If you haven’t started preparing tax returns, consider this your sign.
Significant changes have been made to federal tax law since the enactment of the Tax Cuts and Jobs Act of 2017. Here’s what you need to know as you prepare to file your case by Monday, April 15.
You will probably take the standard deduction
The federal standard deduction nearly doubled for each filing status this year in an effort to streamline reporting.
For an individual, it went from $6,350 to $12,000; for married couples filing jointly, it went from $12,700 to $24,000.
What does it mean? More people who have itemized in the past will opt for the standard deduction this year.
Personal exemption deductions are no longer available for a spouse, dependents or yourself. The increase in the standard deduction could compensate for this change.
In addition, the child tax credit has increased to $2,000 for an eligible child and up to $1,400 can be refunded for each child.
There is also a credit of up to $500 for eligible dependents other than children who qualify for the Child Tax Credit. Eligible dependents may include children aged 17 and over, in addition to older relatives living in the household.
Detailed Changes to Deductions
If you choose to detail, it is likely that changes to the code will affect you.
Sorry if you moved in 2018 — the moving expense deduction is no longer available. And if your employer reimbursed the moving expenses, it’s now taxable income. This change does not apply to US military personnel on active duty.
Also, there is no longer a limit on itemized deductions based on income, so your deductions will not be limited if your income exceeds a certain amount.
In addition, the total deduction for local and state income, property, and sales taxes is now limited to $10,000 in total.
Interest on home equity loans is no longer a deductible item if the loan is used on something like a line of credit to buy a car.
“If it’s not used exclusively for the principal residence, it’s no longer a deductible interest item,” said Tab Burkhalter, CPA and owner of Maryville-based Burkhalter Group.
Your flight tickets are affected
Received UT football seats as a charity gift? You will no longer benefit from the tax advantages.
Charitable donations of any amount paid to an institution of higher education in exchange for tickets or seats at a sporting event are no longer tax deductible.
It was a major shift for individuals and businesses in East Tennessee, Burkhalter said.
“If you donate money to UT, UT has to be very careful not to take advantage of that donation,” he said. “Because if your donation is tied in any way to your tickets, it’s no longer a tax-deductible gift to college.
Business, customer spend impacted
Business expenses not reimbursed by an employer that exceeded 2% of adjusted gross income are no longer deductible.
For people who are not being reimbursed for their work-related accommodation, travel and entertainment costs, this could have a huge impact.
On the road:Keep your diet clean in a few proactive steps
It’s especially difficult for salespeople tasked with generating their own leads, Burkhalter said.
“The government would prefer to be able to audit a single company on its travel expenses that have to audit 200 sales representatives,” he said.
Charitable donations could be affected
Since more people are likely to benefit from the standard deduction, charitable donations could be affected, Burkhalter said.
By some estimates, less than 20% of people will itemize their 2018 tax returns.
Instead of giving annually, some filers are turning to “bundling” their charitable giving, Burkhalter said, combining multiple years of giving into one.
For example, a couple who typically donate $5,000 a year to their favorite organization could now donate $10,000 this year and itemize, then take the standard the following year and skip the donation for a year.
However, the limit for deductible cash charitable contributions has increased from 50% to 60% of adjusted gross income, so if you itemize, you may be able to deduct more.
Secure your returns
Concerned about tax evasion and identity theft? You’re not alone.
If you have ever been a victim of tax evasion or are just worried, you can request a six-digit Identity Protection PIN from the IRSa second authentication to fight against tax evasion.
And always be sure to file electronically, Burkhalter said. Once your taxes are filed, your social security number cannot be used to file another return.
Check your salary
All of these changes could affect how much some consumers should withhold in the future. Burkhalter said he has several clients who typically get a return for the first time this year.
If you owe this tax season, Burkhalter has recommended increasing your federal income tax withholding.
The IRS recommends that certain groups of filers plan to reassess withholding, including: those with dual-income households; hold two or more jobs; have children and claim the child tax credit; have dependents over the age of 17; itemized deductions from previous year’s returns; have high incomes; or received a large tax refund last year.
The taxman has a guide to all the changes on irs.gov.