There's a meme on the internet, credited from the American Society of CPAs, that goes something like “Sorry, but you cannot claim your half-brother’s dog as a dependent. Even if he’s living with you.” And that meme sums up our often collective state of mind. Most of us see the humor in the meme, all of us know it is a joke, but most of us only have a slightly more than a vague idea of tax laws. Which bring us to tax tips for filing your 2018 personal income taxes, keeping sane.
In 2018, the Tax Cuts and Jobs Act, which took effect, increasing the amount of the standard deduction from $6,500 to $12,000 for individuals, $9,550 to $18,000 to and from $13,000 to household heads, and $24,000 for married couples filing jointly. Some people don’t have enough deductions to exceed that threshold, in which case you take the standard deduction instead.
Bunching is a practice that times expenses, sending deductible expenses into one calendar year. You can achieve this by moving certain deductions forward this year, like charitable contributions or prepaying a mortgage payment.
Optimize Retirement plan contributions
If you max out your retirement plan, it reduces your taxable income, reducing your tax bill. In 2018, the maximum 401(k) contribution is $18,500 or $24,500 if you are age 50 or over.
If you find that you cannot afford the maximum amount, try to contribute at least the amount that will be matched by employer contributions. An employer match, considered by many a win-win, is an immediate return on your money!
Get your healthcare ducks in a row
While the Tax Cuts and Jobs Act of 2017 removed the individual penalty for not having health insurance, it doesn't go into effect until 2020. The sanction for not being insured is an ongoing penalty, continuing to be enforced this year.
The penalty for not having insurance this year is $695 per adult or 2.5 percent of household income, whichever is greater. While Proof of insurance is not required, it’s important to document it, keeping it in your records.
Protect yourself from fraud
Because you're filing documents with sensitive information like your Social Security number, it is critical to take precautions so that your data isn’t compromised. File taxes directly on the IRS website or that you trust your tax preparer.
Be careful with third-party platforms. If you set up direct deposit with IRS for your refund this is a step in the right direction. If you own money, send it through IRS Direct Pay. If you need expert support with your taxes, visit us at Tax Relief Inc. or give us a call at 630-655-1040. See what we can do for you.