Did you know that there’s a new tax code at play? There are MANY changes that have resulted in the passing of the Tax Cut and Jobs Act (TCJA) that President Trump signed into law on December 22, 2017. The TCJA is the most significant update to the internal revenue tax code since 1986, with over 115 new provisions – so, let’s get some of them straight. These changes are effective for tax years beginning on or after January 1, 2018.
How should you determine if you should itemize or take the standard deduction?
If your itemize deductions exceed the standardized deduction, it’s best to itemize.
If you do qualify for itemization, what is the best way to organize your finances throughout the year to make tax season as stress-free as possible?
The more accurate your records are, the smaller the chance that you’ll miss out on a deduction. Quickbooks and Zero accounting softwares do a great job of managing your transactions, especially for small business owners. For individuals claiming, keep your receipts organized by category. Your accountant will be able to tell you which ones qualify.
How did the 2018 tax brackets change?
In a nutshell, most of the tax bracket rates fell by an average of 2%. This means that more income will be taxed at slightly lower rates for 2018. See table below!
Is it true that the personal exemptions went away?
Yes. In 2017, under previous tax codes, individuals could claim an above the line deduction of $4,150 for each exemption on form 1040. For example, a married, filing jointly couple with a five year old child would be able to claim three exemptions totaling $12,450. In 2018, those exemptions have been eliminated.
Is there any way to make up the money lost in those deductions?
Yes! Dependent deductions have been replaced with credits. Those credits are as follows:
- Child tax credit
- Earned income credit
- Childcare credit
Did the standard deduction change?
The standard deduction nearly doubled. For individuals, it doubled, going from roughly $6,350 to $12,000. For married, filing jointly, the deduction doubled from $12,700 to $24,000. Therefore, if you chose to itemize in the past, it may be more beneficial to take the standard deduction now. However, if you’re choosing to itemize, be aware that the income and property tax deductions are now capped at $10,000, whereas in years past, you were able to take a deduction on all taxes paid.
Do I still get to deduct student loan interest?
Yes, the maximum deduction is still $2,500, subject to phase out limitations.
Did the deadline change?
No, the deadline is still April 15 for individuals.
If you’re hiring someone to do your taxes, what should you look for?
Make sure they’re registered with the state, if they claim to be a CPA. Most CPA’s charge between $100-$150 an hour for tax preparation, but this can change, depending on the complexity of a return.
When do you recommend filing on your own vs. hiring help?
If you have a few basic forms – W2’s, 1099’s, and 1098, you could probably get away with doing it yourself with a standard tax preparing software such as Turbotax. However, a CPA will be able to determine the exemptions for which you qualify and make sure you’ve included all of them. If you have a small business, it’s not a bad idea to consult with a CPA to ensure you’re well covered.