A Little Tax Time Q&A
Tax season is well underway, and we’re starting to see some of the same questions being asked over and over. Let’s take a look at some of the most common:
Q. I’ve always deducted mortgage interest, taxes, and charitable contributions, but I didn’t get to take them last year and now you’re saying I can’t take them this year either?
A. Yep, and we’ll probably tell you the same thing next year. Last year’s Tax Cuts and Jobs Act (TCJA) was a major overhaul of the tax law, with one of the biggest changes being the nearly doubling of the standard deduction. This year, the standard deduction was raised even more; the 2019 standard deduction is $12,200 for singles and $24,400 for married couples. Less than 10% of taxpayers now benefit from itemizing.
Q. But I don’t even get a benefit from donating to charity?
A. Well, probably not a tax benefit. Charitable donations are included on Schedule A, which is where itemized deductions are listed. So again, most taxpayers won’t get a tax deduction for charitable donations. However, there are a couple of strategies you might want to consider. For those who must take Required Minimum Distributions (RMDs) from their qualified retirement accounts (keep in mind the age for RMDs just went up), making a Qualified Charitable Distribution (QCD) satisfies the RMD requirement without causing taxable income to go up. Some taxpayers may benefit from bunching deductions into alternate years. By making large charitable donations every other year, the threshold for itemizing may be met in the year the contributions are made; the standard deduction will then apply in the year no donation is made. We’ll be happy to give more information on either of these strategies.
Q. Ok, I can’t itemize, but what about all these expenses I had at work? I bought tools, drove between job sites, attended conferences …
A. Hopefully your employer has kept up with the new tax laws. The TCJA eliminated deductions for job expenses for W-2 employees. However, employers are allowed to set up Accountable Plans to reimburse employees for their work-related expenses, and these reimbursements aren’t taxable. If you routinely incur job expenses, talk to your employer about the possibility of establishing an accountable plan.
Q. My kid had a job last summer, but he didn’t make a lot of money. Can I just add his W-2 to my return?
A. No! The W-2 is in your child’s name, so any tax consequences are your child’s. But don’t worry … they’re not required to file a federal tax return unless they made more than $12,200. North Carolina will want a return only if they made more than $10,000. If they’re below these limits, they’ll want to file a return to get any withholding refunded. Please make sure they check the box indicating they are a dependent on another’s tax return or you’ll have a mess to clean up when you file your return!
Q. My refund / amount owed is not what I expected. What happened?
A. Again, the TCJA was a major overhaul of the tax law. While employees were not required to submit new W-4s (the document that tells your employer how much tax to withhold from your checks), the old forms do not completely align with the new tax law. Also, new withholding tables were created with the goal of reducing large refunds. The combined effect of these changes means that many taxpayers, while probably paying less actual total tax, will have smaller refunds or possibly even owe when they file. The IRS has created a tax withholding estimator tool that can help you set your withholding for the desired refund/amount due and create a new W-4 for you to give your employer.
Q. Is it OK for me to bring my tax preparer donuts or other treats?
A. YES! Absolutely yes!
Remember, each taxpayer’s circumstances are unique. Before making any changes based on this information, talk with us to make sure your particular situation will benefit. Call today for your appointment!