I know what you’re thinking. It is still tax season 2017, and we’re all still scrambling to find all the necessary paperwork to get the IRS off of our backs. Who the hell cares about the 2018 tax reform? Valid. But still. The answer is: you care. Or, you at least should, that is, if you would like to survive it! OK, that was dramatic, and maybe a bit extreme. Still, there are some important details to note. Here are some suggestions for how to Indiana Jones your way around 2018 tax reform, and get out alive (and yes, Indiana Jones is a verb now).
A promise of filing on a postcard in the year 2019
The new tax bill was signed into law in December of 2017. President Donald Trump, with a single flourish of his ballpoint pen, signed his beloved Tax Cuts and Jobs Act into existence (Beloved by him, that is. TBD on everybody else). Trump also has touted 2019 as the year when the tax bill will be so simple that most Americans will be able to file their returns on a postcard. Although that is an impressive, even exhilarating claim, it is obviously far from proven as of yet. Many experts are not too sure that this will be the case. Let’s just err on the side of caution with this one and take a look at some of the tax alterations that are headed our way. Without further ado, let’s start off with changes to the standard deduction.
2X the dough: ‘Probably’ means don’t itemize
From $12,000 to $24,000. That’s the new deal. Double! And, of course, due to this higher threshold, way fewer taxpayers probably will itemize their tax returns (they will accept the standard deduction, that is). Most of us are going to be properly set and happy with this doubling of the standard deduction, but, just to be safe, you might still want to consult an expert about whether itemizing could potentially save you more. And if so, you should start planning now. But the main thing here is that the doubling from $12,000 to $24,000 sure is large but you might still want to itemize. Be diligent and check that you aren’t being tricked.
One point about alimony payment
Received alimony will no longer be taxable to the payee-spouse and will no longer be deductible by the payer-spouse. This goes into effect with the 2018 tax code. So, if this happens to apply to you, there definitely would be a tax benefit, if you are receiving alimony, to delaying payment for a while. Due to the fact that your alimony won’t be taxable as income until 2019, perhaps consider delaying payment up until that time.
A withholding-allowance “makeover”
Did I say “makeover?” I meant “update.” But after all, it comes down to the same thing. This is why: the new tax law eliminates personal exemptions. So as early as possible, review your W-4 Form: This is the form that will tell your employer how much to withhold in taxes. Neglecting to adjust your exemptions could result in your employer failing to withhold enough from your 2018 paychecks. That means, unless you are careful, you might actually owe instead of receive a refund in tax season 2018.
If possible, plan ahead when it comes to medical expenses
A certain change in the medical bill section of the new tax bill concerns medical expense deductions. Taxpayers who spend more than 7.5 percent of their adjusted gross income in either 2017 or 2018 on medical expenses will be able to deduct those costs. Previously, the threshold was 10 percent. So, get in on that one if you can!
Consider private education
The tax bill will expand on “529 plans” which make it easier for families to pay for private education tuitions from kindergarten up to 12th grade, and, in some instances, all the way through the university level, too. There is one limitation, though: personal annual spending will be capped at $10,000 per year. The 529 plans are considered to be “tax-advantaged” due to the fact that withdrawals are tax-free for them. However, make a note that the money you invest into them is not tax-deductible on your federal returns. On the other hand, nearly three dozen states now offer tax deductions or credits in cases where families invest in these plans. Savingforcollege.com has the details about 529 plans, which are administered by states.
Do you qualify for credits? Make sure to check!
Remember, while deductions impact your taxable income, tax credits will directly reduce your tax bill. Some common tax credits include the Child Tax Credit (up to $1,000 per child) and the Child and Dependent Care Tax Credit (up to $3,000 in expenses for a single qualifying child/dependent and $6,000 for two or more). For a comprehensive list of tax credits, click here.
Above-the-line deductions FTW
All those freakin’ receipts that you need for itemizing are super exhausting to collect, but one thing you can do is take advantage of above-the-line deductions in place of that tiresome receipt-collection task. Although, unlike credits, above-the-line deductions will not impact your tax bill directly, they will still reduce your taxable income. Some above-the-line deductions include paid alimony, paid student loan interest and contributions to your IRA. You might want to take a look over the 1040 form. It gives you all the qualifying deductions possible.
Even though we are not quite out of the woods with tax season 2017 yet, the early bird does get the worm after all. In this case, the worm would be: not giving up any money you don’t have to to the IRS. So, if you are the early bird to the discussion about new tax reform, then you’ll likely get to keep way more worms in your wallet, which you can then spend on new iPhones and such, instead of giving those delicious worms up to the IRS (was that metaphor unwieldy and convoluted?)
Have something to add to this story? Comment below or join the discussion on Facebook.
Header image: ShutterStock