With all the questions, theories and prognostications heading into the tax season after the Tax Cuts and Jobs Act (TCJA) was implemented; it appears that the tax season itself was a nonevent. Although stories abound about smaller refunds and some people having to pay additional tax with their filing, the taxfoundation.org summarizes the recent tax season and the outcome may be surprising to many. Basically, most people paid fewer taxes for 2018 and the refunds were essentially the same to 2017. If your refund was smaller than usual or you ended up paying with your filing, you can adjust your withholding now by filing out a new W4 form and submitting it to your employer. Click here for the taxfoundation.org article.
In a news release from the IRS earlier this week, they announced that the 2018 Tax Filing Season will begin January 28 irregardless of the status of the government shutdown. Click here for the full release from the IRS.
Mileage rates for 2019 were recently released and received quite a bump from 2018. However, due to the Tax Cuts and Jobs Act (TCJA) the number of people who can take advantage of the increased mileage rates will be on the decline. Specifically those that claim unreimbursed employee business expenses under the miscellaneous itemized deduction will be affected since this deduction was eliminated with the passage of the TCJA. Click here to read more about the mileage rate and those affected.
As the year winds down to its final months, everyone is still grasping for an understanding on how the Tax Cuts and Jobs Act (TCJA) is going to affect them. With the new filing season just around the corner, something probably not on people's radar is the filing season being delayed. But that is the warning being issued by the Treasury Inspector General for Tax Administration (TIGTA) at this late stage of 2018. TIGTA says the IRS is facing multiple issues in preparing for the 2019 filing season mostly stemming from the TCJA changes. These issues include the tax forms being completely reformed, the changes to the tax code itself, lack of staff to implement the changes in the IRS IT environment and the additional money it takes to make the changes in addition to the annual updates that are required. We will keep you updated on the timing of the 2019 filing season but be aware that at this point it is not smooth sailing.
As the year progresses, the IRS has released "guidance" on the different areas affected by the Tax Cuts and Jobs Act (TCJA). Thomson Reuters has provided a summary of updated information from the IRS to employers and taxpayers who have reimbursed/paid for business expenses and how it may affect their tax returns for 2018. Click here to see how the changes may affect you.
With the passage of the Tax Cuts and Jobs Act (TCJA), most people have probably noticed that their paycheck is a little bit larger. While this a good thing, all things did not remain neutral. The reason their paycheck is larger is because the IRS adjusted the withholding tables to reflect the new lower tax brackets. As a result, the IRS recommends a "payroll checkup" now while you still have time to make changes to your withholdings so you're not faced with a surprise come next April. Also, fewer people will itemize deductions on their 2018 return and just take the standard deduction which will affect the amount that should be withheld from their paycheck. The IRS has updated their Withholding Calculator to help you determine if you need to make adjustments. Click here to view the IRS article about the changes and how to adjust your withholdings if needed.
The IRS recently released a revised Form 1040 in draft form for 2018 individual tax returns touting the simplification of the form resulting in a "postcard-sized" form. But the size reduction resulted in six new schedules. Is this really simpler? The jury is still out but there is a pretty steep learning curve for the upcoming filing season with both a new form and the new tax law being enacted. US News & World Report has an article summarizing the new form and the schedules that go along with it. If you are intimidated by change or think now is the time to get help with your tax preparation, contact us and let us do the worrying about the changes.
This is becoming a trend on this blog but the IRS recently released a Fact Sheet outlining how the IRS will contact you as well as methods of payment and the "US Treasury" as the only payee requested. In our hustle and bustle world of today, social media and email have become a major vehicle for scammers to conduct their thievery. Familiarize yourself with the Fact Sheet so you will be ready if the "IRS" ever contacts you. The Fact Sheet can be found here.
Even though we all survived tax season and somehow reached the deadline, that doesn't mean the scam artists have reached their end and have moved away from their devious ways until next year. In fact, this is a prime time to be contacted by a scammer due to returns being recently filed. According to this notice from the IRS, scammers are "spoofing" the phone numbers of local Taxpayer Assistance Centers (TAC) to give their scam some credibility. Click on the article to get more details and to get some pointers on the IRS methods when they need to contact you.
