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In case you haven’t read this often enough, a major tax reform that affects both individuals and businesses was approved by Congress and signed by the President on Dec. 22, 2017 and is commonly referred to as the Tax Cuts and Jobs Act, or TCJA, or tax reform. Everybody knows that and it’s been the hottest tax subject of the year.
Because of the many changes in the tax law, refunds may be different than prior years for some taxpayers. Some may even owe an unexpected tax bill when they file their 2018 tax return next year. To avoid these kind of surprises, you still have time for a Paycheck Checkup to help determine if you need to adjust your withholding or make estimated or additional tax payments now.
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Review your paycheck to make sure your employer is properly withholding and reporting retirement account contributions, health insurance payments, charitable payroll deductions and other items. These payroll adjustments can make a big difference on your bottom line. Fixing an error in your paycheck now gets you back on track before it becomes a huge hassle.
If you are self-employed or have additional sources of income, make estimated tax payments. In addition to being more palatable than one giant lump-sum tax payment in April, doing so may actually help you lower your overall tax bill by avoiding estimated tax penalties.
Some life events, like a change in marital status, the birth of a child or buying a home, can change the amount of taxes you owe. When such events occur during the year, you may need to change the amount of tax taken out of your pay.
Your tax liability depends a lot on your filing status, which in turn is determined by whether you're married or single as of the end of the tax year, and whether you have qualifying dependents that can get you preferential status as a head of household.
Make sure you have all the important tax documents you need, such as:
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Year-end Forms W-2 from employers;
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Forms 1099 from banks and other payers;
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Forms 1095-A from the Marketplace for those claiming the Premium Tax Credit.
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Confirm that each employer, bank or other payer has a current mailing address for you. Typically, these forms start arriving by mail in January. Check them over carefully, and if any of the information shown is inaccurate, contact the payer right away for a correction, before filing a tax return.
The Form 1040 for tax year 2018 is a shorter form and replaces the current Form 1040, Form 1040A and the Form 1040EZ. The new Form 1040 can be supplemented with up to six additional schedules if needed.
These sis schedules refer to: additional income, alternative minimum tax, nonrefundable credits, other taxes like household employment and net investment income tax, other payments and refundable credits such as estimated tax payments, and foreign address and third party designee.
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If you prepare and file your own taxes electronically, you must sign and validate your electronic tax return by entering your prior-year AGI or your prior-year Self- Select PIN.
If you are using a software product for the first time you may need to provide your 2017 Adjusted Gross Income, or AGI, to e-file your 2018 tax return.
If you’re using the same tax software you used last year, you will not need to enter your prior year information to electronically sign your 2018 tax return.
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Avoid using incomplete records and instead wait to file until you have gathered all year-end income documentation. This will minimize the chances you will need to file an amended return later which is extra work for you and can take up to 16 weeks to process once the IRS receives it.
Organize your record-keeping just as described in our previous newsletter. In a nutshell, establish a central location where everyone in your household can put tax- related records all year long. Anything from a shoebox to a file cabinet works. Be consistent to avoid a scramble for misplaced form, checks or charity receipts come tax time. If you have someone who prepares your taxes, organization can save you not just time, but money. |
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The tax reform legislation doubled the maximum Child Tax Credit, boosted income limits to be able to claim the credit, and revised the identification number requirement for 2018 and subsequent years.
The credit begins to phase out at $200,000 of modified adjusted gross income, or $400,000 for married couples filing jointly, which is up from the 2017 levels of $75,000 for single filers or $110,000 for married couples filing jointly.
Increased from $1,000 to $2,000 per qualifying child, the credit applies if the child is younger than 17 at the end of the tax year, the taxpayer claims the child as a dependent, and the child lives with the taxpayer for more than six months of the year. The qualifying child must also have a valid SSN issued before the due date of the tax return, including extensions.
Up to $1,400 of the credit can be refundable for each qualifying child. This means an eligible taxpayer may get a refund even if they don’t owe any tax.
The new law also created a second smaller credit of up to $500 per dependent aimed at taxpayers supporting older children and other relatives who do not qualify for the Child Tax Credit.
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By law, the IRS cannot issue refunds for people claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit before mid-February. The law requires the IRS to hold the entire refund — even the portion not associated with EITC or ACTC. This law change, which took effect at the beginning of 2017, helps ensure that taxpayers receive the refund they’re due by giving the IRS more time to detect and prevent fraud.
Be careful not to count on getting a refund by a certain date, especially when making major purchases or paying other financial obligations. |
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Taxpayers with ITINs set to expire at the end of the year and who need to file a tax return in 2019 must submit a renewal application. Others do not need to take any action.
ITINs (Individual Taxpayer Identification Numbers) are issued by the IRS to foreign nationals and others who have federal tax reporting or filing requirements and do not qualify for SSNs. For more information, visit the ITIN information page on the IRS website. |
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There is a new publication, IRS Publication 5307, Tax Reform Basics for Individuals and Families, that can help you find out how tax reform affects your taxes. and is now available on IRS.gov/getready.
Do not forget that tax planning can help you change your tax liability. There is little time left for this year tax planning, but plenty for next year and beyond. Good tax planning implies the systematic analysis of differing tax options aimed at the minimization of tax liability in current and future tax periods. Whether to file jointly or separately, the timing of a sale of an asset, ascertaining over how many years to withdraw retirement funds, when to receive income, when to pay expenditures, the timing and amounts of gifts to be made, and estate planning are examples of tax planning.
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| Obviously, a good tax expert is a sure bet both for tax preparation and tax planning. |
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