Well, it is that time of the year where we are faced with one of the biggest hassles of life, taxes.
The IRS has acknowledged that filing income taxes are a complicated and painful experience for most people. I know of some people who get physically sick due to tax issues. When it comes to tax filing some people can’t function, they “freeze”. Some people have even sued the IRS and won!
As a result, the IRS has tried and failed on many attempts to make tax filing a better experience for the taxpayers.
This latest attempt to make filing your income taxes a more pleasurable experience comes with a tax system overhaul called, The Tax Cuts and Job Act.
In fact, the bill represents the most significant tax changes in the United States in more than 30 years. The experts are trying to determine if the new laws are any better. You can only decide for yourself. With these thoughts in mind, here are some new changes to the tax code.
5 Things You Need to Know About Your 2018 Taxes
Standard Deduction and Exemptions
The standard deduction is considerably higher for the tax year 2018. But that increase is mitigated by the elimination of a deduction for exemptions, previously a $4,050 reduction to taxable income for each taxpayer and dependent.
Here’s what’s happened to the standard deduction:
Single or married filing separately was $6,350 and is now $12,000
Married filing jointly and qualified widow(er) was $12,700 and is now $24,000.
Head of household was $9,350 and is now $18,000.
The maximum Child Tax Credit is doubled (to$2,000) and a new Credit for Other Dependent was created.
Filing Threshold
More people can avoid filing altogether in 2018 due to the higher filing threshold. In general, people under age 65 must file if they have gross income the standard deduction amount and that threshold is increased for people 65 and over. Certain people have a lower filing requirement, including people who have more than $400 in net self-employment income or who received advance payments of the premium tax credit.
The big difference in filing threshold is for people who file as married filing separately: for 2018, they’ll need to file if they have any income – even just five dollars.
Tax Form Changes
Form 1040 itself has a new look as a “postcard” size form, but with many additional new schedules. Forms 1040-EZ and 1040A have been eliminated.
Schedule 1 is the most substantial and contains all additional income fields and adjustments to income that were the bulk of page 1 of the old Form 1040.
Schedule 2 is additional taxes, including repayment of the excess amount of the advanced premium tax credit. This credit helps eligible individuals and families cover the premiums for their health insurance purchased through the Health Insurance Marketplace. In other words, if a person or family received too much funding for health care premium they may be taxed on it.
Schedule 3 is needed for nonrefundable credits, including the Child and Dependent Care Credit, education credits and Retirement Savings Contribution Credit.
Schedule 4 is other taxes that can’t be offset by nonrefundable credits. This includes the self-employment tax, the penalty for early withdrawal from an IRA, and for 2018 only, the health insurance mandate penalty.
Schedule 5 is where you’ll find other payments and refundable credits, including the premium tax credit and estimated tax payments.
Schedule 6 reports foreign address and third-party designees. Since none of the required forms or schedules have been eliminated, just about everyone’s return will be as many pages as in 2017 and for many, it will be longer.
Child Tax Credit
The child tax credit has been raised to $2,000 per qualifying child, those who are under 17, up from $1,000. A $500 credit is available for dependents who do not get the $2,000 credit.
Contributions to Roth IRAs
For individuals who are single or the heads of their households, the income phase-out has been raised to $120,000 to $135,000. For married couples who file jointly, the range climbs to $189,000 to $199,000.
The phase-out was not adjusted for married individuals who file a separate return. That is $0 to $10,000.
Contributions to IRAs
Savers who contribute to individual retirement accounts will have higher incomes ranges following cost-of-living adjustments.
For single taxpayers, the limit will be $63,000 to $73,000
For married couples, the phase-out range will vary depending on whether the IRA contributor is covered by a workplace retirement plan or not. When the spouse who is investing has access to an employer plan, the range is $101,000 to $121,000. For individuals who don’t have a retirement plan but are married to someone who does, the phase-out has been raised to $189,000 to $199,000.
Common Facts about Filing Taxes
When to File
File on or before April 15th. If the due date falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day.
Need More Time?
If you can’t file by the due date of your return, you should request an extension of time to file. To receive an automatic 6-month extension of time to file a return, you must file Form 4868
Reasons why you should file your Past Due Returns
You should file all tax returns that are due, regardless of whether or not you can pay in full. File your past due return the same way and to the same location where you would file an on-time return.
Avoid interest and penalties
File your past due return and pay to limit interest charges and late payment penalties.
Claim a Refund
You may risk losing your refund if you don’t file your return. If you are due a refund for withholding or estimated taxes, you must file your return to claim it within 3 years of the return due date.
Protect Social Security Benefits
If you are self –employed and do not file your federal income tax return, any self-employment income you earn will not be reported to the Social Security Administration. As a result, you will not receive credits toward Social Security retirement or disability benefits.
The Tax Cut and Job Act represent the largest change to the IRS tax code in many years. Some people will see increases in refunds and others will pay more taxes. The smart thing to do is to take advantage of as many of the tax laws as possible. Remember that taxes are a bill and the goal is to reduce all bills.