Tips for Tax Time
Most of the changes related to the country’s new tax bill, which was passed in December 2017, will not be noticeable until you file your taxes next April (2019). But it would be wise to educate yourself on those changes (see below).
In the meantime, you’re probably focused on your tax return which is due in a few weeks — April 17. This year’s deadline is two days later because the 15th falls on a weekend and April 16 is a federal holiday in some states. In other words, you’ll have a couple of extra days to cross your T’s and dot your I’s. Be sure to take advantage of the extension.
Certified Public Accountant (CPA) Will Mercer finds himself extremely busy this time of year. Not just clients, but friends and neighbors often ask him for tax advice. Here, he offers some tried and true tips to help you prepare your return appropriately:
Get organized: Gather in advance all the documents and information you need — W2 forms, social security numbers, 1099s, etc. This is especially important if you are having someone else do your taxes. Missing documents will only slow down the process.
Contribute the maximum to your 401K: Company-sponsored 401K plans are a great deal because employers often match contributions. Try to contribute the maximum. (If you are age 50 or over, you can contribute a higher amount. Check with your employer.)
Make the most of work-related expenses: This includes safety equipment, uniforms, vehicles — items you had to purchase out-of-pocket in order to do your job. Make sure you can support your claims with receipts. (And keep in mind that this deduction will go away next year as a result of the new tax bill.)
Consider medical expenses: This issue typically applies to those in low income brackets, but you might be able to claim a deduction if you spent more than 7.5% of your income on medical expenses, including prescriptions, surgical procedures, doctor’s visits, hospitalizations, therapy and other health-related costs. Again, double-check with your tax preparer.
Get divorce agreements in writing: After a divorce, and especially if you have children, tax returns can be really tricky. Many couples establish an agreement about which parent will claim which child(ren) with the understanding that if one parent benefits this year, the arrangement will be switched the following year so the other parent will benefit.
Revisit your flood losses: “The flood issue isn’t gone,” Mercer said. “The Tax Reform Act changed the way people can deduct their flood losses from 2016. This is something you should discuss with your tax preparer. It might be to your benefit to amend your 2016 return to reflect your losses.”
A word about state taxes: Many people are receiving communications from online retailers about purchases made during 2017. Since most of these retailers don’t collect sales tax, they are now having to tell their customers to report the purchases on their state returns and pay the sales tax directly to the Department of Revenue. The deadline to file state returns is May 15.
Down the Road
It will take time for all of the tax bill’s ramifications to become clear, but here are a few results, according to J.P. Morgan Chase.*
- Although you might see a slight increase in your paycheck this year, thanks to the new tax bill, remember that this “bump” is not permanent. The middle class tax cuts will be reversed in 2025, while the tax rate for corporations will remain at 21%.
- Many deductions you’ve been using will disappear next year. That includes work-related expenses, investment expenses, tax return preparation and union dues, to name a few.
- Part of the tax bill repealed the insurance mandate component of the Affordable Care Act. In other words, people who don’t buy health insurance will not have to pay a fine to the IRS. But according to the Congressional Budget Office, this also means premiums could increase and 13 million Americans may lose coverage.
Mercer says if you plan to prepare your own tax return, educate yourself — and it’s always a good idea to call a professional if you have questions or concerns. Mercer can be reached at Wmercercpa@cox.net, or at (888) 224-0358.
*These are estimates only. Talk to your tax preparer if you have questions or concerns.