Tax season is in full swing. Early reports from the IRS indicate that, on average, refund amounts are down compared to last year. If this is you, the first article lays out some reasons for the change. This issue also includes a warning to business owners to file their taxes on time, tips to keep your monthly bills in check, and some exciting board games to try.
Call if you would like to discuss how any of this information relates to you. If you know someone that can benefit from this newsletter, feel free to send it to them.This month
- March 15:
- Due date for partnership and S corporation tax returns (Forms 1065, 1120S)
- Reminders:
- Daylight saving time begins Sunday, March 10
In this issue:
- Oh No! Your Tax Refund is Now a Bill
- Hints to Eliminate Monthly Bill Creep
- 7 Common Missing Tax Return Items
Oh No! Your Tax Refund is Now a Bill
If you are anticipating a nice refund this year, it may be a good idea to prepare yourself for a possible letdown. Many taxpayers will receive a smaller-than-expected refund and might even owe taxes to be paid by April 15. If this happens to you, here are some of the likely reasons:
- Higher take-home pay. Look at last year’s W-2 and see how much was withheld for federal income tax. Now check this year’s W-2. If it is lower, you will need a corresponding reduction in your tax obligation to get the same refund as last year. The good news? You’ve had more of your income available to you throughout the year. The bad news? Paying less tax each pay period can result in a lower refund or tax due at tax filing time.
- Withholding tables are not always accurate. To help employers calculate the tax to withhold from each paycheck, the IRS revised withholding tax tables in February 2018 with a forecast of the impact of new tax legislation. While the IRS did its best to apply the tax law changes to the withholding tables, it did not correctly estimate every individual tax situation. Now, according to the U.S. Government Accountability Office (GAO), as many as 30 million taxpayers may not have had adequate withholdings for 2018.
- Lower itemized deductions. If you have similar itemized deductions this year as you did last year, they might not go as far as you think. This is because the state/property tax deduction is limited to $10,000 and many other itemized deductions are no longer available. While standard deductions are now higher, those with unreimbursed employee expenses, or those living in high-tax states could see a negative impact on their tax obligation. These changes coupled with the repeal of the personal exemptions could lead to a surprising change in your tax obligation for 2018 and going forward.
- Your state takes a different path. Depending on the degree to which a state incorporates recent federal tax changes, you could see a big tax surprise on your state tax return. As a result, the nonprofit Tax Foundation is anticipating that many taxpayers will experience an increase in state taxes for 2018.
- Good news for families with kids. The expansion of the Child Tax Credit will help offset the loss of the personal exemptions and could actually create a nice refund. The credit is now double at $2,000 per child and the income limit is raised to include most taxpayers.
With the uncertainty regarding whether you will receive a refund, hold off on major purchases and plans until your tax return is finalized. If possible, create a cash cushion to lessen the financial burden on you and your family. This is especially true if your withholdings are lower than last year.
Hints to Eliminate Monthly Bill Creep
Paying bills is inevitable, but paying too much is not. Are you aware of all the services you are paying for every month? Here are some tips to help you get a handle on your recurring monthly expenses:
- Investigate your recurring services. Start by taking stock of every service you are currently using. Review your bank and credit card statements and highlight all the charges that look like a subscription. Some examples to look for are streaming services (video, music and games), magazines, news subscriptions, digital storage services, gym memberships and financial services. Determine if you have redundant subscriptions, such as two music-streaming services. Finally, ask yourself if each service is still providing value to you. If it’s not, cancel it.
- Review bills for unnecessary fees.Once you trim your list down to the services you want to keep, locate the most recent bill for each. Read through all the charges and make notes of those that are questionable. You might be paying for services you aren’t using, such as a video streaming service on your cell phone bill. Or maybe you are paying replacement insurance coverage for something you don’t need. For every charge that doesn’t make sense, call and ask the provider to cancel it.
- Bundle expenses when you can. Many suppliers provide multiple services and will offer discounts if you sign up for a few of them. Bundling your cable TV, Internet and home phone is a common example of this. Other places to look for bundling opportunities are cell phone providers and insurance companies.
- Negotiate for lower rates. Call each provider and ask for a lower rate or discount. Most companies want to keep your business, so often times they will work with you. Service providers routinely change the way they package their products, so saving money might be as simple as changing to a different level of service. It’s rare for companies to reach out and offer savings, so you need to make the call!
It’s easy for your bills to spiral out of control if you don’t keep close tabs on them. Go through a review exercise every few months to ensure you aren’t paying more than necessary.
7 Common Missing Tax Return Items
Want your tax return filed quickly and without error? Then double-check this list of items that are often overlooked. These missing items often cause delays in getting your tax return filed:
- Forms W-2 and 1099. Using last year’s tax return as a checklist, make sure all your W-2s and 1099s are received and applied to your tax return. Missing items will be caught by the IRS mismatch program. All these forms are required to be in the mail to you on or before Jan. 31. If you are missing a form, contact the company responsible for issuing them.
- Form 1095-A. If you have health insurance through the Health Insurance Marketplace, you will need this form to complete your taxes and potentially claim the Premium Tax Credit. The deadline for employers to distribute other versions of Form 1095 is March 4.
- Dependent information. If you add a new dependent in 2018, provide the name, Social Security number and birth date to have them added to your tax return. If you have a dependent that shares time with someone else, discuss the plan for who is going to claim them. Your tax return cannot be filed if there is conflict in this area.
- Cost/basis information. If you sold any assets (typically investments or real estate), you need to know the cost/basis amount to calculate your taxable capital gain. Check your investment statements to ensure that your broker includes the required information. Often times it’s hard to find on the Form 1099-B summary, but it might be listed later in the statement details.
- Schedule K-1s. As an owner of a partnership or S-corporation, you will need to receive a Form K-1 that reports your share of the profit or loss from the business activity. Because of the new qualified business income deduction (QBID), businesses are required to report more information this year. When you receive your K-1, pay special attention to box 17 (codes V through Z) for S-corporations and box 20 (codes Z through AD) for partnerships. This is where QBID information is included. Without this, you cannot file your tax return.
- Forms or documents with no explanation. If you receive a tax form, but have no explanation for the form, questions will arise. For instance, if you receive a retirement account distribution form it may be deemed income. If it is part of a qualified rollover, no tax is due. An explanation is required to file your information correctly.
- Missing signatures. Both you and your spouse need to review and sign the e-file approval forms before the tax return can be filed. The sooner you review and approve your tax return, the sooner it can be filed.
By knowing these commonly missed pieces of information, hopefully your tax filing experience will be a smooth one.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
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www.RDMTaxService.com
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