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TAX TIPS
TAXES 2019:
WHEN TO FILE AND WHAT
BIG CHANGES TO EXPECT
BY JOHN SAVIGNANO, CPA
Sitting down to do your taxes in the next few weeks – or talking with your tax preparer – will involve tackling the most sweeping changes in the
federal income tax rules in more than 30 years. You'll need to keep in mind that more than 600 rule changes took place under the Tax Cuts and Jobs
Act, which was passed by Congress in late 2017. All those changes even drove some industry experts to raise concern early on about possible delays to
the typical, late January start of the tax season – and that was long before the federal government shutdown hit on Dec. 22. President Donald Trump
announced a deal on Friday to temporarily end that shutdown. Even with that disruption, the Internal Revenue Service promises to kick off tax season
as of Jan. 28, the earliest date you can file your returns.
Will things end up being simpler? Maybe – if you’re able to tap into a substantially expanded standard deduction and you no longer must string
together all sorts of receipts and paperwork to itemize deductions. Or maybe, if your upper-income household can now skip the highly complex and
much-dreaded alternative minimum tax.
Tax filers need to realize, though, that it won’t be business as usual when it comes to filing their 2018 tax returns. Far from it. “It’ll be a little bit of
a surprise and a learning process as they file their first tax return under the new tax rules,” said Joseph Rosenberg, senior research associate at the
nonpartisan Tax Policy Center in Washington, D.C. Tax filers will be asking more questions, but they might have a harder time getting answers from
the IRS, given all the challenges related to the shutdown and the new tax rules. As a result, it makes even more sense to start as early, and not wait until
days before the April 15 tax deadline.
Here are key questions to consider as you try to get the biggest possible refund and hold down your bill on the 2018 federal income tax returns:
Will the same 1040 work for everyone?
All individual taxpayers will now use the same 1040 simple form. It replaces the old 1040, the 1040A and the 1040EZ. But it doesn't end there. You
may need to file supplemental schedules with your 1040 in certain cases, such as if you itemize deductions or qualify for a variety of tax credits other
than the basic child tax credit.
Will I or won’t I need to itemize?
Logical question, given that many of us have heard about a much higher standard deduction under the new tax rules. But there's no simple answer.
“You still want to run your numbers both ways,” said Jackie Perlman, tax research analyst at H&R Block’s Tax Institute, meaning you should try
itemizing and comparing the outcome with just taking the standard deduction. Roughly 10 percent of tax filers will itemize deductions, such as the
interest paid on their mortgages or what they paid in property taxes, on their 2018 federal income tax returns, according to estimates by the Tax Policy
Center. That’s down from about 30 percent in previous years.
Families who own a home, in particular, will want to review whether they'd still itemize to lower their tax bill. You'd need deductions to exceed the
new higher, standard deduction, which is nearly double from a year ago. And you'll face new limits relating to the deduction you can take on property
and income taxes.
Married couples filing jointly are looking at a standard deduction of $24,000 on their 2018 federal income tax returns — that’s up $11,300 from the
old amount of $12,700 on the 2017 tax returns.
Single filers are looking at a standard deduction of $12,000 — up by $5,650 from the old amount of $6,350 on 2017 returns. But there also is an
additional standard deduction for those who are 65 or older, or blind. A married couple filing jointly, for example, might have a standard deduction as
high as $26,600 if both meet the age requirements or both are legally blind. If married filing jointly, and you or your spouse are 65 or older, you may
increase your standard deduction by $1,300. If both of you are 65 or older, the additional standard deduction goes up to $2,600. If you file under single
or head of household and are 65 or older, you may increase your standard deduction by $1,600. If legally blind, the standard deduction would go up by
$1,600 if single or filing head of household. The extra deduction goes to $2,600 if both you and your spouse are legally blind. If you are married filing
jointly and you or your spouse is blind, you may increase your standard deduction by $1,300. For someone who is 65 or older and blind, both additional
deductions would apply, and the standard deduction would be $15,200.
Important point: If you are married filing separately and your spouse itemizes deductions, you may not claim the standard deduction. If one spouse
itemizes deductions, the other spouse must itemize.
Will I get any tax break for having children?
Most parents across the country with young children or teens will be able to tap into the child tax credit on their 2018 federal income tax returns –
even if they couldn’t use that credit in the past.
“The child tax credit got super-sized. To claim the credit, the child must be 16 years old or younger, as of Dec. 31, and claimed as a dependent on
your tax return. The child also must have a valid Social Security number. The maximum credit has gone up to $2,000 from $1,000.
Another plus: Now, up to $1,400 per child is available as a refundable credit. Families can claim the credit if they earn income of $2,500 or more in
income. As a result, some families can get refunds even if their taxes are $0.
Couldn't take the credit last year? OK, but new rules apply, and more people will be able to take the credit now. The income threshold jumps all the
way to $400,000 for married filing jointly and $200,000 for others before any phase out. Under the old tax law, the adjusted income limits were far
lower: $75,000 for singles; $110,000 if married filing jointly. The super-sized credit, though, will be needed to offset the loss of personal exemptions for
families with children. We lost the $4,050 dependent exemption.
