Library Workshop on Tax Changes for Individuals

Last week, I had a fabulous opportunity to speak to a very attentive audience at the Arlington County Public Library about individual tax changes due to the 2017 Tax Cuts and Jobs Act. Libraries are a tremendous community resource. I felt privileged to be part of their program to help our neighbors gain awareness of the new taxes law and its impact.

We covered a lot of ground in 90 minutes (plus questions). The material was pretty general, geared toward increasing awareness the many tax changes impacting individual taxpayers. The impact of those changes varies based on individual income, family size, geography and other factors.

Six of the factoids from my presentation could be valuable information for you:

  • Good news! Tax brackets are reduced for the top six of seven individual tax brackets. Most taxpayers benefit from the new, lower rates. However, some taxpayers in the 33% marginal tax bracket move up to 35% in 2018 (e.g., singles $200-400K).
  • The decision whether to itemize or take the standard deduction has completely changed. The standard deduction is doubled, and some taxpayers will get a higher deduction be taking it. Another benefit is preparing a simpler tax return, without Schedule A. For those who still itemize, the itemized deduction phase-out for high-income taxpayers is eliminated.
  • Personal exemptions are eliminated. As a “consolation prize” a credit of up to $500 per qualified dependent is available. Qualified dependent does not include your spouse.
  • Taxpayers who itemize deductions will see many changes. One big change is the new $10,000 deduction cap that was imposed on the total of all state and local taxes. If you don’t have that memorized, that total  includes state income taxes, real estate taxes and personal property taxes,
  • Qualified residence loan interest is limited to $750,000 of total indebtedness for first and second homes acquired after December 15, 2017 ($375K if married filing separately). Indebtedness that existed prior to that date is “grandfathered” and not subject to the new limit.
  • Miscellaneous itemized deductions are generally eliminated, including employee business expenses, tax preparation fees, investment advisory fees, and safe deposit box fees. Moving expense deductions are also eliminated other than for active duty military.

I thoroughly enjoyed my time at the Arlington County Public Library helping a very engaged group of interested taxpayers gain awareness of individual tax changes. This important information was enthusiastically received. Thanks to the Library and its incredible Research Librarian for making this event happen for the community!

New Tax Law Still Requires Patience

Top down view of a cluttered desk with hands folded showing a watch.
Photo by rawpixel on Unsplash

In January 2018, less than a month after the Tax Cuts and Jobs Act was passed, I blogged that we all need patience. “Less than a month after passing a new law is too soon for all the details and unintended consequences to be fully explained,” I said.

Little did I know back then that we would need so much patience now, a year after the law was enacted.

Many new tax law provisions became effective in 2018, making the 2019 tax filing season the first time that many taxpayers will be aware of how the tax law impacts her or him. Getting clarity about those impacts may not be quick or easy, especially for businesses. Figuring it out will take some patience, whether you prepare your own taxes or pay a tax professional to do it.

Tax filing season officially opened this week. The deadline to file or extend an individual return is April 15, new law or not. During those 12 weeks of tax filing season, the following people will need to show and be shown lots of patience:

  • Self-Preparers – Reading instructions not your thing? You could be sorry if you rush into preparing your 2018 taxes without slowing down and understanding the new rules. Approach your tax software as though it were the first time you’ve used it. Everything will look so different, you will want to take each step with patience and care.
  • Tax Professionals and Their Clients – Your tax preparer may ask new questions and require more documentation to ensure your returns are accurate and comply with all the new rules. She or he will also need to explain the new rules and why you may not get your expected refund. Those conversations could be more stressful than usual, so a bit more patience will be needed by all parties.
  • IRS Employees – If you need to call an IRS representative, please remember that this mess is not her or his fault. Plus, as of this writing, the federal government is partially shut down. That IRS employee could be working without pay. Demonstrating patience on the phone makes the situation more pleasant for everyone.

The 2019 tax filing season is going to be more stressful than usual because of the new tax law and its impact. Approaching your software, your tax professional and the IRS with some patience will go a long way to making the 2019 tax filing season as painless as possible.

What to Expect from a Tax Preparer

Changes to the tax law enacted in December 2017 means we’ll be dealing with a lot of new rules this filing season. Tax filing “simplification” means that all the individual forms for 2018 look different than ever before. As a result, more taxpayers than ever before could be looking for a tax preparer, even people who have always filed their own tax returns. But just any tax preparer isn’t good enough, especially this year!

You are responsible for the contents of your tax return, even if you pay someone to prepare and file it for you. It’s essential that you engage a qualified tax preparer who has the right experience and knowledge of your tax situation. The tax industry is unregulated; anyone can hang up her or his “Tax Preparer” shingle. So how do you find a qualified tax preparer to meet your needs?

First, get referrals from colleagues, family and friends about who prepares their taxes. Ask them why they like their tax preparer. Briefly interview two or three of the tax preparers that sound like a good fit, including these three questions:

How Do You Keep Up with Changing Tax Laws?

Tax laws are constantly changing, as we know. It’s important to work with a tax professional who keeps up, so you don’t have to. Your tax preparer should describe attending conferences, webinars, or other methods she or he uses to stay current.

