Tax Season; What’s New?

FROM www.norwoodnews.org

Everything! New forms, worksheets, calculations, formulas, and schedule sheets

The Trump tax law, in effect over a year ago, is now coming to visit us for the first time this income tax season. Do you think you’re getting the same refund as in the past? Think it should be bigger?

Well, let me start with some temporary bad news first. As per the new law, all taxpayers in 2018 should have received (on average) a two percent decrease in tax rates. So, if you made $50,000 in 2018, and say your federal taxes were at 25 percent versus today’s 23 percent, you would have collected an extra total tax savings of $1000 tax free. Congratulations!

Now, like I said, did you pay taxes on it? No! Oops, ($1,000 x .23 percent) I guess you’re gonna pay back $230 of that money back! It’s called your tax refund!

Yes, and that’s just the beginning. While we do expect some tax situations to actually provide more tax savings, we sadly expect most Americans, if they have not prepared, to lose most of their prior refund. And if your refund was, in the past, a small one, get ready to possibly owe.

So, we cannot stress enough that this year, more importantly than any other, it is important to learn tax planning not tax preparation.

Tax planning is learning how your lifestyle fits and adapts to tax laws designed to maximize in lowering your tax liability or to receive higher tax refunds.

But let’s start off by going over what’s new:

*Form 1040 has been redesigned for 2018. The new design uses a “building block” approach. Form 1040, which many taxpayers can file by itself, is supplemented with new Schedules 1 through 6. These additional schedules will be used as needed to complete more complex tax returns.

*Forms 1040A and 1040-EZ no longer available. Forms 1040A and 1040-EZ aren’t available to file your 2018 taxes. If you used one of these forms in the past, you will now file Form 1040.

*Due date of return. File Form 1040 by April 15, 2019. If you live in Maine or Massachusetts, you have until April 17, 2019, because of the Patriots’ Day holiday in those states and the Emancipation Day holiday in the District of Columbia.

*Change in tax rates. For 2018, most tax rates have been reduced. The 2018 tax rates are 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent.

*Standard deduction amount increased. For 2018, the standard deduction amount has been increased for all
filers. The amounts are:

• Single or Married filing separately—$12,000.
• Married filing jointly or Qualifying widow(er)—$24,000.
• Head of household—$18,000.

*Personal exemption suspended. For 2018, you can’t claim a personal exemption deduction for yourself, your spouse, or your dependents.

*Increased child tax credit and additional child tax credit.

For 2018, the maximum child tax credit has increased to $2,000 per qualifying child, of which $1,400 can be claimed for the additional child tax credit. In addition, the modified adjusted gross income threshold at
which the credit begins to phase out has increased to $200,000 ($400,000 if married filing jointly).

*New credit for other dependents. If you have a dependent, you may be able to claim the credit for other dependents. The credit is a nonrefundable credit of up to $500 for each eligible dependent who can’t be claimed for the child tax credit. Social security number (SSN) required for child tax credit. Your child must have an SSN valid for employment issued before the due date of your 2018 return (including extensions) to be claimed as a qualifying child for the child tax credit or additional child tax credit. If your child doesn’t qualify you for the child tax credit but has a taxpayer identification number issued on or before the due date of your 2018 return (including extensions), you may be able to claim the new credit for other dependents for that child.

*Qualified business income deduction. Beginning in 2018, you may be able to deduct up to 20 percent of your qualified business income from your qualified trade or business, plus 20 percent of your qualified REIT dividends and qualified PTP income. The deduction can be taken in addition to your standard deduction or
itemized deductions.

*Changes to itemized deductions.

For 2018, there have been changes to the itemized deductions that can be claimed on Schedule A.

• Your deduction of state and local income, sales, and property taxes is limited to a combined, total deduction of $10,000 ($5,000 if married filing separately).

• You can no longer deduct job-related expenses or other miscellaneous itemized deductions that were subject to the two percent-of-adjusted-gross-income floor.

*Alternative minimum tax (AMT) exemption amount increased. The AMT exemption amount is increased to
$70,300 ($109,400 if married filing jointly or qualifying widow(er); $54,700 if married filing separately). The income levels at which the AMT exemption begins to phase out has increased to $500,000 ($1,000,000 if married filing jointly or qualifying widow(er)).