6 Critical Questions To Ask A Tax ProfessionalPublished:
If you are one of the millions that barely made it through the holiday season, you may be ready for the year to end in relative peace. However, with tax season right around the corner, rest may not be an option for a few more months.
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In preparation for the upcoming tax season, many profession tax companies are offering free tax consultations as an incentive to get you in their doors. Besides just drumming up new business, the purpose of these freebies is to help taxpayers just like you, understand new tax laws and how they could impact your pay, your finances, and your 2019 budget.
If you need a little extra assistance to prepare for the upcoming tax season, the IRS is also offering some helpful tools such as a “Get Ready” webpage. This handy aid can also help with tax planning for the upcoming year, as well as getting you prepared for the rush in April.
With so many new laws, rules, and regulations, it can be challenging to prepare even the simplest of tax returns. And with the significant increase for 2018 standard deductions, it is essential to be very clear before you complete your tax preparation in the upcoming season. Whether you opt for website pointers or go it alone, we have compiled this list of six questions commonly asked of tax professionals and the best industry answers.
1) My taxes have pretty much been the same from year to year. Should I check with my employer on the amount of withholding being taken from my paycheck?
Yes! With so many changes in tax laws, income, and taxes due, it is absolutely critical that you review your withholding annually to ensure you are not withholding too little or too much.
It is also important to consider asking your employer about withholding additional funds in December so you will not end up paying a tax bill that is larger than expected or a penalty that was not anticipated.
If you happen to work for yourself, consider an increase in your January payment, to cover your fourth-quarter in 2018. You may possibly be liable for penalties, but the extra funds set aside should make the larger tax liabilities a bit less painful.
2) What kinds of year-end investment modifications should I make?
If you are not living under a rock, you have probably noticed some significant stock-market movements in recent months. This makes it even more important to speak to a knowledgeable tax professional as the year winds down. Previous investments may not be as intelligent as they were in past years. An experienced tax professional will be able to give smart advice on which investments to unload and which to keep.
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Additionally, it is important to note that there is a 2018 deduction of up to $3,000 for qualified losses that exceed your taxable gains. Additional losses can also be carried forward into future tax years.
Experts point to changes in the laws regarding new investment opportunities and suggest reevaluating your plans for the upcoming years. There are great tax incentives for individual investors who wish to spend money in “opportunity zones”. These zones have special investment incentives designed to help with critical development in neighborhoods that have historically been categorized as “low-income”.
Moreover, some taxpayers can defer gains if they invest equal amounts of funding into ‘opportunity zones’ within a prescribed amount of time. It should be noted that investors typically will not be able to see gains until their investment is sold with a cutoff of December 31, 2026.
3) Is it smart for me to itemize in 2018?
With a standard 2018 deduction of nearly $12,000 for singer taxpayers (nearly doubled from $6,350), and approximately $24,000 for joint filers (up significantly from the previous year’s $12,700), there are many great incentives to keeping the standard deduction in mind when filing taxes.
In fact, it is estimated that around 29 million people that itemized in 2017, will use the standard deduction when filing taxes in 2018. This means that there will be a 20% increase in standard deductions, up to 90% from the 70% in 2017.
That being said, it is still important to understand what the standard deduction and how much of a monetary difference there could be with itemized deductions. Additionally, if you decide not to itemize, you cannot deduct for things like charitable gifts either. And with a $10,000 limit on deducting state and local taxes, many taxpayers may find it is not so smart to use the standard deduction under certain circumstances.
Consulting a tax expert may be a smart move here because they can weigh in options and help you “bunch” deductions from year to year. It could mean possibly contributing twice as much one year and less the next year to balance your deductible opportunities. If you chose this method, you would itemize your return one year and take a standard deduction the following year.
4) Should I modify my contributions to charity?
This may be yet another category where it is wise to seek advice form an experienced tax adviser. As mentioned above, “bunching” deductions can allow you to take advantage of benefits, while itemizing every other year. However, there are ways to ensure that your charities will still get your financial contributions regularly, even on the years you do not itemize.
Tools like donor-advised funds, can help you continue your charitable contributions and still take advantage of the maximum deductions for 2018. At the same time, donators can choose the timing for funds disbursed to qualified charities. This means you can double up on your charitable donations during alternating even years, but still have funding released to the charities of your choice in odd years.
You may also be able to donate directly to the charity of your choice through your IRA account if you are over the age of 70. You would simply donate directly to your chosen charity with a portion of the required distribution minimum from your IRA account.
If you decide to try this option, you will not get a typical deduction. But, your distribution will not be counted as part of your income either. This means you will end up paying less tax on required account withdrawals.
5) With so many new rules, what can I still deduct?
New tax laws have eliminated a few common deductions used in past years, so if you are considering itemizing this year, you should talk to an experienced tax professional.
Past deductions like unreimbursed employee expenses, can no longer be used in 2018. Tax payers are also prohibited from deducting interest on any part of debt used for purposes unrelated to the home if they took out a home-equity line or credit or loan. This means financing college with funds from your home equity loan and taking a related deduction is no longer allowed.
If you are a small business owner, there is good news. Most small business owners can still deduct business expenses under most circumstances. New laws dictate that the first 20% of your income is exempt from taxation if you meet certain income limitations.
Medical expenses can still be deducted 2018 but will likely be excluded next year. The Tax Cuts and Job Act allows for deduction of any portion of unreimbursed medical expenses above 7.5% of adjusted gross income. This limitation is scheduled to return to 10 % in 2019.
6) Is it really worth it to invest in professional tax preparation to file my 2018 taxes?
Even if you have always done your own taxes, you may not have the experience and updated knowledge that trained tax professionals have acquired on a yearly basis. They have usually seen your type of tax situation before and can develop the best plan for your filing to help you get the most out of your 2018 tax preparation.
There are additional benefits to filing with a professional such as; audit protection, guaranteed double checks on your tax documents, and a possible deduction for the fees you paid for your tax preparation. Give yourself the gift of added peace of mind and consult with a local tax preparation firm today.
Any and all questions about deductions or other tax related issues should be directed to a qualified tax preparation firm or an experienced professional.