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Why it’s important for taxpayers to know their filing status

Filing Status

When a taxpayer files their tax return, they need to know their filing status. What folks should remember is that a taxpayer’s status could change during the year. So, any time is a good a time for a taxpayer to learn about the different filing statuses and which one is best for them.

Knowing the correct filing status can help taxpayers determine several things about filing their tax return:

  • Is the taxpayer required to file a federal tax return or should they file to receive a refund?
  • What is their standard deduction amount?
  • Is the taxpayer eligibility for certain credits?
  • How much tax they should pay?

The taxpayer’s filing status generally depends on whether they are single or married on Dec. 31 and that is their status for the whole year.

Here’s a list of filing statuses and a description of who claims them:

  • Single. Normally this status is for taxpayers who are unmarried, divorced or legally separated under a divorce or separate maintenance decree governed by state law.
  • Married filing jointly. If a taxpayer is married, they can file a joint tax return with their spouse. When a spouse passes away, the widowed spouse can usually file a joint return for that year.
  • Married filing separately. Alternatively, married couples can choose to file separate tax returns. It may result in less tax owed than filing a joint tax return.
  • Head of household. Unmarried taxpayers may be able file using this status, but special rules apply. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person living in the home for half the year. Taxpayers should check the rules to make sure they qualify.
  • Qualifying widow(er) with dependent child. This status may apply to a taxpayer if their spouse died during one of the previous two years and they have a dependent child. Other conditions also apply.

More than one filing status may apply and taxpayers can generally choose the filing status the allows them to pay the least amount of tax.

Tax planning includes determining filing status

Filing Status

Single or married? Kids or no kids? These are just a couple of questions that will help someone determine their tax filing status. Taxpayers usually only think about their filing status when filing their returns. However, this is something to think about all year, especially if it changes.

This tip is one in a series about tax planning. These tips focus on steps taxpayers can take now to help them down the road.

Here are some things about filing status that taxpayers should consider now:

A taxpayer’s filing status is used to determine their:

  • Filing requirements
  • Standard deduction
  • Eligibility for certain credits
  • Correct amount of tax

If more than one filing status applies to someone, they can use the Interactive Tax Assistant to help them choose the one that will result in the lowest amount of tax.

Changes to family life may affect someone’s tax situation. These changes include:

  • Marriage
  • Divorce
  • Birth of a new baby
  • Adoption of a child
  • Death

Typically, a taxpayer’s status on December 31 applies to the entire year for tax purposes. For example, if someone gets married late in the year, for tax purposes they’re considered married for the entire year.

The IRS has several tools taxpayers can use to stay updated on important tax information that may help with tax planning. In addition to visiting IRS.gov, they can download the IRS2Go app, watch IRS YouTube videos, and follow the IRS on Twitter and Instagram.

Changes to the standard deduction

Changes to the standard deduction

Major tax reform that affects individuals — including changes to the standard deduction — was enacted in December 2017. This means that many people will no longer itemize their deductions and will have a simpler time filing their taxes.

The standard deduction is a dollar amount that reduces the amount of income on which you are taxed and varies according to your filing status. Most people have the choice of either taking a standard deduction or itemizing. If you qualify for the standard deduction
and your standard deduction is more than your total itemized deductions, you should claim the standard deduction in most cases. This means you won’t need to file a Schedule A (Form 1040), Itemized Deductions, with your tax return.

The standard deduction for each filing status is:
• Single
o $12,000 (up from $6,350 in 2017)
• Married filing jointly, Qualifying widow(er)
o $24,000 (up from $12,700 in 2017)
• Married filing separately
o $12,000 (up from $6,350 in 2017)
• Head of household
o $18,000 (up from $9,350 in 2017)

The amounts are higher if you or your spouse are blind or over age 65.

For additional information about tax changes, see Publication 5307, Tax Reform Basics for Individuals and Families.

Get Ready for Taxes:  Tax reform changes likely to reduce number of taxpayers who itemize

Get Ready for Taxes:  Tax reform changes likely to reduce number of taxpayers who itemize

The Internal Revenue Service today advised taxpayers that the doubling of the standard deduction due to tax law changes is likely to reduce the number of taxpayers who normally itemize.

This is the sixth in a series of reminders to help taxpayers Get Ready for the upcoming tax filing season. The IRS has recently updated  its Get Ready page with steps to take now for the 2019 tax filing season.

In previous years, about one out of three taxpayers itemized. The IRS expects that number to be less for tax year 2018. The Tax Cuts and Jobs Act (TCJA) passed in December 2017, significantly affects deductions in several ways, impacting those taxpayers who normally itemize.

