How to Prepare for this Year's Tricky Tax Season
This year and next year, tax time will be even trickier than usual as we adjust to the changes in the recently enacted tax law.
The IRS expects more than 155 million returns to be filed this year, of which more than 70 percent should receive a refund. The filing deadline is delayed. Procrastinators should mark April 17, rather than April 15, as their drop-dead date. The IRS typically audits less than 1% of individual tax returns.
Although the IRS has already begun accepting electronic and paper tax returns, paper filers will find that the agency begins processing paper returns later. Choosing e-file and direct deposit for refunds remains the fastest and safest way to file.
Here are three issues to consider this year:
• The IRS has created new withholding tables, but the recommended amounts may not be enough to cover many taxpayers, especially those in high tax states who could lose certain deductions. To be safe, at least for the first year of the new law, you may want to assume their tax liability will be at least the same as this year. Talk with your CPA and Wealth Manager to choose the ideal withholding levels.
• The new law allows people who itemize to deduct qualified medical and dental expenses that exceed 7.5 percent of adjusted gross income (AGI) for 2017 and 2018. That’s a lower threshold than the previous 10 percent. The level returns to 10 percent beginning Jan. 1, 2019.
• The new law repealed the individual mandate to carry health insurance. But taxpayers still need to provide proof of coverage this year for 2017. Those who don’t have it will pay the penalty, which is the higher of 2.5 percent of your AGI, or $695 per adult and $347.50 per child, up to a maximum of $2,085.
Remember, even if you are seeing a larger paycheck in the wake of tax reform, you may want to assume your tax liability remains the same until you see what all the changes mean for your personal situation. To avoid surprises, talk with your Wealth Manager to see if you need to adjust your withholding.