Tax Time: What you need to know about the new tax laws before you file
MIAMI VALLEY, Ohio (WKEF/WRGT) - Tax accountants in the Miami Valley are preparing for what will be an especially busy tax season.
Last year was the first year under the new tax laws passed by President Donald Trump and Republicans in congress.
One of their goals was to make the tax code less complicated.
"It's supposed to simplify but there's a lot of things out there that make it more difficult to understand," Bruce Baughman, owner of Belmont Business Consultants & Tax Services, said.
Despite the big changes made to the tax code, they most likely won't impact you unless you're making big bucks or have been going through big changes in your life.
The changes start with the form you fill out. There's now just one, the 1040, which has been reduced to about half a piece of paper.
"It's pretty simple as far as what it looks like but there are other schedules based on other items you need to worry about," Baughman said.
Tax schedules are additional forms you would fill out if you had special types of deductions like mortgage interest or farming income.
Fewer people may be using those this year because the standard deduction is now $12,000 for individuals and $24,000 for married couples.
"This year, that has pretty much doubled on every filing status level, which means a lot of people won't be itemizing as they were in the past," Justin Commes, Tax Accountant with Gudorf Tax Group, said.
The move away from itemizing taxes is designed to simplify things for both taxpayers and the IRS. For example, deductions for children are no more.
"If a husband and wife divorce, there's always argument as to who can claim a child as a dependent," Commes said. "Because the IRS is having to consistently chase both father and mother regarding this issue, you have adjustments to tax returns, you have all this paperwork and it clogs up refunds and it clogs up the IRS's time."
Instead, parents can now argue over an increased child tax credit.
"That has gone from $1,000 to $2,000 for children under 17," Baughman said. "It used to be you got nothing for a child over 17, but now you get $500."
Congress didn't just change the year-end deductions, they also changed how much they withhold in every check. That means you may not be getting as much back as you used to.
"Most of the people that would have gotten a bigger refund with all these changes have probably gotten more money in their pocket each payday, and therefore they won't see the bigger refund come year-end," Baughman said.
In fact, unless you start crunching numbers now, you may have the unpleasant surprise of going from getting a refund to owing money.
"Do the work to know what you're going to owe, so that you have the time and the space to think through what do I need to do to change that," Chris Burns, a Financial Planner with Dynamic Money, said.
Some of the biggest mistakes tax professionals see every year come from people who don't know what to count as income.
"Gambling," Baughman said. "I've seen a lot of people ignore that because they think, 'I've won $1,000 at the race track but I’ve lost $1,000 so I don't have to worry about claiming it or showing it'. Well, you do have to show it."
Organizing your financial documents is a great way to make sure you're prepared to file correctly and quickly.
While it may be tough to get the paperwork together, it will ultimately make the process easier and allow you to receive that potential refund quicker as well.
Tax professionals say most people should be fine sticking to their normal routine when they file this year, with a few exceptions.
"For the individual that has the basic return with a W-2 and nothing much more to where they take the standard deduction, I wouldn't argue against using something such as TurboTax," Commes said. "However, with individuals that have some unexpected life situation that transpires, always consulting a tax professional that is a good idea."
Should you take the standard deduction or itemize?
Even though the standard deduction has doubled, there may still be some benefits to itemizing for some people.
"Those that typically have a higher amount of tax due or are in some unforeseen abnormal circumstances," Commes said.
So what is a standard deduction?
According to TurboTax, the tax system gives you a choice of adding up all of your deductible expenses and providing evidence of those expenses to the IRS upon request through a process known as itemizing.
You can also simply deduct a flat amount, no questions asked. That flat amount is a "standard deduction." That makes sure that all taxpayers have at least some income that is not subject to federal income tax.
It's much simpler to claim the standard deduction than to itemize, but it could cost you money.
The IRS recommends that you take the time to run the numbers to see which option gives you a bigger deduction.
Software like TurboTax or a tax professional can help you make this decision.
If you do mess up on your taxes for whatever reason, there is a three-year grace period.
Also, if you make less than $54,000 a year, the city of Dayton is willing to help make sure that you don't make a mistake.
Starting January 22, the Volunteer Income Tax Assistance (VITA) program will begin helping residents file and making sure they get the most money back.