Get a Jump-Start on Taxes with Two Easy Steps
Given the tax law changes for 2018, many are wondering if they’ll come out ahead. Even for those in the industry, this quote from Albert Einstein on taxes rings true: “This is too difficult for a mathematician. It takes a philosopher.”
While you may not know exactly how the chips will fall until it’s time to submit your return, there are a couple of easy steps you can take now to be better prepared and understand if one of the significant changes will impact you.
Both steps require you to pull out your tax records from 2017. So, cozy up next to the fire—resisting the urge to throw your tax return into the flames—and let’s jump in.
1. Refamiliarize yourself with your tax backup from 2017. An easy way to get your taxes filed sooner is to gather your tax records as they arrive. If they get overlooked, you may trash them accidentally, causing wasted time later when tracking them down. Instead, revisit your file, making a list of the items to watch for. These include W2s, 1099s, IRA contribution forms (Form 5498), charitable giving records, etc. Not just knowing what you’re looking for but who it should come from and how (mail/email) will keep it top-of-mind and can help you grab it for your tax file when it arrives.
2. Deduction Changes. One of the biggest tax law changes relates to standard deductions. Rather than explaining how these work (reference Albert Einstein quote above) let’s jump to the meat. Look at page 2 of your 2017 tax return, line 40.
If you’re single and your line shows a figure above $6,350 or if you’re married (filing jointly) and your line shows a figure above $12,700, you itemized your deductions last year. Why does this matter? It matters because the standard deduction is almost double for 2018 ($12,000 for singles and $24,000 for married filing jointly). Likely, in order to itemize deductions for 2018 (i.e., to use your charitable contributions, home mortgage interest, etc. to save you tax dollars), your line 40 number from last year needs to be in excess of $12,000 (single) or $24,000 (married filing jointly). This isn’t bad or good. But if you’re close to the new standard deduction for your filing status, it can give you guidance as to whether you should find every possible deduction available or if other tax planning may be appropriate. Note: This is when a tax adviser might be helpful.
Studies* estimate that most Americans will use the standard deduction for 2018. If nothing else, that may make one piece of your tax situation simpler. Meaning, if you’re confident you won’t itemize for 2018, there’s no need to dig around for that long-lost charitable receipt because you won’t need it anyway!
Taxes aren’t fun. But feeling prepared for at least a part of what’s to come is always helpful. Remember to seek a tax adviser’s help if you feel your situation may need a bit more attention.
The opinions expressed herein are those of PYA Waltman Capital, LLC, and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product.
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