If you haven’t filed your 2018 taxes, it’s time to start gathering your tax forms and
supporting documents. The year ending December 31, 2018 is the first year governed by the Tax Cuts and Jobs Act of 2017 (Tax Act), a far-reaching reform of federal tax policy.
The Tax Act changes the way the federal tax liability of most individuals is calculated. These changes include:
1. Lower tax rates for most income tax brackets
2. Increase in the standard deduction so fewer taxpayers will itemize their deductions
3. Elimination of personal exemptions
4. Limit of $10,000 on state and local tax (SALT) deductions: prior to 2018, taxpayers could deduct ALL state and local taxes.
5. Changes to the mortgage interest rules
6. Increase in credits for children and other dependents
7. Increase in estate tax exemption for an individual estate to $11,180,000
Don’t be intimidated by these changes. Start your tax preparation and seek help if and when you need it.
The American Association of Daily Money Managers (AADMM) has compiled a list of helpful tax preparation tips, including:
1. Label and set aside a large folder or envelope for tax forms and information (W-2s, 1099s, year-end bank, property and investment statements, medical expenses and charitable contributions).
2. Decide if you’re going to hire a CPA to prepare your taxes or prepare your own taxes using an online program. If you are hiring a tax preparer, find out the deadline to submit documents to them for filing on time. Even if you elect to file an extension to file, the taxes you owe must be paid by April 15, 2019 to avoid interest and penalties. If you will be using an online tax preparation program, ensure that it is user-friendly with excellent customer service.
3. Review your prior year’s tax return. Review Schedule A for itemized deductions and review Schedule B for interest and dividends.
4. Review bank and credit card statements for possible tax deductions.
5. Request a print-out from your pharmacy for prescription drugs purchased.
6. Gather all receipts for charitable contributions.
7. Remember to file both state and federal tax returns.
To help yourself a year from now, take the time to organize your tax documents
throughout the year. Even if a professional tax preparer prepares and files your 2018 taxes, review your completed tax returns and understand your individual tax situation. This will make filing your taxes easier and less-stressful going forward. Good luck!
Beth Carroll is a CPA and a daily money manager. Her company, Cornerstone Money Management, LLC, helps seniors in their homes with billpay, financial organization and cash flow management. You may reach her at firstname.lastname@example.org or 401-323-4895.