Post Tax Season Thoughts
As most of you are aware, April 15th marked the end of the dreaded tax season. And let me tell you, this one was a doozy. When the final regulations for a new tax law come out in the middle of January, you have little time to study and prepare. The good news is we learned a ton and fielded a lot of questions from our clients. Below I have listed a few of the questions that came up during the season and items for you to consider:
Can I claim my child, and does it even matter anymore now that the exemptions are gone?
-You can claim your child if they are under 18, or under 24 if a student, and have lived with you for at least half of the year.
– Yes, the exemption was eliminated but there is now a child care credit of $2,000 for children under 17 and $500 if over 17 as long as you are under certain income thresholds.
– In most cases, the state still allows an exemption
My investment advisor fees and employee business expenses aren’t showing up in my itemized deduction total. Did you miss them?
-Neither of these items are deductible anymore.
-It might be time to talk to your employer to get them to reimburse you for these costs.
What the heck is the QBID you are all talking about and can it benefit me?
-QBID stands for qualified business income deduction. The new law allows a deduction of 20 percent of your trade or business income.
– It can benefit you if you have a true trade or business. As you might guess there are a lot of rules surrounding this definition.
– If your income is below a certain threshold a lot of the limitations are eliminated.
– Therefore, planning to level income from year to year might be prudent. There can also be a benefit to making pension contributions now more than ever.
Are you serious? I owe taxes. How can that be? I always get a refund.
– The wage withholding tables were adjusted to give us more money during the year so we would feel richer and spend more but I doubt anyone noticed.
– As a result, simple math means even though your tax bill went down if your withholding went down more you owed money.
– I recommend that you review the amount being withheld from your check and make sure you are having enough taken out this year to cover your tax bill.
Will I ever itemize my deductions again?
– The standard deduction increased to $24,000 for MFJ and $12,000 for MFS. That means that if the total of your medical (excess of amounts over 7.5 percent of your adjusted gross income), taxes (capped at $10,000), contributions, and interest do not exceed $24,000/$12,000 you deduct $24,000/$12,000 and that is that.
– A lot of you were close to the $24,000 but not over that number.
Strategies to consider:
– Bunch your charitable deductions in alternating years. That way your total itemized deductions may exceed the standard deduction amount every other year.
– Establish a donor-advised fun that allows you to put a chunk in to the fund and take the deduction but give them money to the charity over time.
– If over 70 ½ do a direct contribution from your IRA to the charity.
– Pre-pay your real estate taxes if not over the $10,000 cap.
So, there you have it. As you might guess, I could go on and on with the questions we received (but Zoe, our marketing lead, told me to keep it simple and short). If you have questions related to your specific circumstances give us a call!