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The top questions about filing taxes as the deadline approaches
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The old federal income-tax rules were complicated enough, with many provisions poorly understood by the public. That might change as more people gain familiarity with the new and simplified tax-reform package
But it won't happen immediately.
These are issues that seem to cause confusion as more Americans complete their income-tax returns and plan ahead.
Do the changes in the tax reform plan apply now? For the most part, no. That means the old rules for individuals that were in effect last year are applicable on returns that Americans file by April 17, 2018 (or six months later if requesting an extension).
Probably the main change that affects some taxpayers this filing season is a more favorable rule for deducting medical expenses.
People who itemize can deduct medical costs above 7.5 percent of adjusted gross income for tax years 2017 and 2018. In 2019, that rises to 10 percent, making fewer expenses deductible. (In Arizona, medical costs remain fully deductible on state returns for individuals who itemize.)
MORE: How tax-reform changes will affect homeowners and those considering buying
Another change affects homeowners who took out or take out a new mortgage after Dec. 15, 2017. After that date, interest is deductible on up to $750,000 in mortgage debt, down from a prior cap of $1 million in debt.
While not applicable to tax returns, all paychecks now should show new withholding amounts, reflecting new (and generally lower) tax rates. The IRS said it wanted employers to start using the new withholding amounts no later than mid-February.
Does the $10K deduction cap apply per property or per taxpayer?Tax reform capped deductions for state/local income taxes, including property taxes, at $10,000 annually, starting in 2018. The new $10,000 deduction cap applies per taxpayer household, not per property. This change isn't good news for many homeowners, as state/local taxes, including property taxes, combined can easily exceed that amount.
The cap applies to the "sum of state and local income, sales and/or property taxes (that individuals) can deduct," according to a blog by TurboTax. "Previously, there was no limit on these deductions."
READ: Federal tax reform may cost Arizona taxpayers $200M more
The $10,000 cap isn't indexed for inflation either, meaning fewer people who itemize will be able to write off their deductions in full in future years.
Curiously, this is one example where the $10,000 cap is the same for both individuals and married couples filing jointly. After this filing season, more individuals and married couples will have reason to take the standard deduction rather than itemize.
That's because the new standard deduction will rise to $12,000 for individuals and $24,000 for couples, helping to offset the loss of the personal exemption.
Are there 'secret ways' to find out when a refund will be sent? No, though the Internal Revenue Service recently cited taxpayer confusion about refunds, asserting that some people are looking for "secret ways" to find out more quickly when refunds will be paid.
"Many people mistakenly think that talking to the IRS or calling their tax professional is the best way to find out when they will get their refund," the agency said.
Another misconception concerns requests for tax transcripts, which are IRS documents showing basic information like your name, marital status and adjusted gross income on previously filed returns, along with any changes later made by either you or the IRS.
"While taxpayers can use a transcript to validate past income and tax-filing status for mortgage, student and small-business loan applications, they should use 'Where’s My Refund?' (on irs.gov) to check the status of their refund," the IRS said.
The IRS updates the status of refunds once a day, usually overnight, so checking more often won't offer any more insight.
Was the retirement saver's credit retained after tax reform? Yes. Congress for decades has offered incentives to encourage Americans to save, especially for retirement. Tax reform left those incentives alone, for the most part, That means the somewhat-obscure retirement saver's credit will remain an option for people of modest income.
This credit, or direct reduction in tax liability, is available to working adults (18 and up) who contribute to an Individual Retirement Account or workplace 401(k)-style plan. It's available to those with adjusted gross income up to $31,000 (singles) or $62,000 (married couples) in 2017.
Those thresholds rise by $500 and $1,000, respectively, for tax year 2018. One way to think of the credit is as a source of matching funds provided by the government. It's worth up to $1,000 for individuals and $2,000 for married couples.
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Only 36 percent of respondents in a recent survey conducted by the Transamerica Center for Retirement Studies said they were aware of the credit.
“Millions of Americans who are already saving for retirement could be missing out on the saver’s credit simply because they don’t know it exists," said Catherine Collinson, president of the Transamerica Center. The credit is in addition to other retirement-plan tax benefits, including deductible contributions.
The credit is easy to miss for taxpayers using the wrong federal tax form, said Collinson, who suggests using forms 1040, 1040A or 1040NR. "The saver's credit is not available on form 1040EZ," she said.
Can I still see an IRS representative in person? Yes, but one thing that probably won't change after tax reform is the increasing need of taxpayers to interact with the IRS online, over the phone or through the mail. Face-to-face meetings are becoming less common.
The IRS no longer allows walk-in meetings at local offices. Rather, taxpayers must make an appointment online or call 844-545-5640. Go to the "contact your local office" section of irs.gov for details.
While the IRS does accept appointments, fewer people are taking advantage of them.
The Taxpayer Advocate Service, an IRS-watchdog group, calls this a "self-fulfilling prophecy" whereby the agency reduces services to the point that taxpayers no longer can easily access them, then declares the services underused and unnecessary, often citing cost-savings benefits.
The IRS has closed 7 percent of these offices over the past seven years, with even larger reductions in terms of staff and number of taxpayers served in person, according to the Taxpayer Advocate Service.
The IRS has reduced its presence "at a time when the population is increasing, scammers abound, taxpayers are subject to recurrent information breaches" and other problems, the watchdog group complained.
Mike McVay, Tax Accountant Blog
Certified QuickBooks ProAdvisor & Licensed Tax Accountant Pensacola, FL
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