What are Your Experience and Credentials?

Working with a credentialed tax professional, like an Enrolled Agent or Certified Public Accountant, provides confidence that your taxes are being prepared accurately. Also ask for examples of tax situations and complex issues where she or he has experience. The answers will indicate whether your needs will be addressed.

How Do You Communicate with your Clients?

Discuss whether the tax preparer meet regularly with clients, how confidential documents are shared and stored, and whether the person is available for you if a tax-related question or issue comes up outside of “normal” tax season. Make sure you feel comfortable with the tax professional’s style, manner and process.

It’s important to have a qualified tax preparer that is prepared to meet your needs. Feeling confident and comfortable with the answers to these three questions is a good sign that your taxes will be prepared accurately and consider all the new tax rules.

Impacts of the 2017 Tax Act on Individuals

Pretty soon, it will be time to think about pulling together your W-2s, investment statements, and other documents to prepare your 2018 income tax returns. Are you ready? Even if you usually have an easy time getting ready to prepare your income tax returns, your experience could be more challenging this year because of the Tax Cuts and Jobs Act passed in December 2017.

Many articles have been written describing the new tax law. The IRS website is packed with explanations and links that interpret the tax law changes. But how do you know which changes impact you and how to prepare? One option is to attend a workshop given by a qualified tax professional who has educated herself on all the tax law updates and their impacts.

You’ll have an opportunity to hear about the latest tax law changes that impact individuals and their families at my upcoming workshop. It will be at the Arlington Central Public Library in Arlington, VA on Wednesday, February 13, 2019, from 7:00 – 8:30 PM. I’ve been studying up on the changes you’ll see on your 2018 returns. Bring your questions and test me!

Register at this link: https://arlingtonva.libcal.com/event/4740642

So what can you expect if you attend my workshop? Here’s a taste:

  • A description of redesigned federal tax forms
  • Overview of lower individual income tax rates
  • Elimination of personal exemptions
  • Limits on state and local tax deductions
  • Limits on interest deduction for mortgage indebtedness
  • Elimination of most miscellaneous itemized deductions

Wow, that’s quite a list!

The Tax Cuts and Jobs Act signed into law in December 2017 impacts almost every U.S. household. How big that impact will be depends on your family situation, income, and location. For some, those changes will be dramatic. Things could get even more dramatic if you don’t understand how those changes impact you. Are you ready? Have questions? Get them answered on February 13th at the Arlington Central Public Library.

Higher Standard Mileage Rates for 2019

Using your vehicle for business, charitable, medical or moving purposes could still qualify you for a tax deduction. As usual, deductibility depends on your particular situation. So, if you qualify, how much is that deduction worth? Again, it depends.

One option is to take the standard mileage tax deduction, which is determined each year by the Internal Revenue Service, based on IRS data about the cost of operating and maintaining a vehicle. A “vehicle” includes passenger cars, vans, pickups or panel trucks.

The IRS recently issued the new standard mileage rates used to calculate the deductible costs of operating a vehicle for business, charitable, medical or moving purposes. Beginning on January 1, 2019, the standard mileage rates for the use of a vehicle will be:
 

  • 58 cents per mile driven for business use, up 3.5 cents from the rate for 2018,
  • 20 cents per mile driven for medical or moving purposes, up 2 cents from the rate for 2018, and
  • 14 cents per mile driven in service of charitable organizations. The charitable rate is set by statute and remains unchanged.

Sounds great, right? Those mileage rates can really add up. Just remember that there are limitations and exclusions, some of which got stricter under the Tax Cuts and Jobs Act. Under these limitations, taxpayers cannot:

  • Claim a miscellaneous itemized deduction for unreimbursed employee travel expenses.
  • Claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station.
  • Use the business standard mileage rate for a vehicle after using any depreciation method or after claiming a Section 179 deduction for that vehicle.
  • Use the business standard mileage rate for more than four vehicles simultaneously.

Also remember that you always have the option of calculating the actual costs of using your vehicle instead of using the standard mileage rates. You have to track your mileage for each vehicle no matter which method you use. Compare the standard mileage calculation to the actual cost. You can select whichever option results in a higher deduction.

Taking vehicle deductions involves a lot of tracking, but the effort can be worth it. Those deductions can really add up, especially with the new standard mileage rates issued by the IRS for 2019 to operate a vehicle for business, charitable, medical or moving purposes.

Will You Owe Tax Penalties for 2018?

Tax withholding tables and tax rates changed in February 2018, due to the 2017 Tax Cuts and Jobs Act. Doing a “Paycheck Checkup” was promoted by the IRS and in the news all year to help taxpayers avoid an expensive surprise when filing their 2018 income tax returns in 2019. You’ve been meaning to Checkup on your Paycheck, but it’s already late November.

Will you have to pay a tax penalty if you owe? Maybe not…

To avoid a penalty for 2018, your tax paid or withheld must total 90% of your 2018 tax liability, or 100% of your 2017 tax liability, whichever is lower. Since 2010, the number of taxpayers assessed underpayment penalties and interest has increased by 40%, from 7.2 million a year to 10 million. Interest on unpaid amounts is calculated based on IRS rates, and accrues daily until the amount due is paid. That really adds up!

