In the federal budget bill passed February 9, Congress revived dozens of expired tax breaks retroactively for 2017. Here are the ones you may be able to use:
If you think you qualify for any of these, remember to bring all related documentation to your next tax filing appointment. The IRS is now scrambling to figure out how to apply these late changes to the already published 1040 tax form for 2017.
Your mailbox has probably started filling up with tax forms over the last several weeks and there are likely more to come. Getting these forms organized makes your tax filing easier for everyone involved. Here are some tips on how to handle all the forms you get and to prevent any potential problems.
Collect Them All
Check your tax records from last year, and make a list of the forms you received. Add any new accounts, employers, or vendors and check the forms off as you get them. Gathering all your forms is important because the IRS gets copies of each form sent to them as well. Missing one can trigger an IRS correspondence audit, creating extra work and possibly delaying your refund.
Check for Digital Forms
More employers, banks, and others are making their tax forms available to you electronically, so you may not get a paper form in the mail. Be sure to check your email inbox for any missing forms before you file, and don’t forget to check your “junk” or “spam” email folders as well, just in case any tax information accidentally ends up there.
Double check to see if there are any errors on the forms you receive. If there are, contact the issuer via phone and in writing to get the problem fixed. If you can't get a corrected form, still report everything on your forms to the IRS, but add a correction explaining the error when you file your return. That way you can still file without waiting for the issuer to send you a corrected form.
Commonly Overlooked Forms
While getting all your W-2 and 1099 forms is important, there are two crucial forms that you also need before you file:
Scammers were very successful last year with a scheme to snatch W-2 pay stub data from employers. The IRS is warning that it may be one of several techniques scammers utilize this year.
How the W-2 Scam Works
Fraudsters simply identify employees with access to company payroll data and pretend to be a fellow employee emailing from an outside address. “Hi, I work in accounting. Do you think you could send me the payroll data on file? I’m traveling today and working on preparing my 2017 tax return.”
The IRS said this surprisingly simple tactic worked on more than 200 employers last year and compromised the W-2 information of hundreds of thousands of employees. The stolen data included names, addresses, Social Security numbers, income and withholdings. Scammers then used the data to file returns and claim refunds from the employees' tax withholdings.
If you’re an employee, it’s hard to defend against this kind of scam because the breach happens to your employer. If you file and get an IRS notice that a return has already been filed in your name, you’ll know you’re a victim.
How to Minimize Your Risk
If your refund was nabbed by a scammer, the good news is that the IRS will still eventually send you a replacement refund. The bad news is it can take a very long time—six months to a year or longer—for the IRS to investigate your case.
If that doesn’t sound appealing, know that there are a few things you can do to minimize your risk:
Tax filing season has officially begun. Not many people file this early, but for some taxpayers it makes sense to do so. Here are some reasons you might consider trying to be at the head of the line:
You’re worried about tax identity fraud. One of the most common scams by identity thieves is to impersonate someone, file a return on their behalf, and snatch their refund check. But once you’ve filed, the window of opportunity for identity thieves closes. If you’ve had problems with your identity being stolen in the past, or your information has been compromised, consider filing early.
You want to avoid a dependent dispute. One of the most common reasons a return is rejected is when you claim a dependent who has already been claimed by someone else. This often happens when there is shared custody of a child.
Someone needs a completed return from you. If you anticipate buying a house early in 2018 or making any other transaction that will need a tax return as proof of income, you may want to file early so you can provide current tax information. This is particularly important if you are self-employed and don’t have pay stubs to use as proof of income.
You have a complex problem to work out. If you have a complex tax problem to work out, do yourself a favor and get your tax return appointment scheduled early. Otherwise it’s hard to get the detailed attention you need in the rush just ahead of the April 17 deadline.
You need the refund ASAP. Of course, everyone would like their refund as soon as possible. One thing to remember is that while the IRS starts accepting returns on the 29th, they won’t begin processing paper returns until mid-February. Returns that claim the Earned Income Tax Credit and the Additional Child Tax Credit will see processing of their returns further delayed until sometime after Feb. 15. But absent those exceptions, the sooner your tax return is in the queue, the sooner you should receive your refund.
New Withholding Tables
In the Tax Cuts and Jobs Act (TCJA) passed in late December, the IRS released new income tax withholding tables that reflect the changes to the tax bracket structure. Employers will have until February 15 to update their payroll systems to reflect the new changes, and employees will start seeing the changes in their paychecks after that point.
The TCJA reduces income tax rates for nearly all taxpayers. Extensive tax changes like this rarely happen, so it’s worth keeping an eye on your pay stubs over the next few weeks. The danger is that if the changes aren’t done right, you’ll either have too much tax taken out every paycheck, or end up with a large tax bill because too little was withheld. Here are some tips:
Make Sure the Changes Are Made
If you are an employee, you’ll want to ensure that the withholding changes are completed by February 15. Most people will see their paychecks increase slightly. If there’s no change, or if your paycheck decreases, take a closer look and talk to your employer to find out why. These changes do not require you to file a new Form W-4 if you already have one on file with your employer.
If you are an employer, the IRS said in a notice that all employers “should begin using the 2018 withholding tables as soon as possible, but not later than Feb. 15.” The updated withholding tables are available on the IRS website.
