Help me out, was I just dreaming or does anyone else remember the current President standing in front of the cameras in 2017, displaying a postcard-sized document, and promising that tax laws were going to be so simple that most us wouldn’t need more than a form the size of that postcard to file our annual taxes? Oh to dream…
If you’re at all like me, that proclamation sounded pretty darn good at the time because taxes (and lately Pittsburgh Steelers playoff games) seem to raise my intake of heartburn medicine about this time every single year. I guess for 2018 I’ll just have to be satisfied that my postcard dream is still “in the mail”.
Let me note right up front that I am not a tax professional, I’ve never played one on television or believed to be one at the free breakfast bar at the Holiday Inn Express, even though I did stay there the night before. That said, I did spend some time this past month trying to do some research on what the tax law changes actually are, and what they may mean for me this year. So, in the spirit of sharing what I gleaned that may be of value for some of my friends, I thought I would pass along these bite-sized bits of what I discovered.
Somewhat shockingly, I found that 48% of taxpayers claim to understand how the new law affects their tax bracket — I mean yes, that is less than half of all taxpayers but still seems kind of impressive to learn that many folks say they know what’s up…I sure don’t!
Less shocking to me, (according to a study from NerdWallet) only 51% of Americans were even aware that there is a new tax law! So, if you’re unclear exactly how friendly (or not) Uncle Sam is going to be to you this spring, pop open a fresh bottle of Zantac** and try to find some comfort in the knowledge that by being confused & in the dark about taxes you’re in with the majority of us! (** note, as with my disclaimer of not being a tax professional, I am also not a medical professional. So, popping Zantac may not be right for you. Although, if you were at a breakfast bar at a Holiday Inn Express I will say you might want to at least think about those Zantac).
With thanks to some actual tax pros at CNBC, TurboTax, H&R Block, NerdWallet & HerMoney.com here’s what I can share:
New standard deductions. By far the biggest change is a new, higher standard deduction. It’s $12,000 for single filers, $18,000 for heads of household and $24,000 for people married filing jointly. Taxpayers have always had a choice between taking the standard deduction and itemizing — taking individual write-offs for things like mortgage interest and charitable contributions — but because the standard deduction has gone up, itemizing will make sense for fewer people. According to estimates from TurboTax, nearly 90 percent of taxpayers will now take the standard deduction, up from about 70 percent in previous years. (If you’re unsure which camp you’ll fall into, there’s an interactive calculator here.)
New limits on State and Local Income Tax (SALT) deductions. Per the new law, deductions are limited to just $10,000. While this change won’t be a burden to all homeowners, it will hit folks hardest in states with the highest property taxes, which include New Jersey, Connecticut, Wisconsin, Illinois and California.
New rules around medical expense deductions. In years past, your medical expenses had to exceed 10% of your annual income before you could deduct them, but now if they exceed 7.5% you can enjoy that deduction — if you itemize.
Dependent exemptions have been eliminated, but child tax credits have been increased. The $4,050 exemptions that millions of parents had grown accustomed to taking for their children are no longer allowed, but the child tax credit was raised from $1,000 to $2,000, for children under 17, and families earning up to $400,000 can take advantage of the credit. The law also introduced a $500 credit for non-child dependents, which could include elderly parents or children over the age of 17. (Cool, in Uncle Sam’s eyes, Mom living down the hall may mean a little $$…sweet bonus beyond the home cooking & seeming love of doing laundry!)
Moving expenses are no longer deductible: Even if you complete a necessary cross-country move for a new job, you’re no longer allowed to deduct those expenses under the new law. This does not include active duty military personnel, or companies that move. (So small business owners can still claim moving expenses on their business taxes.) One bright spot here though, if your company is reimbursing you for your moving expenses, you no longer get taxed on that reimbursement as if it were income, according to the Executive Director of The Tax Institute at H&R Block.
529 accounts aren’t just for college anymore: In the past, funds from 529 educational savings plans could only be used for college, but under the new law, families can use them for tuition expenses for grades K-12 as well as for university studies. This could potentially be really beneficial for parents paying for private school or religious schools who have those kinds of expenses and may warrant looking into a bit deeper if you’re in that situation.
Is there anything you can still do to reduce your tax burden before April 15? Yes. You can still get a tax deduction of up to $5,500 (or $6,500 for individuals 50 and over) and lower your 2018 taxable income by making a 2018 IRA contribution up until April 15…again, very much worth looking into, especially if that deduction has the ability to make a difference in your overall tax bracket.
Will the new tax law affect my refund? Whether you see a bigger refund this year really comes down to your personal tax situation and whether or not you adjusted your W-4 withholdings. To know for sure, you’ll need to look at your “big” tax picture, not just your refund. The majority of taxpayers who usually take the standard deduction may see more money in their pocket this year, but this does not necessarily mean it will show up in their refund; it can show up in their refund, or paycheck, or as a lower tax balance due.
Okay, so now you think you get it…when are you going to be able to shout Show Me the Money??? If you’re fortunate enough to get a refund & are concerned about getting it in a timely manner — the government shutdown sure didn’t do any of us any favors on that front! The best course of action you can take is to make sure to file electronically, and file for your refund to be direct deposited right into your account. Electronic filing will increase your chances for things to sail smoothly… anytime people have to open and sort through mail, that’s going to add lag time to the process (there’s a golden nugget of advice…hmmm, I want something quickly, should I send an email or a snail mail???)
What should you do if you end up owing more money than you were expecting? Hopefully friends, that’s not your situation. However, the tax pros all recommend that if it is, you should talk to your employer asap about making adjustments to your withholdings on your W4 form, soon. If your 2018 outcome isn’t what you expected or hoped for (remember, hope is not a plan) act now to make sure it’s not too late to do something about 2019 — the sooner the better! If you’re not sure what kind of changes you’re going to need to make, or how much you’ll need to have withheld, the IRS has a handy withholding calculator you can use to see where you stack up, and help ensure that if 2018 wasn’t, that 2019 can still be smooth sailing for all of my NC Lake Living friends.