In the past, taxpayers could take an exemption deduction for yourself, your spouse and each dependent you can claim. Each personal exemption
reduced gross income by $4,050 on 2017 returns. The exemption phased out for higher earners.
A new credit, often called the Credit for Other Dependents, offers $500 for each qualifying child or other dependent relatives, such as older relatives
in your household, if they do not qualify for the child tax credit. For this credit for other dependents, the dependent does not need a valid Social
Security number for this credit. An Individual Taxpayer Identification Number or Adoption Taxpayer Identification Number would work.
I’m confused about my property taxes. Am I losing that deduction?
No, but some will face new limits. If you live in a high-tax state or possibly own both a home and a cottage at the lake, you’re going to want to pay
extra attention to one major change on 2018 returns.
We’re looking at a new limit on how much you can deduct when it comes to what you paid in 2018 for state and local taxes. For 2018 through 2025,
the deduction is limited to $10,000 (or $5,000 if married filing separately) for individuals who paid state and local real estate taxes, personal property
taxes and income taxes.
If they haven’t been keeping up with the news, they might be in for a surprise. Middle-income and higher-income families who live in states such
as California, New York, New Jersey and Illinois may be particularly vulnerable. Generally, states with both high average incomes and higher-thanaverage
state tax burdens would be affected. But remember, if you paid $12,000 in state and local taxes, you’re still looking at a $10,000 deduction – if
you itemize. So, you don’t want to entirely write off the possibility of itemizing deductions.
Like a host of other changes in the Tax Cuts and Jobs Act, how much the $10,000 cap will influence your tax bill remains to be seen in the year ahead.
It really depends on your personal individual circumstances.
Will my refund will be smaller? Will I owe?
Hard to say. Whether you owe taxes or not is really going to depend on your individual situation.
One word of warning: The tax withholding tables changed in early 2018 to reflect lower tax rates and enable people to take home more money in
their paychecks. But it’s possible that many people still did not have enough in taxes withheld – even with the new lower tax rates – based on their
individual tax situations. The IRS has announced that it is waiving the estimated tax penalty for many taxpayers whose 2018 federal income tax
withholding and estimated tax payments fell short of their total tax liability for the year. "We realize there were many changes that affected people last
year, and this penalty waiver will help taxpayers who inadvertently didn't have enough tax withheld," IRS Commissioner Chuck Rettig said in a
statement. The waiver will be integrated into the tax software that many use to prepare taxes.
Tax experts note that there are so many moving parts when it comes to the tax changes that all sorts of situations will come into play. How many
children age 16 and under do you have? Do you live in a high-cost tax state? Did your personal life change in 2018, perhaps by getting married? Or
getting divorced? So, yes, it’s possible that many people may owe more money or receive far less than what’s been typical. But that just gives us another
reason to do our taxes earlier this year – just so we know the score as early as we can.
What’s missing? Say good-bye to exemptions
Before, you could claim an exemption for yourself, your spouse and dependents. An exemption in 2017 was worth $4,050, which reduced your
taxable income. The IRS previously said the exemption would increase to $4,150 for 2018 before the new tax law changes were passed. Now exemptions
have been eliminated. For some, this may be negated by the increased standard deduction. For instance, if you’re married filing jointly and you have
only one child, you would take three exemptions, which would have equaled $4,150 each for 2018 or $12,450 total. But the new, higher standard
deduction for that same family is $24,000, which more than covers the loss of the exemptions. That’s not the case with larger families, though, said
Kathy Pickering, executive director of The Tax Institute at H&R Block. “If you have a family of six, in this case, the increase in the standard deduction
by itself won’t offset the elimination of exemptions,” she said.
Business expenses could be a loss
If you have unreimbursed business expenses from last year, you won’t be able to deduct those anymore. Depending on your job, this could be a big
loss. This can include travel expenses from business travel your employer didn’t pay for, scrubs or uniforms you paid out-of-pocket; or continuing
education classes you took for your profession. Don’t throw away those receipts, though. Some states such as Minnesota and Pennsylvania may allow
you to claim some of those expenses on their state income tax returns, Pickering said. Teachers also can claim a special educator expense deduction up
to $250, or $500 for married teachers filing jointly, that wasn’t eliminated by the tax law, said Mark Jaeger, director of tax development at TaxAct.
Guess what else has been eliminated?
Job search expenses: You can no longer deduct for expenses related to finding a new job. Before those expenses could include travel costs incurred
for a job interview, fees for resume and cover-letter services, or fees for job-placement services. “Even if you didn’t get the job,” said Lisa Greene-Lewis,
a certified public accountant and tax expert at TurboTax.
Tax preparation fees: You can’t write off any costs from getting help with your taxes from 2018 through 2025 under the new tax law changes. There’s
one exclusion: Self-employed workers can still deduct these services as a business expense.
Charitable contributions: If you’re a college hoops or football fan and a generous school donor, you won't get a popular tax break anymore. Before
you could write off 80 percent of a charitable donation to your school that ultimately helped you reserve better stadium or arena seats. Now that's gone.
However, other contributions to your Alma Mater remain deductible.
John Savignano is a partner with Savignano Accountants & Advisors located at 47-46 Vernon Blvd., Second Floor, in Long Island City. If you have any
questions or require additional information, please call John at 718-707-0955.
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