Check the Withholding Calculator
The IRS has said it will update its online withholding calculator tool by late February. Make a note to check this tool during early March to see whether your paychecks are correct. The tool will ask you to enter information including your income, tax status, and paycheck frequency. The calculator will generate an estimate of what your paychecks should look like under the new tax laws.
If your tax situation is more complex than the norm, it’s possible that you may end up under-withholding taxes from your paycheck, even if things look correct earlier in the year. This is particularly true if you itemize your deductions on your tax return, have multiple jobs, or change jobs during the year. If you compare your pay stubs with the withholding calculator again mid-year, that should still give you enough time to correct your situation if things have gone off track.
Sweeping tax law changes almost always trigger corresponding changes to employee withholdings, and the 2018 changes created by the TCJA are no different. If you have any questions regarding your situation, don't hesitate to call.
As the tax filing season approaches, it's time to start thinking about who will prepare your state and federal tax returns.
In 2017, more than 132 million individual and family tax returns were e-filed, the most accurate, safest, and easiest way to file. More than 16 million were prepared on a computer and printed or prepared by hand, then mailed.
The IRS stresses that no matter who prepares a federal tax return, by signing the return, the taxpayer becomes legally responsible for the accuracy of all information included.
Many taxpayers pay for tax return preparation. By law, all paid tax preparers must have a Preparer Tax Identification Number, or PTIN. Paid preparers must sign the return and include their PTIN. The IRS offers tips to help taxpayers choose a tax return preparer wisely. The Choosing a Tax Professional page has information about tax preparer credentials and qualifications. The IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications can help identify many preparers by type of credential or qualification.
Taxpayers who use paid preparers should still keep copies of their most recent tax returns for their own records. If using a software product for the first time, you may need your adjusted gross income amount from your prior-year return to verify your identity.
Always avoid fly-by-night preparers who may not be available after the due date or who base their fees on a percentage of the refund.
The Internal Revenue Service announced yesterday that it will begin accepting tax returns on Monday, Jan. 29, 2018. Nearly 155 million individual tax returns are expected to be filed in 2018. The nation’s tax deadline will be April 17 this year – so taxpayers will have two additional days to file beyond April 15.
Many software companies and tax professionals will be accepting tax returns before Jan. 29 and then will submit the returns when IRS systems open. Although the IRS will begin accepting both electronic and paper tax returns Jan. 29, paper returns will begin processing later in mid-February as system updates continue. The IRS strongly encourages people to file their tax returns electronically for faster refunds.
The IRS set the Jan. 29 opening date to ensure the security and readiness of key tax processing systems in advance of the opening and to assess the potential impact of tax legislation on 2017 tax returns.
Congress has passed tax reform that will take effect in 2018, ushering in some of the most significant tax changes in three decades. Here are some of the most important items in the new bill that impact individual taxpayers.
Individual Rule Changes
Because major tax reform like this is so rare, it's worth scheduling a tax planning consultation to ensure you get the most tax savings possible during 2018. Click here to contact Ellsworth & Associates and set up an appointment.
If you have not already done so, now is the time to review your tax situation and make an estimated quarterly tax payment using Form 1040-ES. The fourth-quarter due date is now here.
Normal due date: Tuesday, January 16, 2018
Remember, you are required to withhold at least 90 percent of your current tax obligation or 100 percent of last year’s federal tax obligation.* A quick look at last year’s tax return and a projection of this year’s obligation can help determine if a payment is necessary. Here are some other things to consider:
*If your income is over $150,000 ($75,000 if married filing separate), you must pay 110% of last year’s tax obligation to be safe from an underpayment penalty.
A tax reform bill known as the Tax Cuts and Jobs Act was passed by Congress recently and was signed into law by President Trump on December 22. Most of the new laws are relevant to the 2018 and 2019 tax years, but there are a couple items that you need to know about right away for your 2017 taxes.
1. The medical expense deduction threshold was retroactively lowered to 7.5 percent.
The tax reform bill retroactively lowers the threshold to deduct medical expenses in 2017 to 7.5 percent of adjusted gross income. The previous threshold was 10 percent. This new 7.5 percent threshold remains in place for 2017 and 2018, but reverts back to 10 percent in the following years.
What this means. If you were not planning on using the medical expense deduction this year because you fell short of the 10 percent threshold, you may want to reconsider your situation before year end. If there are any qualified medical expenses you can make (drug purchases, medical equipment, etc.) before Dec. 31 to push you over the new, lower threshold, consider doing so. But you must act now.
2. The healthcare individual mandate penalty stays in place until 2019.
The individual mandate (also known as the shared responsibility penalty) in the Affordable Care Act is effectively repealed by the tax reform legislation, but not right away. The penalty is set to zero in 2019, but remains in place for 2017 and 2018.
What this means. You still need to retain your Form 1095s this year and next in order to provide evidence of your healthcare coverage. Without proof of coverage, you may have to pay the higher of $695 or 2.5 percent of income. Unless there are further changes coming, 2018 may be the last year you'll need to worry about the individual mandate penalty.
More Changes to Consider for 2018 Tax Planning
We're experiencing one of most significant tax law changes in more than 30 years. There will be a lot of things to consider for 2018 tax planning. Here are some of the most significant: