The new postcard sized tax forms have arrived! Although smaller, they are not simpler. The IRS still needs all the information that was on the old forms. Unfortunately, the New Tax Reform did not change the amount of information taxpayers will need to submit to the IRS come tax time. The IRS just changed were this information is documented.
The IRS is expecting millions more to take the standard deduction this year. If you are switching from taking the itemized deduction to taking the standard deduction, filing your taxes will get easier. You may not need to keep that box of receipts any longer. However, this would have happened even without the tax forms changing.
Now, with the form changing, filing taxes will get even more confusing for taxpayers because the number of additional schedules and worksheets you will need to complete will increase unless your taxes are extremely basic, think 1040EZ, and you do not qualify for any tax credits or tax deductions, other than the standard deduction. Although some taxpayers will qualify to file the basic postcard 1040 for 2018, most will need to include additional schedules. There's up to six! Whether you are ready or not for the 2018 tax return: the new tax forms have arrived!
To be prepared for the new tax forms and the New Tax Reform, which mainly goes into effect this year for 2018 taxes, you should review the following with a tax professional: W-4: Paycheck Tax Withholdings, Charitable Giving, and Deductions Eliminated.
The worst thing is to get a huge tax bill come tax time, especially if you were counting on a refund. Under the New Tax Reform, the tax tables were changed. Although for most taxpayers the rates were decreased or minimally changed, depending on how taxpayers are affected by the loss of other credits could see a significant increase in their tax bill. For example, a family of four with an eighteen-year-old and a twenty-year-old in college could see a significant increase because they will lose the personal exemption for each of them and will not qualify for the increased child tax credit because their children are over seventeen years old.
Of course, the reverse is true too. If you have been struggling to pay your bills all year and have drastically over paid your taxes, that could have been money you could have received in your paycheck throughout the year instead of waiting until tax time for a refund.
Also, more and more employers are switching their workers over from W-2 employees to independent contractors paid with a 1099. Although at first, this can feel like you are receiving a pay increase, make sure you are prepared for tax time. Employers pay half of the Medicare and Social Security tax for employees; whereas, independent contractors must pay the entire self-employment tax themselves.
If you are concerned about whether or not you are having the correct amount withheld from your paycheck each pay period, contact the tax professionals at Gudorf Tax Group to schedule a withholding review. They can help you complete a new W-4 for your employer, so you are not having too much or too little taxes withheld.
Make sure you are giving wisely. With the New Tax Reform depending on your individual circumstances, you may not be receiving any tax benefit for charitable donations in 2018 and going forward, if you have not surpassed the standard deduction. Keep in mind it is increasing to $12,000 for individuals and $24,000 for married filing jointly, and you only receive a tax benefit for charitable donations if you take the itemized deduction. However, you do have options. One of the common methods is to stack donations or donate every 2 or 3 years, rather than, every year. That way you get to donate and receive the tax benefit. For additional details on how the New Tax Reform affects charitable giving, read this article here.
If you take the itemized deduction, many deductions were eliminated under the New Tax Reform. Also, there was a $10,000 cap placed on the deduction for state and local taxes, which will affect people mainly who live in areas with high property taxes. The miscellaneous tax deductions have disappeared as well. This will affect adversely especially taxpayers who depend heavily on certain miscellaneous tax deductions, such as the employee expense deduction or investment fee deduction. For additional information on tax deductions eliminated under the New Tax Reform, read this article here, which reviews four of the most common deductions eliminated.
The new tax forms have arrived! They are smaller but not simpler. With the major changes occurring to the tax code in 2018, you need to make sure your W-4 is filed correctly with your employer, and you have a good understanding of how the recent changes will affect you. If you are self-employed, you need to make sure you are making the correct quarterly payments based on the new law. Don’t be blindsided by huge tax bill in a few months. Schedule an appointment today with the accounting and tax preparation professionals at Gudorf Tax Group. Our professionals will review your individual tax situation and will help prepare you for the New Tax Reform changes that affect your 2018 taxes.