The TCJA doubles the standard deduction amount for all filing statuses. The standard deduction is a dollar amount that reduces the amount of income on which a taxpayer is taxed and varies according to their filing status. Because of this, many qualifying taxpayers may find the increased standard deduction more than their total itemized deductions and opt for choosing the standard deduction rather than itemizing.

Taxpayers should check their 2017 itemized deductions to make sure they understand what the tax reform changes could mean for their tax situation in 2018. Those who still plan to itemize will complete an updated version of Schedule A, Itemized Deductions, and attach it to their tax return.

Publication 5307, Tax Reform Basics for Individuals and Families, is a key resource to understanding the impact of the tax reform law on deductions. The publication provides information about:

  • increasing the standard deduction,
  • suspending personal exemptions,
  • increasing the child tax credit,
  • adding a new credit for other dependents, and
  • limiting or discontinuing certain deductions.

The IRS reminds taxpayers that the best way to file an accurate tax return is to use tax software and e-file or seek the help of a tax professional who will prepare and e-file their tax return. The IRS offers tips for choosing a tax professional.

Taxpayers who earned less than $66,000 in 2018 may qualify for IRS Free File and can access no cost tax software online.

The IRS Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs offer those taxpayers who earned less than $55,000 in 2018 free face-to-face tax return preparation and free e-file from IRS-trained volunteers. For more information and locations, go to IRS.gov/VITA.

New IRS publication helps taxpayers Get Ready for tax reform

New IRS publication helps taxpayers Get Ready for tax reform

The IRS issued a new publication to help taxpayers learn about tax reform and how it affects their taxes. Taxpayers can access Publication 5307, Tax Reform Basics for Individuals and Families, on IRS.gov/getready.

While last year’s Tax Cuts and Jobs Act includes tax changes for both individuals and businesses, this publication is specifically geared to individual taxpayers. It breaks down the law in easy-to-understand language. The publication highlights the changes that taxpayers will see on their 2018 federal tax returns they file in 2019.

This new publication provides important information about:

  • Increasing the standard deduction
  • Suspending personal exemptions
  • Increasing the child tax credit
  • Adding a new credit for other dependents
  • Limiting or discontinuing certain deductions

Taxpayers can also go to IRS.gov/getready to find other information about tax reform. This includes the steps taxpayers can take now to help make filing their taxes smoother next year. Following these steps will also help taxpayers avoid surprises when they file their returns.

How the new tax law will affects tax returns next year

Get Ready for Taxes:
Learn how the new tax law affects tax returns next year

WASHINGTON –The Internal Revenue Service today advised taxpayers about steps they can take now to ensure smooth processing of their 2018 tax return and avoid surprises when they file next year.

This is the first in a series of reminders to help taxpayers get ready for the upcoming tax filing season. Additionally, the IRS has recently updated a special page on its website with steps to take now for the 2019 tax filing season.

New IRS Publication 5307 helps individuals understand Tax Cuts and Jobs Act

Major tax reform that affects both individuals and businesses was approved by Congress and signed by the President on Dec. 22, 2017. It’s commonly referred to as the Tax Cuts and Jobs Act, or TCJA, or tax reform. Throughout 2018, the IRS has been working closely with partners in the tax return preparation and tax software industries to implement the new law and ensure taxpayers can count on the IRS, tax professionals and tax software programs when it’s time to file their returns. Now there is a new publication that will help taxpayers learn how tax reform affects their taxes. IRS Publication 5307, Tax Reform Basics for Individuals and Families, is now available on IRS.gov/getready. While the Tax Cuts and Jobs Act law includes tax changes for individuals and businesses, this publication breaks down what’s new for the 2018 federal tax return individual taxpayers will be filing in 2019.

This new publication provides important information about:

  • increasing the standard deduction,
  • suspending personal exemptions,
  • increasing the child tax credit,
  • adding a new credit for other dependents and
  • limiting or discontinuing certain deductions.

Taxpayers can access Publication 5307 at IRS.gov/getready, along with other important information about steps taxpayers can take now to ensure smooth processing of their 2018 tax return and avoid surprises when they file next year.

Because of the many changes in the tax law, refunds may be different than prior years for some taxpayers. Some may even owe an unexpected tax bill when they file their 2018 tax return next year. To avoid these kind of surprises, taxpayers should perform a Paycheck Checkup to help determine if they need to adjust their withholding or make estimated or additional tax payments now.

