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Yes, It’s That Season: Tips for Tax Time

March 1, 2019

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Every year some people’s tax returns end up in others’ accounts, due to errors in submitted account numbers. Should this happen, you’ll have to call the IRS at 800-829-1040, and have them file an IRS form 3911 to trace the check. To minimize problems, follow the easy steps below:

  1. Use caution when setting up the direct deposit of your tax refunds. Refunds are deposited solely based on account number, not by name.

  2. Make sure you use your full 9-digit routing number and 14-digit account number.

  3. Make sure you submit an active checking or savings account.

  4. Do not add or delete any zeros.

  5. Double- and triple-check all information and numbers before submitting your account information.

Of course, the best way to plan for tax season every year is to build your own savings year round! If you have a good-sized buffer in your checking account, consider earning more with a Money Market account or Term Share Certificate. Call or make an appointment online, and we can help you make a plan.

Posted in: Taxes, Tips

Tax Time Preparations

January 29, 2019

It’s tax time once again and it seems that this year with regulatory changes in effect there are more questions than ever. Our friends at Firley, Moran, Freer & Eassa, CPA, P.C. (“Firley Moran”) have provided an easy way to understand some of the changes and what this may mean for you. Check out their guest blog below. As always, your individual situation may vary and you may wish to consult a tax professional of your choosing to discuss your circumstances.



Tax Reform Changes to Know Before Preparing Your Return

Late in 2017, the new tax reform law was passed (referred to as the “Tax Cuts and Jobs Act (TCJA).”  The TCJA brought about the most significant changes we’ve seen since the 1980’s. The changes affect both individual and business tax, with significant changes to credits, deductions, and tax rates. Although everyone’s situation is different, the following is a summary of important items that could affect your 2018 tax return.


What Changed in Tax Rates and Brackets?

The US taxes income under a graduated tax system, meaning tax rates increase as your income increases. Your “tax bracket”, roughly speaking, is the tax rate you pay on your highest dollar of taxable income. Under the TCJA, the maximum tax rate was reduced from 39.6% to 37%. The number of tax brackets did not change. However, the rates at many of these brackets were reduced. Many of the income thresholds needed to reach the next bracket were increased. This could result in more income being taxed at a lower tax rate as compared to previous years.


What are the Changes to Form 1040?

In an effort to simplify Form 1040, the IRS replaced the old two-page form with a new form marketed as being postcard-sized.  The Form 1040 is now essentially a summary form that can require up to seven additional supporting pages to calculate your income tax for the year.  Shorter forms 1040A and 1040-EZ were not updated for 2018, meaning that all taxpayers will be using the same form in 2018.


What is the Suspension of Personal Exemptions?

The TCJA suspended the personal exemption deduction for eight years beginning with 2018. Taxpayers can no longer claim the $4,050 personal exemption for each of their dependents.


What Are the New Standard Deduction Levels?

In an effort to reduce the impact of the elimination of personal exemptions and other changes to itemized deductions (mentioned below), the TCJA nearly doubled the standard deduction. Beginning in 2018, the standard deduction available for each filing status increased to:

  • Single and married filing separate - $12,000  ($6,350 in 2017)

  • Married filing joint - $24,000  ($12,700 in 2017)

  • Head of household - $18,000  ($9,350 in 2017)


Can I Still Itemize Deductions?

If your itemized deductions total more than the new standard deduction, you can, and should, still claim your deductible expenses on your return.  


Were Any Itemized Deductions Changed or Eliminated?

  • Miscellaneous itemized deductions were eliminated. Such deductions include investment management fees, unreimbursed employee expenses, and tax preparation fees.  Prior to 2018, you could have deducted these to the extent the total exceeded 2% of your adjusted gross income.  

  • Home equity loan interest is deductible only if the proceeds of the loan were used to buy, build, or substantially improve a main home (or second home) that is secured by the loan.

  • Casualty or theft losses are no longer deductible, except in certain disaster areas.

