Tax Season is Here AgainSubmitted by KWB Wealth Managers on February 7th, 2019
TAX SEASON IS HERE AGAIN
It might only be February, but you may want to jumpstart your 2018 taxes since there are a slew of new regulations that could affect you. The Tax Cut and Jobs Act (TCJA) of 2017 goes into effect this year so make sure you understand how tax reform may affect your 2018 taxes.
Take a deep breath and read about some of the ways tax deductions and credits have changed. While the changes may be daunting, The Tax Foundation anticipates, for millions of households, filing taxes will be simpler than it has been in the past.
This year you will notice sweeping changes to tax deductions. One major change is many of the itemized deductions you may have taken in the past are no longer available. Here are eight deductions you can no longer take:
- Children and other dependents. For 2018, you can no longer take a $4,050 deduction for each dependent you claim. The loss of deduction may be partially or fully offset by an increase in the standard deduction. An increase in the child tax credit may help, too, but it isn’t available to all families, reported Maryalene LaPonsie of U.S. News & World Report
- State and local tax deductions, including property taxes. There is a $10,000 cap on state and local tax deductions, which may negatively affect people in states with high property taxes. Some states have been introducing legislation and researching options that may help offset the loss of this deduction.
- Mortgage interest deductions. For 2018, there is a lower dollar limit on mortgages qualifying for the home mortgage interest deduction. Taxpayers may only deduct interest on $750,000 of qualified residence loans. In previous years, the limit was $1,000,000.
- Home equity loan interest. If you use a home equity loan to build an addition to an existing home or otherwise improve your home, interest on the loan may be deductible. However, through 2026, if the loan is used for something other than home improvements, the loan interest is not deductible. The home equity loan must be secured by the taxpayer’s home.
- Unreimbursed employee expenses. Prior to 2018, money paid out-of-pocket for supplies, education, or other work-related expenses that were not reimbursed by your company, could be deducted up to 2 percent of adjusted gross income. That is no longer the case, reported Bill Bischoff of MarketWatch.
- Various other itemized deductions. In the past, you may have deducted the cost of tax preparation services, safe deposit box rentals, investment fees, IRA/custodian fees, hobby expenses, and other items. Check with your tax professional to be certain, but many are no longer deductible.
- Moving expenses. Relocating just became less attractive from a tax perspective. Through 2026, unless you are with the armed forces, you will no longer be able to deduct moving expenses that are not reimbursed by your employer.
- Alimony payments. If you get divorced after December 31, 2018, you will not be able to deduct alimony payments. Conversely, recipients of alimony payments may no longer pay taxes on the income, according to Lorie Konish of CNBC.
To offset these new exclusions, standard deductions almost doubled for 2018. Under the new law, individuals who file taxes singly may be able to deduct $12,000, heads of household may be able to deduct $18,000, and married couples filing jointly may be able to deduct $24,000.
In addition, TCJA increased the Child Tax Credit to $2,000 for each qualifying child, double what it was in the past. In addition, the income limits for eligibility begin phasing out at $200,000 of modified gross income (up from $75,000) for a single filer, and $400,000 (up from $110,000) for married couples filing jointly.
Also, if you have dependent children who are 17 or older, or you support parents or other relatives, you may be able to take a tax credit of $500 for each qualifying person through 2025.
While the loss of deductions may increase taxes for some, the Brookings Institute reported, “… in 2018, the TCJA will raise average after-tax income for households in every income group. Households in the lowest 20 percent of the income distribution (about $25,000 or less) will receive an average tax cut of $60, while those in the top 0.1 percent (with income of $3.4 million or more) will get an average tax cut of about $193,000.”
This article does not explain all of the changes introduced by tax reform nor is the information provided intended to be tax advice. You can find additional information about tax law changes on the IRS website. Also, it’s a good idea to talk with a tax professional about how tax reform may affect you.
Caution: Watch out for tax season scams and threats
During this tax season, as in every tax season, be wary of tax scams. Tax fraud is the second most common type of identity theft, according to the Federal Trade Commission’s Consumer Sentinel Data Book 2017.
Scammers often impersonate IRS officials on the phone or in email and snail mail communications. They may make false claims about the status of your taxes in an effort to get you to share personal information. Don’t fall for it. The IRS does not make threatening phone calls about unpaid taxes. It does not demand immediate payment or ask you to update information online.
If you think you have been the victim of a phone scam, contact the Federal Trade Commission on FTC.gov. You can also report unsolicited communications claiming to be from the IRS by emailing firstname.lastname@example.org.
For further questions or concerns feel free to contact us at (909) 307-8220 or send us an email at email@example.com. We will be happy to assist you.
The Wealth Managers of KWB Wealth Managers Group (KWB) are registered representatives with and securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
https://www.irs.gov/pub/irs-pdf/p5307.pdf (Pages 5 and 6)