Gather documents

The IRS urges all taxpayers to file a complete and accurate tax return by making sure they have all the needed documents before they file their return, including their 2017 tax return. This includes year-end Forms W-2 from employers, Forms 1099 from banks and other payers, and Forms 1095-A from the Marketplace for those claiming the Premium Tax Credit. Confirm that each employer, bank or other payer has a current mailing address for you. Typically, these forms start arriving by mail in January. Check them over carefully, and if any of the information shown is inaccurate, contact the payer right away for a correction.

To avoid refund delays, taxpayers should avoid using incomplete records and instead wait to file until they have gathered all year-end income documentation. This will minimize the chances they will need to file an amended return later which is extra work for taxpayers and can take up to 16 weeks to process once the IRS receives it.

Taxpayers should keep a copy of any filed tax return and all supporting documents for a minimum of three years. Having your prior year return will make it easier to fill out your 2018 tax return next year. In addition, taxpayers using a software product for the first time may need the Adjusted Gross Income (AGI) amount from their 2017 return to properly e-file their 2018 return. Learn more about verifying identity and electronically signing a return at Validating Your Electronically Filed Tax Return.

For a faster refund, choose e-file

Electronically filing a tax return is the most accurate way to prepare and file. Errors delay refunds and the easiest way to avoid them is to e-file. Using tax preparation software is the best and simplest way to file a complete and accurate tax return. The software guides taxpayers through the process and does all the math. The IRS is working with the tax community to incorporate the tax law changes and form updates. Nearly 90 percent of all returns are electronically filed.

There are several e-file options:

  • IRS Free File,
  • Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs,
  • Commercial tax preparation software, or
  • Tax professional.

Use Direct Deposit

Combining Direct Deposit with electronic filing is the fastest way for a taxpayer to get their refund. With Direct Deposit, a refund goes directly into a taxpayer’s bank account. There’s no reason to worry about a lost, stolen or undeliverable refund check. This is the same electronic transfer system now used to deposit nearly 98 percent of all Social Security and Veterans Affairs benefits. Nearly four out of five federal tax refunds are Direct Deposited.

Direct Deposit also saves taxpayer dollars. It costs the nation’s taxpayers more than $1 for every paper refund check issued but only a dime for each Direct Deposit.

Renew expiring ITINs

Some people with an Individual Taxpayer Identification Number (ITIN) may need to renew it before the end of the year. Doing so promptly will avoid a refund delay and possible loss of key tax benefits.

Any ITIN not used on a federal tax return in the past three years will expire on Dec. 31, 2018. Similarly, any ITIN with middle digits 73, 74, 75, 76, 77, 81 or 82 will also expire at the end of the year. Anyone with an expiring ITIN who plans to file a return in 2019 will need to renew it using Form W-7.

Once a completed form is filed, it typically takes about seven weeks to receive an ITIN assignment letter from the IRS. But it can take longer — nine to 11 weeks — if an applicant waits until the peak of the filing season to submit this form or sends it from overseas. Taxpayers should take action now to avoid delays.

Taxpayers who fail to renew an ITIN before filing a tax return next year could face a delayed refund and may be ineligible for certain tax credits. For more information, visit the ITIN information page on IRS.gov.

Refunds held for those claiming EITC or ACTC until mid-February

By law, the IRS cannot issue refunds for people claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) before mid-February. The law requires the IRS to hold the entire refund — even the portion not associated with EITC or ACTC. This law change, which took effect at the beginning of 2017, helps ensure that taxpayers receive the refund they’re due by giving the IRS more time to detect and prevent fraud.

As always, the IRS cautions taxpayers not to rely on getting a refund by a certain date, especially when making major purchases or paying bills. Be aware that some returns may require additional review for a variety of reasons and may take longer. For example, the IRS, along with its partners in the state’s and the nation’s tax industry, continue to strengthen security reviews to help protect against identity theft and refund fraud.

Tax bill this year? Check withholding soon, avoid another one next year

Tax bill this year? Check withholding soon, avoid another one next year

Taxpayers who owed additional tax when they filed their 2017 federal tax return earlier this year can avoid another unexpected tax bill next year by doing a “paycheck checkup” as soon as possible, according to the Internal Revenue Service.

The Tax Cuts and Jobs Act, the tax reform legislation passed in December, made major changes to the tax law, including increasing the standard deduction, removing personal exemptions, increasing the Child Tax Credit, limiting or discontinuing certain deductions and changing tax rates and brackets.

These far-reaching changes could have a big impact on the tax refund or balance due on the tax return people file next year. The IRS encourages every employee to do a “paycheck checkup” soon to ensure they have the correct amount of tax taken out of their pay.

Checking and adjusting withholding now can prevent an unexpected tax bill and penalties next year at tax time. The IRS Withholding Calculator and Publication 505, Tax Withholding and Estimated Tax, can help.