  • The total deduction for state and local income taxes is now limited to $10,000 per return ($5,000 for "married filing separate return" filers). This limitation applies in total to all state and local taxes paid including income, real estate, and personal property taxes.

  • Mortgage interest is still deductible. However, beginning with mortgages originated in 2018, individuals can only deduct interest on home mortgage loans up to $750,000 (previously, the limit was based on $1,000,000 of debt).

  • Medical and dental expenses can still be deducted to the extent they exceed 7.5% of your adjusted gross income.  Prior to the new law, this threshold was 10% which may mean more medical and dental expenses could be deductible this year.

  • The new tax law preserves the deduction for charitable contributions.  

Due to the reduction and elimination of the itemized deductions highlighted above, many individuals may find that it makes more sense to take the standard deduction rather than itemize deductions on their federal income tax returns.  


What Is the New Deduction for Qualified Business Income?

As a benefit to small business owners, the IRS enacted a new deduction for qualified business income. The deduction is calculated as 20% of the taxpayer’s qualified business income – subject to certain limitations. Taxpayers who own their own business, own interests in partnerships, or own stock in an S corporation should talk with their tax advisor to see if they qualify for this deduction.


What Does the Repeal of the Affordable Care Act (ACA) Individual Mandate Mean?

Taxpayers without healthcare coverage for a full year will no longer be subject to a penalty.  This takes effect in 2019.


What Is the Increase in the Child Tax Credit?

Good news if you have kids or other dependents. Under the TCJA, the child tax credit increased from $1,000 to $2,000 per child. Also, the TCJA introduced a new credit of $500 for each non-child dependent of a taxpayer.  


Are There Any Last-Minute Tax Savings Tips I Should Consider?

 Looking for some last-minute tax savings ideas that you could use in 2019 that could benefit your 2018 tax return?  Some ideas are listed below:

  • If you were covered by a high-deductible health plan (HDHP) in 2018, you are eligible to contribute to a health savings account (HSA). For self-only coverage, you may contribute up to $3,450 to the account, and for family coverage, you may contribute up to $6,900 (individuals 55 and older can contribute an additional $1,000). These contributions need to be made into the account by April 15, 2019, and must be designated as a contribution for the 2018 tax year.

  • Self-employed individuals may deduct contributions to certain retirement plans (self-employed pension and SIMPLE plans), provided the contributions are made by the extended tax return filing date.

  • You may be able to claim a deduction for contributions made into a traditional individual retirement account (IRA), provided you meet the criteria for the deduction.


Should I File My Own Taxes or Work With a Tax Advisor?

Everyone’s situation is different and you’ll of course need to do what works best for you. Best practice suggests that if you have a basic return including W-2 wages, simple investments, and itemized deductions, and you can navigate tax software, you could most likely file yourself. Once your situation includes more complex investments, business ownership, filings in multiple states, etc. it may be best to enlist the help of a CPA.

First Source members that choose to file on their own can get a discounted rate on Turbo Tax here.


DISCLAIMER

This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute audit, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. Firley, Moran, Freer & Eassa, CPA, P.C. and First Source Federal Credit Union are not responsible for any loss resulting from or relating to reliance on this document by any person. 

Any tax advice contained within this presentation, either written or spoken, is not intended to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax laws.

Jean Cole and Greg Jarvis are Certified Public Accountants with Firley, Moran, Freer & Eassa, CPA, P.C. in Syracuse. Firley Moran and First Source Federal Credit Union (“First Source”) are not affiliated. First Source’s “Tax Tips” are intended to be a convenient source of tax information but the information provided herein is general in nature, not complete, and may not apply to your specific situation. First Source does not provide tax advice and is not recommending a particular tax professional or advisor. You should consult your tax advisor with any tax-related questions regarding your individual tax situation. 

Products and services that may be referenced in “Tax Tips” may not be insured by NCUA or any other agency of the United States, and may not be deposits or obligations of, nor guaranteed or insured by, any credit union, bank, or affiliate.  Products referenced may be subject to investment risk, including the possible loss of value. 

 

Posted in: Firley Moran, taxes

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