Some Very Good Advice: File As Early As You Can!
If you were hoping the shutdown would push back the deadline for filing your return, sorry to tell you that it won’t. The Internal Revenue Service said it started to process tax returns on Jan. 28.
The deadline to submit 2018 tax returns is April 15 for most taxpayers. Residents in Maine and Massachusetts get two extra days to file because of the April 15 Patriots’ Day holiday in those states. The additional time is also the result of Emancipation Day in the District of Columbia, which falls on April 16. District residents still have to file by April 15.
“Because D.C. holidays have an impact on deadlines elsewhere, that fact pushes the deadline for residents of Maine and Massachusetts to Wednesday, April 17,” IRS spokesman Eric Smith said.
This year may prove to be a difficult tax season because of many changes to the tax code. Major tax changes enacted in 2017 could mean some workers might not have had their employers withhold enough from their paychecks.
“Among other reforms, the new law changed the tax rates and brackets, increased the standard deduction, removed personal exemptions and limited or discontinued certain deductions,” the IRS said in a taxpayer alert last year.
We have a pay-as-you-go tax system. As a wage earner, you are required to pay federal income tax by having it withheld from your pay throughout the year. The amount is based on the number of allowances you claim on your W-4. Allowances are based on your anticipated tax deductions (mortgage interest, charitable gifts, deductible medical expenses, etc.). If your tax situation changes — you get married, have a child or purchase a home — you should fill out a new W-4 form. Your goal should not be to get a big refund from the federal government year after year. If this is your tax strategy, you’ll just be allowing the federal government to hold on to your money interest-free.
“The updated federal tax withholding tables, released in early 2018, largely reflected the lower tax rates and the increased standard deduction brought about by the new law,” the IRS said. “This generally meant taxpayers had less tax withheld in 2018 and saw more in their paychecks. However, the withholding tables couldn’t fully factor in other changes, such as the suspension of dependency exemptions and reduced itemized deductions. As a result, some taxpayers could have paid too little tax during the year, if they did not submit a properly-revised W-4 withholding form to their employer or increase their estimated tax payments.”
But here’s some good news. The IRS says it is waiving the estimated tax penalty for many taxpayers who paid at least 85 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. The usual percentage threshold is 90 percent to avoid a penalty.
“We realize there were many changes that affected people last year, and this penalty waiver will help taxpayers who inadvertently didn’t have enough tax withheld,” said IRS Commissioner Chuck Rettig. “We urge people to check their withholding again this year to make sure they are having the right amount of tax withheld for 2019.”
Here are some of the major tax changes:
— New Tax Rates:The new tax rates are 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent. The previous rates were 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent. Not sure how tax rates work (and many people get this wrong)? Read: How tax brackets actually work: A simple visual guide
— Standard Deduction Increased: For individuals and married couples filing separately, deductions increased from $6,350 to $12,000. The deductions for heads of household went from $9,350 to $18,000, and for married couples filing jointly, it went from $12,700 to $24,000.
— Personal Exemption: It is gone, replaced with a higher standard deduction. It was worth $4,050 in 2017.
— Child Tax Credit: It has doubled to $2,000 per qualifying child under age 17.
— Deduction For State And Local Taxes (SALT): Limited to a total of $10,000.
The IRS says the agency will work hard to get people their refunds, the government shutdown notwithstanding. The quickest way to get your refund is to file electronically and have your money directly deposited into your bank account.
Should you need help navigating the tax changes, keep in mind that many IRS workers will still be catching up from a 35-day shutdown. So pack your patience.
Source: Washington Post