The IRS encourages taxpayers to be proactive:

Do a ‘paycheck checkup’ soon

  • The Withholding Calculator can help taxpayers apply the new law to their specific financial situation and make an informed decision whether to change their withholding this year.
  • Adjust their withholding as soon as possible for an even, consistent amount of withholding throughout the rest of the year.
  • Taxpayers with more complex situations may need to use Publication 505. The publication is more effective for employees who owe self-employment tax, the alternative minimum tax or tax on unearned income from dependents. It can also help those who receive non-wage income such as dividends, capital gains, rents and royalties. Publication 505 includes worksheets and examples to guide taxpayers through their particular situations.

Underpayment penalties

  • To avoid paying the estimated tax penalty, taxpayers should ensure they have enough tax withheld from their paychecks and appropriate estimated tax payments. Ordinarily, taxpayers can avoid this penalty by paying at least 90 percent of their tax during the year.
  • If taxpayers expect to owe at least $1,000 in tax after subtracting withholding and refundable credits, they should make estimated tax payments.

Using the Withholding Calculator or Publication 505

  • Taxpayers should have their completed 2017 tax return handy to help estimate the amount of income, deductions, adjustments and credits to enter. They’ll also need their most recent pay stubs to help compute their withholding to date this year. Results from these tools depend on the accuracy of information a taxpayer provides.
  • Employees can use the results from the Withholding Calculator or Publication 505 to help determine if they should complete a new Form W-4, Employee’s Withholding Allowance Certificate, and, if so, what information to include on the form.
  • The calculator may also be helpful to recipients of pension and annuity income. These recipients can change their withholding by filling out Form W-4P and giving it to their payer.
  • If a taxpayer’s personal circumstances change during the year, they should re-check their withholding.

Adjusting withholding

  • If an employee determines they should adjust their withholding, they should complete a new Form W-4 and submit it to their employer as soon as possible.
  • Some employers have an electronic method to update a Form W-4.
  • Taxpayers who change their 2018 withholding should recheck their withholding at the start of 2019. A mid-year withholding change in 2018 may have a different full-year impact in 2019, so if taxpayers don’t submit a new Form W-4 for 2019, their withholding might be higher or lower than intended.
  • If an employee has a change in personal circumstances that reduces the number of withholding allowances they can claim, they must submit a new Form W-4 within 10 days of the change.
  • The fewer withholding allowances an employee enters on the Form W-4, the higher their tax withholding will be. Entering “0” or “1” on line 5 of the Form W-4 means more tax will be withheld; entering a bigger number means less tax will be withheld.

Additional information

  • The Withholding Calculator does not request personally identifiable information such as name, Social Security number, address or bank account numbers. The IRS does not save or record the information entered on the calculator. Taxpayers should be aware of tax scams, especially via email or phone and cybercriminals impersonating the IRS. The IRS does not send emails related to the calculator or the information entered in it.
  • The calculator and Publication 505 are not tax-planning tools. Taxpayers needing advice regarding the new tax law and personal situations should consult a trusted tax professional.

Taxpayers can get more information on these topics at www.irs.gov/withholding. For information on steps taxpayers can take now to get a jump on next year’s taxes, including how the new tax law may affect them, visit IRS.gov/getready.

Two-income families, taxpayers working multiple jobs should check withholding amount

Two-income families, taxpayers working multiple jobs should check withholding amount

The Internal Revenue Service urges two-income families and those who work multiple jobs to complete a “paycheck checkup” to verify they are having the right amount of tax withheld from their paychecks.

The IRS Withholding Calculator can help them navigate the complexities of multiple employer tax situations and determine the correct amount of tax for each of their employers to withhold.

The passage of the Tax Cuts and Jobs Act, which will affect 2018 tax returns that people file in 2019, makes checking withholding amounts even more important. These tax law changes include:

  • Increased standard deduction
  • Eliminated personal exemptions
  • Increased Child Tax Credit
  • Limited or discontinued certain deductions
  • Changed the tax rates and brackets

Individuals with more complex tax profiles, such as two incomes or multiple jobs, may be more vulnerable to being under-withheld or over-withheld following these major law changes. The IRS encourages a “paycheck checkup” as early as possible to help taxpayers check if they are having the correct amount withheld for their personal financial situations.

If a taxpayer needs to adjust their paycheck withholding amount, doing so earlier gives more time for withholding to take place evenly throughout the year. Waiting means there are fewer pay periods to make the tax changes – which could have a bigger effect on each paycheck.

The tax law changes generally don’t affect 2017 returns that people are filing in 2018. The changes affect 2018 returns, which taxpayers will file in 2019.

