Well it is February and time to think about (at least here in the US) income taxes. With the exception of a few rare documents, most of the forms about your income were required to be mailed to you by January 31 and you should have received them.
Again, while I am an accountant and tax preparer of over 40 years, nothing should be taken as specific income tax advice and you should consult someone who can help you with your personal situation. The information I am giving is general information to help you organize what you need for your income taxes - this varies greatly depending on one’s individual circumstances.
The most common forms that people receive about their income are the forms W2 for wages and withholding from their employer, a variety of different forms with the number 1099 (dividends, interest, capital gains, pension, IRA, and other types of income), and if one has an interest in a partnership, a “subchapter S corporation”, a trust, an estate, or an LLC form K1. (The latter are due out by March 15 as these organizations need a bit more time to prepare the forms as their tax returns have to be done first.) You know these forms have been coming in - have you collected them in one place - a folder, an envelope or some other type of holder? If not - go and find them - now. They are of the utmost importance in preparing your tax returns. These are income amounts paid to you (and/or your spouse and possibly children) and you want to check them to see if they are correct (generally they are) and have them together as these amounts have been sent to the Federal government and possibly also your state to be matched up with your tax return when you file. It is better not to miss any - but if you do, you will hear about it and receive a correction to your return.
If you have medical insurance through the ACA Healthcare Marketplace(aka Obamacare) you will receive a form 1095 which is needed to calculate if you received the correct amount of advanced credit to offset your medical insurance costs - or if you owe money on same or are entitled to a larger credit.
Now that is the easy part. The items you can deduct vary depending on who you are, what you do, the kind of job you have, where and how you live, etc. A summary of what you might need or have follows -
Medical expenses - records of amounts paid to doctors, dentists, pharmacies, eye glasses, medical insurance and other deductible medical expenses. Since I post my checks into a checkbook software program, I can get a printout of all the items in question. Don’t forget to include items paid by check or credit card or cash - cash being the one that is hardest to keep your receipts for. Did you know that if you can deduct your medical expenses you can deduct transportation for medical related trips? If you use your car there is per mile amount allowed plus any tolls or parking costs. If you take a taxi cab or similar or take a train a receipt from same will help you deduct these costs if your situation allows you to itemize your medical expenses. These will be needed if you itemize your deductions.
Income taxes - if all of your income taxes are withheld from your wages or other income this is easier, but many of us also pay estimated taxes during the year. While the amounts withheld will be shown on your W2 (and possibly on some 1099 forms) you have to keep track yourself of any amounts which you paid for estimated taxes - to IRS and your state (and possibly other states if you work in a state other than the one you work in). In addition to needing this information if you itemize your deductions you will need it as well as to be able to properly take credit for the taxes you have paid in against your final calculated tax for the year so that you pay the correct amount due or get the correct overpayment amount.
If you own your home and pay real estate taxes - make sure you have that amount (the changes from the tax law effect your 2018 tax, not the current tax which is your 2017 tax, so the limitations in the new law do not apply for this filing. It is deductible if you itemize your tax deductions. Also, if you have a mortgage on your home you should have received a form 1098 which will tell you how much interest you paid on the mortgage for the year so you can deduct it if you itemize your deductions.
Sales taxes based on a chart amount based on where you live and your income plus large purchases (such as a car) are deductible instead of your state and local income taxes if the sales tax amount is larger - remember this is an either or situation (either state and local incomes OR sales taxes).
There are other taxes which may be deductible depending on your state and other matters.
If you make contributions you should have received receipts for your contributions. If you contributed a monetary amount it will show how much the organization shows you contributed. (Sometimes these are end of the year statements from the organization.) If you contributed “stuff” - you know you have all the items you are clearing out of your home as you organize and you gave it to Goodwill, Salvation Army, St Vincent de Paul Society, or the rummage sale at your church - you should have a receipt - but they are not allow to tell you what the items are worth. You can go to the Salvation Army’s website and find a listing of what the range of values for these items are or check the items on E-bay to see what the item is selling for.
If you have expenses related to your job - union dues, required uniforms, transportation if you travel between multiple locations other than your “commute” (first and last trip of the day), required education (but not to meet the minimum requirements of the job or to qualify for another job) and such they may be deductible this year (as of now they are not deducible next year) and can be deducted on your return as Miscellaneous deductions (there at the bottom of Schedule A). Expenses related to your income is also deductible here - your bank vault if you keep income, information you paid for to help you make investment decisions, your income tax preparation cost, and some other items.
A problem with two of the above type of deductions. With the exception of medical and “miscellaneous deductions” you can deduct what you paid. However, you can only deduct your medical expenses over a percentage of your income and the same - but a smaller percentage - with the miscellaneous deductions.
If you are paid for employee related expenses - your boss reimburses you or gives you a per diem when you travel for example - make sure to check with your tax preparer about deducting the expenses you paid. This can be done on a different form than above, up to the amount you received in reimbursement.
If you are self-employed and file Schedule C with your return, of course you also need whatever expenses you paid out for your business during the year.
Remember this year’s taxes are basically the same as last year’s. It is the returns that you will in 2019 which will reflect the changes made to the income tax law for this year - 2018. Be aware that the amounts being withheld from wages based on the new tax law may or may not be correct for you as everyone is different. I don’t have all the information to correctly prepare estimated taxes for clients who need to file them. In the past I would presume all would be the same - this year I cannot.
While the standard deduction is being raised, and along with that more people will probably be using it due to limitations on deductions - remember the standard deduction is not really being “doubled” but going up from $12,700 to $24,000 (difference of $11,300) for married couples and from $6350 to $12,000 (difference of $5650) for single people.
At the same time, as I understand it, another deduction called the “Personal Exemption” is being eliminated. For 2017 this amount was $4050 each for you - if you are filing jointly - your spouse, and for each of your dependent children. In addition if you - and your spouse if you are filing jointly - are entitled to an additional Personal exemption if you are legally blind or over age 65.
So, in 2017 a single person is entitled to $6350 plus $4050 (if they have no children and are not blind or over 65) which is a total of $10,400 - which is only $1600 less than the new standard deduction. If one is single and has a child and/or is legally blind or over 65 the new standard deduction for 2018 will be less than they could deduct for the combined 2017 standard deduction combined with the personal exemptions.
In 2017 a married couple is entitled to $12,700 plus a personal exemption each (again, if they have no children and neither is legally blind or over 65) of $4050 which comes to $20,800. This is only $3200 less than they will receive next year. Again, if there are any children or either of the spouses is legally blind or they have children - they will be deducting less in 2018 than they would be able to deduct for the combined 2017 standard deduction combined with the personal exemptions.
THOUGHT FOR THE WEEK -
Income taxes need planning before you go to your tax preparer. Make sure you have all of your income items as well as any items that you may be able to use for an itemized deduction - in case they come to more than your standard deduction, and if you are self-employed for your business related expenses.
Now is also the time to think about next year. Get a file or a large envelope - label it - and start putting in items that are related to your income taxes next year - better to throw a receipt in that is not deductible than to be missing one next year.
Again, this is general information and not tax preparation information related to you. Check with your tax preparer about your specific information needed.
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