New Tax Rates: The bill keeps the graduated taxing structure for individuals but by and large it lowers rates across the board. The top rate of 37% (current rate of 39.6%) kicks in for singles with taxable income in excess of $500,000 and MFJ with taxable income in excess of $600,000. As most of us do not have to worry about paying tax at that rate the other graduated rates are 10%, 12%, 22%, 24%, 32% and 35%. This replaces the current rate structure of 10%, 15%, 25%, 28%, 33% and 35%.
The corporate rates were also cut. The highest corporate rate is now 21% down from 35%. Flow through income (from “S” corporations, LLC, partnerships, sole proprietorships) will also have a rate lower than the individual rates they are currently paying.
Standard Deduction: The standard deduction beginning in 2018 increases to $12,000 for singles and $24,000 for MFJ. This replaces the current amounts of $6,350 for singles and $12,700 for MFJ. With the increased amount many more of you will begin taking the standard deduction as opposed to itemizing beginning next year.
Itemized Deductions: Most of the itemized deductions many of you are familiar with (medical expenses; sales, state income and property taxes; mortgage interest; charitable contributions) remain deductible with a few modifications. Total taxes are only deductible up to $10,000; mortgage interest only on new mortgages up to $750,000; home equity loan interest is no longer deductible are a couple of the changes. Also unreimbursed business expenses and other miscellaneous itemized deduction subject to the 2% floor are no longer deductible.
If you expect to itemize in 2017 but not in 2018 based on the increased standard deduction make your property tax payments and any charitable contributions you were planning to make prior to December 31, 2017.
Exemptions: Beginning in 2018 you are no longer able to deduct a personal exemption for you, your spouse or children. Currently this amount is $4,050 each.
The withholding rules are expected to change in early 2018 to reflect the fact that personal exemptions are no longer deductible. This means your federal withholding from your paycheck will likely change and could so significantly. If you have questions once the new withholding tables go into effect please let me know.
Child Tax Credit: The act increased the amount of the child tax credit to $2,000 per qualifying child (dependent under 17 years old) with $1,400 of this being refundable. Under current law this amount is $1,000 per dependent child. The phase out of this credit begins for singles with adjusted gross income of $200,000 and MFJ with adjusted gross income of $400,000.
Capital Gains Tax Rate: The system for taxing long term capital gains and qualified dividends did not change. This rate remains at 15% for most taxpayers.
Sale of Principal Residence: The act did not change the current rules regarding the exclusion of gain for the sale of your qualified principal residence. As long as you meet certain requirements (mainly it being your principal residence for two of the last five years) and your gain from the sale does not exceed $250,000 for singles and $500,000 for MFJ you will not owe any tax from the sale.
Health Care Penalty: The act reduces to zero the amount of the individual mandate penalty imposed on taxpayers who do not obtain health insurance with minimum essential coverage. This is only the penalty. If you have health care through the exchange and received a credit resulting in a reduced monthly premium based on your prior year income, should your current year income increase you will likely still be responsible for paying the credit back.
Education Provisions: The act modifies Section 529 plans to allow them to distribute no more than $10,000 in expenses for tuition incurred during the tax year at an elementary or secondary school. This limitation applies on a per-student basis, rather than on a per-account basis. Under current law Section 529 plans could only be used for post-secondary education. In addition the American Opportunity Credit, Lifetime Learning Credit and Tuition and Fees Deduction all remain unchanged.
Student Loan Interest: The student loan interest deduction remains the same. You can deduct up to $2,500 of student loan interest paid during the year. This deduction is subject to income limitations.
As always if you have any questions please let me know. I am looking forward to talking with you as we enter tax preparation time for your 2017 taxes. At that time I will be happy to help you understand how your 2018 taxes will be affected by this new act.
J. Alan Hayes