Withholding Calculator

The Withholding Calculator is the easiest, most accurate way for taxpayers with these complicated tax situations to determine their correct withholding amount. The tool allows users to enter income from multiple jobs or from two employed spouses. It also ensures that these taxpayers apply their 2018 tax deductions, adjustments and credits only once – rather than multiple times with different employers.

The calculator will recommend how to complete a new Form W-4 for any or all of their employers, if needed. If a couple or taxpayer is at risk of being under-withheld, the calculator will recommend an additional amount of tax withholding for each job. Taxpayers can enter these amounts on their respective Forms W-4.

To use the Withholding Calculator, taxpayers should have their 2017 tax returns and most recent paystubs available.

The calculator doesn’t request personally identifiable information, such as name, Social Security number, address or bank account numbers. The IRS does not save or record information entered in the calculator. Taxpayers should watch out for tax scams, especially via email or phone, and be especially alert to cybercriminals impersonating the IRS. The IRS doesn’t send emails related to the calculator or the information entered.

Withholding Calculator results depend on the accuracy of information entered. Taxpayers whose personal circumstances change during the year should return to the calculator to check whether their withholding should be adjusted.

Adjusting Withholding

Employees who need to complete a new Form W-4 should submit it to their employers as soon as possible.  Employees with a change in personal circumstances that reduce the number of withholding allowances must submit a new Form W-4 with corrected withholding allowances to their employer within 10 days of the change.

As a general rule, the fewer withholding allowances an employee enters on Form W-4, the higher their tax withholding. Entering “0” or “1” on line 5 of the W-4 means more tax withheld. Entering a larger number means less tax withholding, resulting in a smaller tax refund or potentially a tax bill or penalty.

Keeping What You Earn

How to Keep More of What You Earn Under the New Tax Law

 

The Tax Cuts and Jobs Act of 2017, signed into law on December 22, 2017, represents the most significant changes in tax law in more than 30 years. Whether or not you’re a fan of the new legislation, it’s important to understand how it affects you and what you can do to minimize your taxes under the new law.

Changing Brackets and the End of the Marriage Penalty

The new law keeps seven tax brackets, but, at most income levels, the rates are lower than they were previously. One particular effect of the changing tax brackets is that the “marriage penalty” that has affected some married couples in the past may be reduced or eliminated in some cases.

The Increase in the Standard Deduction

The standard deduction is nearly doubling for all filing statuses, which means that fewer taxpayers will benefit from itemizing deductions such as charitable contributions, mortgage interest, etc. The standard deduction for single filers is $12,000 for 2018, while the standard deduction for married filing jointly filers is $24,000 for 2018.

The State and Local Taxes Deduction

This is a big one. In the past, taxpayers have been able to deduct income taxes paid to states, as well as property taxes, on their federal tax returns. While the new law does not eliminate these deductions, the law limits the deduction to a combined $10,000 for income taxes and property taxes. For taxpayers in high tax states, this limitation has the potential to increase your tax bill.

Medical Expenses

In 2017, you can deduct medical expenses to the extent that they exceed 10% of your adjusted gross income. Beginning in 2018, you can deduct medical expenses to the extent they exceed 7.5% of your adjusted gross income. It will rise to 10% in 2020.

Mortgage Interest Deduction

In 2017, you can deduct mortgage interest on loan balances of up to $1 million. Beginning in 2018, the amount decreases; you can only deduct mortgage interest on loan balances of up to $750,000.

Other Disappearing Deductions

Some deductions did not survive, including the following:

  • Moving expenses
  • Unreimbursed employee expenses
  • Casualty and theft losses
  • Employer-subsidized transportation reimbursement

Child Tax Credit

The child tax credit is doubling from $1,000 per qualifying child to $2,000 per qualifying child. A credit is much more valuable than a deduction because it is a dollar-for-dollar reduction of your tax liability, while a deduction simply reduces the income on which you pay tax.

529 Plans

Contributions to 529 plans can now be used to pay up to $10,000 per year of K-12 education, while in the past they have only been used for post-secondary education expenses. The earnings in these plans are also tax-free if they are used to pay for tuition for kindergarten through college. The contributions are not deductible on your federal tax return, but most states allow the deduction.

Conclusion

While this article highlights several areas of the new tax bill that may affect you personally, there are many more that may be relevant. This legislation represents the most sweeping modifications to the U.S. tax code since 1986. While these changes take effect for the 2018 tax year (not 2017), now may be a good time to engage professional help specific to your personal or business taxes so that you’re prepared for the 2018 changes.

Special Thanks to Gary Milkwick  and Legal Zoom for “Content Share”

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