Here are some new tax laws (2018) that you should keep in mind as you file your taxes in 2019:
Standard Deductions increased: Married and filing jointly increased from $13,000 to $24,000. Single taxpayers and those who are married and file separately have an increase from $6,500 to $12,000. Heads of households went from $9,550 to $18,000.
Personal Exemption: The $4,050 personal tax exemption has been eliminated.
The top income tax rate changed: Individuals with incomes of $500,000 or higher will be at the new 37 percent top rate. Those filing jointly at $600,000 or up and married will be at the top rate. (The top tax brackets are found here.)
Child Tax Credit: It is now worth up to $2,000 per qualifying child. The age cut-off is still 17. (Children must be under 17 at the end of the year to claim the credit). The refundable portion is now only $1,400. The earned income threshold for the refundable credit is lowered to $2,500. Phase out for the child tax credit increases in 2018 to $200,000 ($400,000 for joint filers). The phase out applies to the new $500 credit for other dependents. (Child must have a valid SSN to qualify for the $2,000 Child Tax Credit.)
Home Equity Loans: It limits the deductibility of mortgage interest up to $750,000 of debt used to buy a home. It also does not allow deducting the interest on home equity loans.
Moving expenses eliminated: Once, over a million taxpayers claimed this deduction. This exemption has been totally scrapped. Only member of the military on active duty can claim this deduction.
Tax Preparation Fees are eliminated: Fees you paid to your accountant or tax preparer were once combined with other miscellaneous deductions and deductible to the extent the total exceeded 2% of your adjusted gross income. Unfortunately, this deduction has also been deleted.
Job expenses: In the past deductions for licenses, medical tests, tools, clothing and equipment were deductible. They can only now be deducted by the employer.
Parking and transit fees: Up to $255 per month from their employer towards parking and transit costs were allowed. Employers could also deduct these reimbursements, which were also tax-free to the employee. Employers can no longer deduct these reimbursements.
So, as you can see, filing your individual, married or business taxes from 2018 will look much different than they did in the past. Many of these changes will make filing less complicated for some and more complicated for others. If you are unsure of what you can claim, consult your licensed tax accountant or tax adviser.
Everyone is wondering: Now that the new tax laws have passed, will I be paying the IRS more or less in 2018?
My answer to that question is this: I have no Idea. It’s impossible to know or to even contemplate. Even with the new tax laws, everyone’s tax return situation is different. You may get more money back this year or you may pay even more money this year.
Yes, it’s complicated.
This year is done. But you can prepare for next year.
Of course, it all starts with your documentation and preparation. Here are Smart Ways Your Tax Preparation Can Improve Your Refund in 2018:
Reconsider how you file: Do you always file jointly if you’re married? That is always the best way, right? Actually, no it isn’t. Don’t do the “auto-reply” on your filing. Married-filing-jointly is not always the best way. If you do married-filing-separately instead, you may get a larger return. AGI or Adjusted Gross Income determines if some deductions can be used for medical and certain other expenses. Filing separately may gives each spouse a lower AGI. So, don’t automatically file jointly. Do both jointly and separately if there are a fair number of medical expenses and COBRA payments.
IRA Contributions: You can still take out an IRA contribution up until April 15thfor the previous You can then claim it on your return by filing early and then claiming the credit on your return. You can file early and use your tax refund to open the traditional IRA account. Just remember that it will reduce your income and you must be at least 50 years old. (Check the IRS guidelines on IRAs for detailed rules.)
It’s all in the timing: There is an old saying from the famous golfer, Arnold Palmer that “Timing is everything, in life and golf.” It’s everything in tax filing with the IRS, too. If you pay your mortgage payment by December 31, you improve your chances of getting a larger refund. Also, schedule medical appointments by the end of the year and pay those bills before January 1, too. Keep in mind that your mortgage payments and medical expenses are still deductible expenses. They will certainly increase your refund.
These are just three basic but crucial ways to increase your refund in 2018 and beyond. However, it all starts now. Our best thought on this topic: See your licensed accountant or tax adviser. They can give you the best advice based on experience and knowledge of tax laws.
A.K. Burton, PC, which serves the Washington,D.C. and Bethesda, Md area, has experienced and licensed individual tax advisers who can help you with any questions you have on the new tax laws and how you should file. Contact us at (301) 365-1974 for more information or email us at firstname.lastname@example.org.
There is a “Seinfeld” episode where Kramer kept advising Jerry that he can use his personal expenses as “write-offs”. Finally Jerry, after hearing Kramer talk off the top of his head about taxes and obviously not actually understanding the topic, says credulously, “You don’t even know what write-offs are, do you Kramer?” Kramer then looks down, sheepishly, and nods his head “no”.
Kramer’s reaction is actually pretty typical. Most people, even though well meaning, have no idea what is a “tax write-off” and what isn’t. They may think something, such as a business meal or an office equipment purchase, are tax write-offs and thus it means they will pay less in business income taxes. But, that may a mistake…a very costly mistake.
So, to keep expectations down, help you to make better small business buying choices and to keep the IRS off your back, here are Five Tax Write-Offs that Require More Scrutiny:
Business Clothing: Generally, to be deductible, clothing must be required for work and not appropriate for every day wear. Uniforms required for work and protective clothing are obvious examples. Less obvious are items such as polo branded shirts with the Company Logo which may be considered company “uniforms” and deductible as such. Clothing such as blue jeans even though functional as work clothes are not deductible since they are not part of a uniform and are appropriate for every day wear.
Business Meals & Entertainment with Clients: This one is the most-abused and most misunderstood. Business meals or an entertainment event are tax-deductible if – (i) you are meeting with a client or potential client and (ii) business is discussed before, during or after the meal or entertainment event. More over only 50% of the expense is allowable as a deduction.
Cell Phone Expense: This one seems to be a definite tax write-off to many small business owners. How can it not be, right? Well, the IRS considers cell phones to be both business and personal use. Only the business part of the expense can be written off, so you have to calculate the percentage of business calls and deduct only that cost. There is also an alternative view – if a cell phone is an absolute necessity to your business – then having the phone could be considered an ordinary and necessary business expense for your business – and the deminimus personal use considered an inconsequential working fringe.
Business Vehicle Use: Many small business owners use their personal vehicle for meeting clients, traveling to job sites and attending company meetings. A vehicle can be used for thousands of miles in a fiscal year. However, only the business mileage can be deducted. If you have your office outside of your home, commuting to work is considered personal mileage and not deductible. It is a good idea to keep a mileage log for every business trip so you can be accurate in your business expense records. (There are several apps that can be used for just such record keeping.)
Charitable Organizations: Unfortunately, not all non-profits are equal. That is, they have not been designated by the IRS as a “tax-exempt organization”. (We covered how an organization can become tax-exempt in a previous blog.) There are some social and civic charities which are not 501 c (3), for whatever reason, so any donation to them is only out of your generosity and cannot be counted as a tax write-off. Be sure to check that the organization is tax-exempt before donating to them. Most national charities are known by their brands and are tax-exempt (i.e. The Salvation Army, March of Dimes, etc.) but you can find out on their website or by checking at charitycheck101.org.
There are even more supposed “tax write-offs” we can cover in another blog. Just be sure to call a licensed tax professional or do your own research before assuming your small business expense is going to save you money on your next year’s tax returns. You may be making a serious and expensive mistake.
For more information and experienced business and personal tax advice, contact a professional tax advisor at A. K. Burton, PC, at (301) 365-1974 for more information or email us at email@example.com.