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The 2018 tax season is different from past tax seasons because of the new tax reform and the government shutdown.
With new laws and government malfunction, experts say that taxpayers should be prepared for new forms, lower returns, delays, and scams.
According to a recent study by Freedom Debt Relief, 38 percent of tax filers expressed concern about filing correctly.
Logan Allec, a CPA and owner of the personal finance site Money Done Right, says “Taxpayers with relatively simple tax returns who previously used the Form 1040-EZ or Form 1040-A will find that these forms have been eliminated. Now, these taxpayers will simply use the full Form 1040.
And the Form 1040 itself looks a lot different — it's now only 23 lines compared to 79 on the 2017 form.
However, many of the calculations that previously were done on the Form 1040 itself are now performed on six supporting schedules.”
The tax reform bill lowered taxes for everyone in 2018. According to Freedom Debt Relief’s study, 52 percent of people surveyed in the United States thought their refund would be the same as last year.
Tax experts say that this year’s tax returns may be lower than last year’s due to lower withholdings and changes to deductions.
Withholdings are the amount taken out of a paycheck for taxes before the employee receives their earnings, or net pay.
A study by Freedom Debt Relief also found that 75 percent of people did not make any changes to their withholdings when the reforms were implemented.
However, the IRS did make changes.
“In response to the new tax law, the IRS almost immediately updated its payroll withholding tables, which are used by employers to determine how much federal income taxes should be taken out of their employees' paychecks every pay period.
And since the Tax Cuts & Jobs Act enacted a reduction in tax rates, these changes to the withholding tables generally meant that employees would have less taxes taken out of their paychecks,” Allec says.
A majority of taxpayers have been receiving a higher paycheck because less money was taken by the government, which means that the return is lower for some taxpayers.
Christine Cheng, Executive Director of Ladder Up, says “When those tables were updated, there were mistakes that have caused many low-income taxpayers’ employers to withhold too little, resulting in lower refunds this year compared to last year.”
It’s too late to do much about the 2018 tax year, but taxpayers can make withholding changes for the 2019 tax year.
Charles Corsello, EA TaxDebtHelp.com, says, “If taxpayers owe money this year or have a smaller than expected refund, they should adjust their withholding (W-4) and review it with their tax professional.”
Changes to deductions
Changes to deductions also affect the size of a tax return.
Corsello explains, “For example, itemized deductions for [state and local taxes] is capped at $10,000 which hurt taxpayers in high-tax states. Another example would be limitations to the mortgage interest deduction, and the suspension of the deduction for work-related moving expenses to name a few others.”
Other changes had a positive effect for taxpayers, like the Child Tax Credit.
Cheng says, “The Child Tax Credit has increased from $1,000 per qualified child to $2,000 (with the maximum refundable portion increasing to $1,400) though children with Individual Taxpayer Identification Numbers (ITINs) no longer qualify.”
This is good news for taxpayers with children who aren’t working and filing taxes.
Another positive change for some taxpayers is the higher limits for the Alternative Minimum Tax exemption.
Allec says, “Previously, married taxpayers who made more than $160,900 and single taxpayers who made more than $120,700 began to lose the ability to take the full AMT exemption amount.
However, the Tax Cuts & Jobs Act raised these limits to $500,000 for single taxpayers and $1,000,000 for married taxpayers.
This means that far more taxpayers will be able to take the AMT exemption amount against their "alternative" income, and therefore far fewer taxpayers will be subject to the AMT for the 2018 tax year.”
Another significant change was the increased standard deduction.
Allec says, “In 2017, the standard deduction was $6,350 for single filers and $12,700 for married taxpayers filing jointly.
However, for tax year 2018, the new tax law increased these amounts to $12,000 for single filers and $24,000 for married filers filing jointly.”
However, this change is likely to hit charities and nonprofits.
Thomas G. Bognanno, President and CEO of Community Health Charities, says “Donors may not have understood the tax policy changes in 2018, but now when they file this year, don’t get a refund, and also are no longer able to itemize and deduct their charitable donations, they will most likely be much less likely to give in 2019 and beyond. This could have potentially devastating impacts on charities and those they serve. Tax incentives influence at least half of taxpayers, and some experts predict charities will lose $13 billion annually in fewer donations due to the new tax policy.”
Be prepared for a delay in receiving your tax return. Many government systems and agencies ground to a halt during the government shutdown, and the IRS was no exception.
“The IRS is still working through the backlog generated during the 5-week partial government shutdown so some things may take longer than in past years,” says Cheng.
Ranjeet Vidwans, co-founder of Clearedin, says “The IRS has seen a 60 percent increase in tax-related phishing attacks, making email one of our biggest threats this year. Since hackers are constantly developing new tricks, last year's warning signs have changed — and millennials, not baby boomers, are more likely to fall into traps.”
Vidwans notes that choosing a good password or changing the initial assigned password are valuable precautions to take. There are a few other things to watch for, like calls, emails, and fake notices.
“For most of us, getting a few thousand is badly needed — but if it's stolen, it's gone; the IRS doesn't have the resources to go after these hacks,” he says.
Being aware of the new forms, law changes, delays, and scams will help you be better prepared for filing your taxes this year and next. It will also help ensure that your tax return goes to you, not a scammer.