Important filing tips for your 2018 tax return
Tax day is coming quickly. Everyone is obligated to fill out a 1040, regardless of whether they earn their money as an employee, through self-employment or by playing online poker. Some people fill out their return themselves while others go to a free help service or pay someone to file for them.
It’s important to keep up with the latest in tax law, not only to avoid problems but to make sure that you get everything that’s due to you. Take a few minutes to review these tips before you file your 2018 tax return:
Standard deductions
There’s a new, higher standard deduction that comes into effect for the first time this year. Single filers receive a $12,000 deduction while heads of households receive a $18,000 deduction. People married who are filing jointly receive a $24,000 deduction.
In the past taxpayers had a choice between itemizing and taking the standard deduction. Itemizing involved taking individual write-offs for charitable contributions, mortgage interest, etc. Now, with the increase in the standard deduction, it doesn’t really make sense for most people to itemize.
Child tax credit
The child tax credit has increased from $1000 to $2000 for children under 17. The credit is applicable to families earning up to $400,000. Dependent exemptions of $4,050 have been eliminated but there are now $500 credits for non-child dependents (children over the age of 17, elderly parents, etc).
State and local income tax (SALT)
There are new limits on the amount that you can take off your federal tax bill for the state and local income tax that you pay. The deduction, now limited to $10,000, will hit taxpayers the hardest in states with the highest property taxes – California, Illinois, Wisconsin, Connecticut, and New Jersey.
Medical expenses
Previously, you could only deduct medical expenses if they exceeded 10 percent of the taxpayer’s annual income. Now you can deduct medical expenses if they exceed 7.5 percent of your income. The expenses must be itemized in order to claim the deduction.
Moving expenses
Moving expenses are no longer deductible, even if the move is necessitated because of a new job or as a relocation requirement for a current job. If you’re a small business owner you can still claim moving expenses on your business taxes. Military personnel who move due to an active military duty requirement are eligible to deduct moving expenses. If you are moving for a job and the company reimburses you for your moving expenses, that reimbursement is not considered taxable income.
529 accounts
Up until last year, funds from 529 accounts could only be used for college. Now you can use the money that you have in a 529 account for private or religious school tuition for grades K-12.
Changed tax rates for income ranges
Almost all income ranges are seeing a reduction in their tax rates. There are still seven tax brackets but many rates, along with the income thresholds at which the rates apply, have been altered.
The current brackets for joint filers are:
- You’re in the 10% bracket if you earn from $0 to $19,050. Previously, the cutoff was $18,540.
- You’re in the 12% bracket if you earn from $19,051 to $77,400. The cutoff used to be $75,900 in a 15% bracket
- You’re in the 22% bracket if you earn between $77.401 to $165,000. Cutoff was $153,100 in a 25% bracket before 2019.
- Earners who earn between $165,001 to $315,000 are in the 24% bracket as opposed to the previous rate of $153,101 to 233,350 in the 28% bracket).
- The 32% bracket is for income from $315,001 to 400,000 (used to be $416,700 in a 33% bracket).
- The 35% bracket income from $400,001 to $600,000 (as opposed to the previous limit of $470,700 )
- The highest bracket is now the 37% bracket (used to be the 39.6% bracket) which includes anyone earning more than $600,000 (ceiling for the old 37% bracket was $470,700).
The brackets are pro-rated for single filers.
Alternative minimum tax
Fewer taxpayers will be paying the Alternative Minimum Tax. Income exempted for the AMT is now $84,50 for taxpayers married and filing jointly and 54,300 for single taxpayers.
Health care
There is no longer any tax penalty for taxpayers who don’t have health insurance. In addition, you can deduct any medical expenses that are more than 7.5% of your adjusted gross income. The floor above which out-of-pocket medical expenses can be deducted was temporarily lowered to 7.5% for 2017 and 2018. The previous floor for out-of-pocket expenses was 10%.
Self-employed
There are many changes for business. There’s a new 20% deduction for incomes from “pass-through” entities such as partnerships, sole proprietorships, S. Corps, etc) and a reduction in the top corporate rate to 21%. For small businesses, the amount that the business can expense interest from borrowing has been almost doubled.
Interest on mortgage
Mortgage loans taken out after December 15th of last year have the deduction for interest capped at $750,000 on the loan balance. The limit is still $1 million on mortgages taken out before that date.
Retirement savings
For employees participating in certain retirement plans including 401(k)s, 403(b)s, the Thrift Savings Plan and most 457 plans, the limit for contributions is now $18,500. That ’s a $500 increase from the $18,000 limit for 2017.
IRAs
Cost of living adjustments give higher income ranges to savers who contribute to individual retirement accounts – IRAs. These deductions phase out for employees and their spouses who are covered by workplace retirement plans.
For single taxpayers, the limit is now $63,000 to $73,000.
For married couples, the phaseout range depends on whether or not the IRA contributor is covered by a workplace retirement plan. The range is $101,000 to $121,000 for spouses who invest via access to an employer plan. The phaseout has been raised to $189,000 to $199,000 for individuals who don’t have their own retirement plan but are married to someone who does,
For married individuals who file a separate return and who are covered by a workplace retirement plan, the phaseout was not adjusted and remains at $0 to $10,000.
ROTH IRAs
Singles and heads of households have a raised income phaseout of $120,000 to $135,000. Married couples who file jointly also have a raised income phaseout of $189,000 to $199,000.
The phaseout was not adjusted for married individuals who file a separate return. That phaseout is still $0 to $10,000.
