different, and you'll have to work your own numbers to figure out whether reform measures help or hurt you going forward.

A tax swan song

Regardless, be sure to make the most of your personal exemptions in 2017. Unless something completely unexpected happens to reverse what's been happening in Washington, this year's tax return will be the last place you get to claim this popular tax break.

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