We’re well in the midst of tax season, and the new tax bill under the Trump Administration is here.
With that said, do you understand what all those new changes mean? Or, are you part of the 57% of Americans who feel confused and overwhelmed by the tax code?
Taxes can be complicated, especially if you have various income streams, unique life circumstances like disabilities or an injured spouse, or own a business.
Fortunately, a tax accountant can help you with everything you need to know about filing appropriately under the new bill.
Let’s get into it!
Your Taxes Will Likely Change This Year
Nearly three-quarters of Americans who use the standard deduction for their taxes will probably receive a lower tax bill.
How much is highly variable, and a tax accountant will be able to provide you with a much better ballpark estimate.
The new Tax Cuts and Job Acts has 185 pages (that’s not a typo), and there are plenty of nuanced rules and different tax brackets.
With that said, the standard deduction requirements have changed significantly. It’s now $12,000 for singles filing independently and $24,000 for married people filing jointly.
Your child and dependent care tax credit will also change this year; it doubles to $2000 for each dependent child under the age of 17.
However, it’s not all breaks here. The personal exemption is now eliminated, and if you have itemized in the past, you will lose quite a few deductions. A qualified and competent tax accountant can help you navigate those changes.
Deductions Are Changing
To deduct or to itemize, that is the everlasting question. Approximately 30% of U.S households itemize, but experts predict this number will decrease due to the new tax law eliminating some of the more common itemized deductions.
Many tax deductions have changed or been completely eliminated in the past year.
For example, you are limited to deduct $10,000 for state, local, and real-estate taxes. In the past, this varied depending on your adjusted gross income, not just a hard number.
Do you pay a mortgage? The interest is only deductible on up to $750,000 in debt.
Like to contribute to charity? They remain deductive under the new tax reform, but taxpayers cannot deduct payments made to colleges or college athletic programs.
Furthermore, job expenses and miscellaneous deductions related to employment are now capped at 2% of your adjusted gross income (AGI). That means that you will not be able to write off more than 2% of expenses related to tax preparation, employee expenses, tools and supplies, uniforms, and subscriptions.
Medical deductions are also changing. In the tax years 2017 and 2018, you can deduct any medical expenses once they exceed 7.5% of your AGI. However, after 2018, it will only apply if the expenses exceed 10% of your AGI.
This can make a major difference if you are making important medical decisions, such as opting for a surgical procedure or taking a new kind of medication.
If all of this is making your head spin, that’s because it can be really complicated! A tax accountant stays up-to-date on all these changes and can still make sure that you’re getting the maximum deductions you’re eligible for.
You May Need to Change Your Withholdings
Most people enjoyed a nice small pay bump in mid-to-late February when employers readjusted employees’ take-home pays to comply with the new tax law.
However, you may still need to reevaluate your tax situation with your tax accountant. The IRS released a new withholding W-4 form at the end of February.
In general, it’s a good idea to review your W-4 once a year because your withholdings may change based on different life circumstances (second jobs, marriage, children).
If you rely on a 2017 form in 2018, there is a chance your employer may under withhold your federal tax this year. This can result in an unexpectedly enormous tax bill when next April rolls around.
Business Tax Laws Are Changing
Do you own a small business? If you file Schedule C for business income, you will have new rules to follow this year.
The long story short? If you have a sole proprietorship, limited liability corporation (LLC), or partnership, you may be able to exclude up to 20% of your business income from taxation.
Not every small business will qualify, and the IRS is still rolling out all the rules and regulations for this change.
You’ll need to navigate your particular situation with your tax accountant, as this could be a total game-changer for many entrepreneurs.
Education Costs Are Changing
Typically, 529 education plans were used to help families fund college for their little ones. However, under the new tax law, this money can be used to cover the costs of private education from K-12.
Individuals can now pay up to $15,000 per year or up to $30,000 per couple. In going this route, you will avoid paying gift tax.
However, other education-related tax breaks have also shifted with the new code. The former deduction for fees and tuitions (which was worth up to a deduction of $4000) has been cut.
If you have college students, are a college student, or have young children and have been thinking about saving for college, these changes are important for you to learn. Talk with your tax accountant to identify how they will impact how you pay for school.
Final Thoughts on The Benefits of Using a Tax Accountant
Even if you don’t like paying taxes, they are a necessary requirement for being an upstanding American citizen.
Take out the legwork and stress and let the professionals help you. Whether you have unfiled IRS tax returns or just need assistance with your 1040 this year, you’ll have less headache and likely more money back in your pocket.
Talk about a win-win for everyone!