It’s been just over one year since sweeping tax reform known as the Tax Cuts and Jobs Act (TCJA) became law under the Trump Administration. Whether you’re married with five children, single with no dependents, considering a move across the country for a new job, or a full-time college student paying tuition, the individual tax law changes will impact you.
Francine J. Lipman, a William S. Boyd Professor of Law at UNLV’s Boyd School of Law, said it’s difficult to make broad-brush conclusions about how the reform will affect the general population, as each person has unique tax facts and circumstances. Nonetheless, she offers seven tax law tips for people to keep in mind now, as the 2019 tax season gets underway, and as additional certain tax laws are phased in and phased out in the near future.
You can also hear some of this information on her weekly “Tax Talk Tuesdays” radio broadcast. Tune into KUNV 91.5FM at 8:45 a.m. every Tuesday, or download the online podcasts.
Home ownership and itemized deductions
Taxpayers can either itemize their deductions or use the standard deduction. Historically, about two-thirds of all taxpayers used the standard deduction (versus itemizing home mortgage interest expense, property tax and other itemized deductions) because it was higher than their aggregate allowable itemized deductions. Experts expect about 90 to 95 percent of taxpayers will use the standard deduction under the TCJA, including most homeowners.
Many Americans assume that home ownership is subsidized by our federal tax system, but most homeowners do not itemize their tax deductions and, therefore, do not receive any tax benefits for owning their own home or making charitable donations.
Because most taxpayers no longer elect to itemize their deductions because of higher standard deductions, the process of accumulating tax information is simpler; however, while the standard deduction almost doubles from pre-TCJA amounts, personal and dependency exemptions have been eliminated. For taxpayers with many children, this change may undermine the higher standard deduction amount and other TCJA benefits.
Changes to alimony income
Right now, people are thinking about their 2018 income tax returns, but there are some other big changes that will phase in for 2019. For example, for marital dissolution tax planning in 2019-2025 (e.g., divorce), alimony income will no longer be included in taxable income when received, and no longer deductible if you pay it.
Moving expenses are no longer deductible
For new college graduates who don’t have deep pockets, it’s shocking how much it costs to make a cross-country move for a job opportunity. And when you move more than 50 miles for a job, you used to be able to deduct your moving expenses from your overall income. Or, if your employer paid for your move, you would be able to exclude it from your taxable income.
That’s no longer the case. It’s now an out-of-pocket expense that’s no longer subsidized by the federal government.
The moving expense deduction made sense because it afforded workers with the opportunity to go to where jobs are located. If you know the cost for a move across the country is either deductible if you have to pay for it or if paid by your new employer not taxable income, it made the decision literally “less taxing.” Under the TCJA, moving employees to where jobs are located is much more taxing.
Keep your tax documents for at least four years
The process of preparing and filing annual income taxes is overwhelming and bothersome for most people. Once tax returns are filed people are so pleased to have it done they don’t think to save file copies. But make sure you save a file copy, and keep that for at least four years.
It’s very important because the IRS can assess a deficiency for up to three years after you file your income tax return. And taxpayers (not the IRS) have the burden of proving that you are not tax deficient. Similarly, you can make a tax refund claim if you find a mistake or correction for up to three years after you file your tax return.
If you have a significant financial transaction, such as the purchase of a house, rental property or another investment, keep your related tax and other documents for as long as you keep the property plus at least four years post disposition or until any tax audit or litigation is eventually resolved.
If you receive correspondence from the IRS, respond
The federal government receives an enormous amount of financial tax information. For example, your wages and tax withholding on your annual W-2 goes to you, and it also goes to the IRS. The federal government also receives a copy of reported interest income, dividend income, student tuition information, nonemployee income, and a record of certain gambling winnings. As a result, if you do not include these items on your tax return you will likely receive a letter from the IRS (a type of correspondence audit).
Taxpayers have the burden of proof, and if you don’t respond to the correspondence inquiry, the government will assess any tax, interest and penalties due.
Check up on your paycheck and don’t procrastinate
The IRS has been aggressively asking workers to do a paycheck checkup online as a result of the TCJA. The paycheck withholding tax calculator estimates whether your withholding from your salary is going to cover your annual income tax liability.
The government has estimated that about 4 million more taxpayers than usual will owe taxes this tax season because of under-withholding. So do not procrastinate. It’s very important to get your tax return done in a timely manner, even before April 15, so you are not surprised if you owe more income taxes as compared to prior years.
Generally, you don’t have to pay any taxes due until April 15, and if you find out on Feb. 15, you will have time to save for it.
Use free tax prep tools and avoid unscrupulous tax preparers
If your income is below about $60,000, Nevada Free Taxes Coalition provides free tax preparation at many different locations throughout Clark County. In addition, the IRS has an online location tool for hundreds of free tax preparation sites across the U.S. Taxpayers should consider using these free resources. Volunteer Income Tax Assistance (VITA) tax providers have consistently delivered competent, qualified, and experienced tax preparation and electronic filing for free across America for decades.
The concept of shopping for a “bigger tax refund” is antithetical to the concept of how our tax laws function. Taxpayers should never go to an unscrupulous tax preparer to get a larger tax refund than allowable under law. Taxpayers sign tax returns under penalties of perjury and are responsible for any misinformation (including errors and fraud) on their tax returns. You and your family will suffer any financial penalties and other adverse consequences from misreporting your taxable income. The IRS website provides a list of registered tax preparers, and makes readily available 24/7 online free tax preparation software for households with $66,000 or less in income.
With outreach, education and an ongoing conversation about access to tax justice let’s all make this tax season as minimally taxing as possible.
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