By Bonie Montalvo
The holidays came and went, and January is now finally here, and it is time to start thinking about completing and filing your 2018 income tax return. The Tax Cuts and Jobs Act (TCJA), passed by Congress on December 2017, has been the most sweeping change to our Tax Code in the Tax Reform Act of 1986. A majority of the changes made by the Act came into effect on January 1, 2018, which means that your 2018 tax return will change as well.
As you prepare to file your 2018 taxes, keep the following in mind:
• Change in Format. There has been talk that this year’s 1040 Income Tax return will be the size of a “postcard” and that it will make filing your taxes faster and easier, however, this is not exactly as advertised. First, the 1040 return for 2018 is not the size of a postcard, it is more like the size of half a page, front and back. Further, the new return comes with additional schedules. Overall, while the new form cuts down the return from two pages to one, it nonetheless adds six additional schedules to your income tax return. Further, Forms 1040A and 1040-EZ are no longer available.
• Change in Tax Rates. For 2017 the highest tax bracket was set at 39.6% In 2018, the highest tax bracket for individuals sits at 37%.
• Some Deductions Gone. In 2017, the personal exemption deduction was $4,150, however, in 2018, taxpayers will no longer be able to claim a personal exemption in their tax returns. The deduction for state and local taxes, miscellaneous expenses, and the overall limit on itemized deductions have been eliminated.
• Standard Deduction Nearly Doubles. The standard deduction for individuals, which in 2017 was set at $6,500 has almost doubled from $6,500 to $12,000. Head of households get a deduction of $18,000 and married individuals filing jointly get a $24,000 deduction ($12,000 each).
• New Limit for Medical Expenses. Under the new law, it is now easier to claim the Medical Expense Deduction. The IRS allows taxpayers to deduct qualified medical expenses that exceed 7.5% of their adjusted gross income (AGI). Before, in 2017, for a taxpayer to deduct medical expenses, the expenses had to exceed 10% of the taxpayer’s AGI, making it harder to qualify for the deduction. This year, in order to take advantage of the deduction, it may be prudent to bunch medical expenses into one year (if possible) in order to deduct the expenses.
• Casualty & Loss. The new law limits the personal casualty and loss deduction to only those losses attributed to federally declared disasters.
• Alimony Payments. Alimony payments will no longer be taxable to the recipient spouse, and as such, the recipient spouse will not have to declare such payments as income in his or her return. Correspondingly, alimony payments will no longer be deductible by the payor ex-spouse. This applies to divorce and/or separation agreements executed after December 31, 2018.
• No More Moving Expenses. The moving expense deduction is suspended except for members of the Armed Forces in active duty.
• Child Tax Credit. For families with children, the Child Tax Credit is doubled from $1,000 per child to $2,000. In addition, the amount that is refundable grows from $1,100 to $1,400. Further, a new tax credit of up to $500 may be available for each dependent who doesn’t qualify for the child tax credit.
Filing your Return:
The IRS offers free filing help for taxpayers who earn less than $66,000.00 under their Free File program. The program allows taxpayers to file their taxes with free, easy to use software, and even provides an option to file free state tax returns.
Those who earn more than $66,000 are eligible to use free fillable forms, but do not get access to the software nor the state tax preparation assistance.
Taxpayers earning $55,000 or less, can obtain in person assistance at VITA (Volunteer Income Tax Assistance) and TCE (Tax Counseling for the Elderly) centers.
Taxpayers using paid tax preparers (such as CPAs, enrolled agents, and other tax professionals), must make sure that their preparer has a Preparer Tax Identification Number (PTIN) and must verify the preparer’s qualifications and credentials. Every day, there is a new tax scam, and tax filing season is a time when scams flourish. Only disclose sensitive information, such as your social security number, after verifying credentials. You can check the credentials of your preparer against the IRS Directory at https://irs.treasury.gov/rpo/rpo.jsf .
The due date to file Form 1040 is Monday, April 15, 2019.
This Article does not constitute legal advice and may not be relied upon as such. Each individual’s facts and circumstances are different. If you have any questions regarding your particular situation, please consult with legal counsel.
Bonie Montalvo practices in the areas of estate planning, business succession planning, tax planning, and not-for-profit law. Ms. Montalvo has her LL.M. in Taxation from the University of Florida and is fluent in Spanish.
Wood, Buckle & Carmichael
2150 Goodlette Road North . Sixth Floor . Naples, Florida 34102