Seven New Year’s Tax Resolutions for 2019
If you’re making New Year’s resolutions, here’s one for the top of your list: I won’t complain about a surprise tax bill or lower refund if I neglected to check my withholding.
The 2017 tax overhaul made major changes to the code, such as limiting the deduction for state and local taxes and greatly expanding the tax credit for children under 17. The Treasury Department required employers and pension payers to lower withholding for 2018. This change allowed taxpayers to get the benefits of lower rates right away.
The problem here is that the broad-brush withholding changes don’t accurately reflect each individual’s situation. Some people who have counted on a large tax refund in the past to pay bills for holiday spending or big-ticket items will find they won’t get one.
After the changes, the Internal Revenue Service posted a calculator to help people fine-tune their withholding or estimated taxes. But only a few million filers have used it, and more than 150 million individual returns are expected for 2018.
The IRS recently warned that the number of filers who owe tax or penalties for 2018 is likely to be larger than in recent years, adding that “many of them are likely to be people who have always gotten refunds.”
As you make your list for 2019, here are other tax resolutions to consider:
I WILL resist the urge to panic about the new limit on state and local tax, or SALT, deductions.
The tax overhaul capped SALT deductions at $10,000 per return, and the limit applies both to single and married joint filers.
This is a radical change, but it won’t boost taxes for many filers as much as they fear. That’s because under prior law the alternative minimum tax, or AMT, often eroded or erased the value of SALT deductions for taxpayers earning between about $200,000 and $500,000.
As a result, says economist Joe Rosenberg of the Tax Policy Center, the new SALT cap is likely to affect two other groups most. They are filers earning less than about $200,000 who took SALT deductions in the past but weren’t subject to AMT, and high earners making about $750,000 or more who weren’t subject to AMT in the past and got more value for their SALT write-offs.
I WILL check for errors on tax forms when they arrive.
Employers typically mail or post W-2 wage forms by the end of January. The 1099 forms reporting interest, investment income and miscellaneous income often arrive later, and sometimes they’re corrected after that.
Do yourself a favor: Check the forms right away to make sure they’re correct — especially basic information such as ID numbers. If there’s a mistake, you’ll have time to get a corrected form and bypass painful back-and-forth with the IRS.
I WON’T bring my tax preparer a shoebox full of unsorted records on April 10.
If you do, you’ll likely be charged a higher fee or even turned away. Tax preparers often say they’d rather work on a partial file sooner than a complete file later.
Another preparer pet peeve is conflicting records, such as providing one total for repairs to rental property plus a list of the repairs that adds up to different number. “It wastes time and costs money to reconcile these differences,” says Janet Hagy, a certified public accountant who practices in Austin, Texas.
Finally, don’t call after the return has been filed and say, “I just found one more donation for $50. Can you get that in?” That would mean filing an amended return.
I WILL be vigilant about tax security.
Tax-related phishing scams reported to the IRS surged 60% in 2018 after declining for three years. Attempts are mostly via phone scams and email, and some of them are clever.
The IRS doesn’t send out unsolicited emails or ask people for PINs, passwords, or similar information for credit-card, bank or other accounts. Also, the IRS won’t demand credit- or debit-card numbers over the phone or threaten to have you arrested by local police, according to a spokesman for the agency.
I WILL understand the taxes on investments before I buy in.
If you put that mutual fund with a winning streak in a taxable account rather than a tax-sheltered retirement account, you could wind up owing unexpected tax bills.
Those gold coins you’re eyeing? They’re “collectibles,” and long-term capital gains are taxed at a top rate of 31.8% versus 23.8% for stock, according to Troy Lewis, a CPA practicing in Draper, Utah.
Also check recordkeeping costs. Tax preparers often groan when they learn a client holds energy master limited partnerships, for example. “It can cost $200 per MLP per year to comply. That really cuts returns on an investment of $5,000,” says Mr. Lewis
I WON’T blame the IRS for tax problems that are Congress’s fault.
People forget that the folks on Capitol Hill make the law; the IRS’s job is to interpret and enforce it.
Are you mad that the tax code is so complex? Or that now you can’t deduct the cost of taking a client to a ballgame? Or that it’s hard to get an IRS employee on the phone?
If so, vent at Congress. Lawmakers pile provision on provision and slash or add tax breaks. According to the IRS Data Book, the agency’s fiscal year 2017 funding was about $800 million less than what it was in fiscal 2011 — unadjusted for inflation.
Source: Dow Jones