Here are four ways to avoid tax penalties:

  1. Increase tax withholdings from wages for the rest of the year by submitting a new IRS Form W-4 and a new state withholding authorization with your employer. Reducing the number of exemptions that you claim increases the amount of tax withheld. Don’t overdo it! Avoid over withholding and giving Uncle Sam an interest-free loan until you get your 2018 refund.
  2. Pay estimated taxes if you expect to owe at least $1,000, after tax withholdings and refundable credits. Estimated tax payments are normally due on April 15, June 15, September 15 and January 15 of the following year, unless the due date falls on a weekend or holiday. Paying amounts due stops the clock on 2018 interest accruals for those balances.
  3. Taxpayers who receive income unevenly during the year can make estimated tax payments as funds are earned or received. That means if most of your income comes in during the last few months of the year, you can make lower estimated tax payments earlier in the year and higher payment amounts later in the year.
  4. Exceptions to the penalty and special rules apply to some groups of taxpayers, such as farmers, fishermen, casualty and disaster victims, those who recently became disabled or retired. Do your homework to see if you belong in one of these categories.

 

Think that the IRS loves to charge penalties? No! They want to help taxpayers avoid penalties. Tools are available for a Paycheck Checkup at https://www.irs.gov/paycheck-checkup.

Will the IRS Be Ready for the 2019 Tax Season?

Believe it or not, the 2019 tax season is almost here! The Internal Revenue Service has been working for months to be ready to process more than 150 million tax returns that will be filed for the 2018 tax year. Meeting the deadline could be tight — hundreds of forms, instructions, and publications required updating because of the Tax Cuts and Jobs Act, passed in December 2017.

We are still waiting to see all the new forms, but the IRS circulated a copy of the new Form 1040 to the tax community not long ago. The new 1040— about half the size of the current version— would replace the “old” Form 1040, Form 1040A and Form 1040EZ. Consolidating the three “old” versions allows all taxpayers to use the same form.

Here’s what you can expect to see on your 2018 individual income tax return:

  1. The new Form 1040 uses a “building block” approach that reduces the return to one simple form that is supplemented with additional schedules if needed. Taxpayers with simple tax situations will only file this new 1040 with no additional schedules.
  2. Several additional new schedules have been developed to supplement the new Form 1040 to report other income, adjustments, credits, and items that appeared on the longer, “old” version of the Form 1040.
  3. The new schedules are designated by numbers instead of letters. Here’s a quick overview of the new schedules and what they are for:
    • Schedule 1 is for taxpayers with additional non–wage sources of income or adjustments to income, such as IRA contributions, student loan interest, and health savings account contributions.
    • Schedule 2 is for taxpayers with additional taxes, such as alternative minimum tax or excess advance premium tax credit repayment.
    • Schedule 3 is for nonrefundable tax credits such as the foreign tax credit, education credits or residential energy credit.
    • Schedule 4 is where taxpayers will add up certain taxes, such as self-employment tax, and household employment taxes.
    • Schedule 5 is to add up tax payments, such as estimated tax payments or amounts paid with an extension.
    • Schedule 6 is used to report a foreign address or appoint a third-party designee to discuss the tax return with the IRS on your behalf.

Will the IRS be ready for the 2019 tax filing season? If changes to the Form 1040 are any indication, it could be a tight dash to the deadline. Have questions? Check out www.irs.gov or call your tax professional.

Patience and the New Tax Law

Around this time every year, there’s a lot of talk about taxes at home, at work, and on TV. Those tax talks have become more urgent with the December 2017, passing of the Tax Cuts and Jobs Act. The new tax law impacts every individual and business taxpayer. How it impacts you and your tax bill depends on many factors – family size and composition, income sources, and geographic location.

 

One thing is for sure, answers about how the new law will impact your tax bill are not quick or easy. Figuring it out will take some patience and time. A lack of patience and a rush to act may backfire on some taxpayers. How to interpret the new law is not entirely clear. Remember the lines to pre-pay real estate taxes in high-tax states? The IRS announced those payments would not be deductible without a tax bill in hand. Some tax experts disagree. Who is right?

 

Less than a month after passing a new law is too soon for all the details and unintended consequences to be fully explained. The Tax Courts are filled with cases where each party is interpreting the law differently. However, some tax projection calculators are available to help many taxpayers determine what their new income tax bill will look like. One issued recently by the Tax Policy Center appears to be easy to use – http://tpc-election-calculator.urban.org/.

 

An online tax calculator cannot address all possible scenarios and considerations. Taxpayers with more complex situations and decisions, such as business owners, should schedule a consultation with a qualified tax professional. For a tax professional to serve your needs, be prepared to discuss your current family, income, business, and investments. Also share information about impending or planned changes in your situation. Those details make a big difference in the tax advice that is right for your situation.

 

Your tax professional will use the information you provide to project, analyze, and identify tax planning opportunities based on your situation. Figuring it out takes patience and time. Yes, it’s still too early to know all the details about the Tax Cuts and Jobs Act. But being patient and investing time with a qualified tax professional will get you started on the right track.