Do you know where things stand with your 2018 taxes? For many taxpayers, the first time they will see the overall impact of some significant provisions of the Tax Cuts and Jobs Act (TCJA) will be in their 2018 tax return. Do you know how the new laws will affect your tax situation and what tax planning issues you need to address in the new year? The Oklahoma Society of Certified Public Accountants (OSCPA) reviews some important questions to ask as well as timely answers.
- Is your withholding on track? If an employer withholds income taxes from your paycheck, your take home pay might have already been affected by lowered tax rates and new tax brackets. If you have not reviewed and possibly revised your withholding since the new laws were put in place, that means you may receive a larger refund than usual this year. That’s good news, but also consider adjusting your withholding so that you take home more money in each paycheck in the future. It’s also possible that you may owe more than you have in the past because of caps on or elimination of some deductions. Once again, a reassessment of your withholding will protect you from a surprise in the next tax year.
- Should you still itemize? Under tax reform, the standard deduction jumped to $12,000 for single filers and $24,000 for married couples filing jointly in 2018, a $5,650 and $11,300 increase from the previous year. For many taxpayers, that means tax time will be a little less taxing, since you may no longer need to itemize if your deductions add up to less than the standard deduction.
- What can I deduct? As noted, a number of deductions now have new limits or are no longer available. For example, if you live in a high-tax state, the new $10,000 limit on state and local income, sales and property tax deductions might reduce what you can deduct and raise your taxable income. In addition, you can no longer deduct unreimbursed work expenses, moving fees when you relocate for a new job or alimony payments for divorce or separation agreements executed or modified after Dec. 31, 2018, and personal casualty and theft losses must now be attributed to a federally declared disaster. The law also ended personal exemptions. Your CPA can analyze your situation and offer the best advice to simplify the process and minimize your tax bill going forward.
- How are families affected? The child tax credit was doubled to $2,000 for children under 17 (with increased modified adjusted gross income (MAGI) limits) and up to $1,400 of that credit can be a refundable credit, which means you can collect that amount even if you owe no federal income tax. A new credit of up to $500 is also available for each qualifying dependent who is someone other than a child who can be claimed for the child tax credit. The existing education tax breaks are unchanged, and now you can also withdraw up to $10,000 from your Section 529 education savings plan federal income tax free for tuition at a public, private or religious elementary or secondary school, if allowed by your plan.
- What about small businesses? There are lots of tax and business planning opportunities as small businesses take stock of how tax reform has affected their tax returns. For those that do business as C corporations, the tax rate dropped from 35 percent to 21 percent. The new tax law also includes a 20 percent tax deduction for qualified small business owners that use pass-through taxation models such as partnerships, S corporations and sole proprietorships.
As you get ready to file your tax return, your CPA can help you understand how the new law affects you in 2019 and beyond. Turn to him or her with your financial questions. In Oklahoma, you can get a free CPA referral and free 30-minuted consultation from www.FindYourCPA.com. For more money tips, visit www.KnowWhatCounts.org, like Know What Counts on Facebook and follow Know What Counts on Twitter.