Tax Tip - Children
Claiming a child is probably the biggest change clients see when it comes to their taxes. The Child Tax Credit is now $2,000 per child under the age of 17. The income threshold for this credit has been increased dramatically for 2018! If you didn’t qualify in the past, you might be in for a good surprise this year. There is also the Earned Income Credit which can be over $6,000. Working parents with children under 13 years old may qualify for the Child and Dependent Care Credit. The IRS allows a credit up to 35% of your daycare costs. If you have one child you can claim up to $3,000 worth of daycare expenses, and $6,000 if you have more than one child in daycare. Contact us to see if you qualify.
Tax Tip - Education Credits
There are some great credits and deductions out there! One option is The American Opportunity Tax Credit (AOTC) which is a credit for 100% of the first $2,000 of qualified education expenses. This credit maxes out at $2,500 and a portion of the credit is refundable, which is very rare in the tax code. It is important to note that if you are claiming the child that is enrolled, you are allowed to take the credit even if you didn’t pay the education expenses. If grandparents helped pay for school or if a loan was used by the student, you are still allowed to take the credit this year. There are very specific rules for what is deductible, how many credit hours you need to qualify, and there are income limitations as well. Make sure you contact one of our tax specialist to find out if you qualify.
Tax Tip - Retirement Saving
If you make a retirement plan contribution you could qualify for a credit of up to $2,000. The credit ranges from 10% up to 50% of your contributions into your retirement plan. If your income is less than approximately $63,000 for a married couple or $31,000 for a single person, this credit might work for you. Even though we are now into 2019, you are still allowed to create and contribute to certain retirement plans which might help you qualify for the credit on your 2018 tax return. This is one of those few cases where you can consult with your tax professional and make a decision that will impact your 2018 tax return during 2019.
Tax Tip - Business Changes
If you are a business owner or have rental properties, you are used to hearing about depreciation. There were some changes in 2018 worth mentioning. The IRS has expanded what is known as “bonus” depreciation to now cover both new and used business assets and the deduction is now 100% of the purchase price (versus the old rate of 50%). Also, beginning with the 2018 tax return, a new 20% qualified business income deduction (QBID) will be available to most business owners. Instead of paying tax on 100% of your business or rental profits, you might only have to pay tax on 80% of your business or rental profits. There are income limitation, but they are pretty generous! We are expecting almost all of our clients to qualify for this new deduction. You will want to contact a tax professional that fully understands the new tax law to ensure you don’t miss out on these recent changes to the tax code.
Tax Tip - 2018 Individual Changes 1
The tax changes that passed at the end of 2017 completely changed the tax code for 2018. The IRS standard deduction was almost doubled! If you are a single person, it will be $12,000 (up from about $6,000). If married filing jointly, $24,000 (up from about $12,000). In exchange for those higher standard deductions, we are losing the $4,000 exemption per person on your 2018 tax return. Income tax rates were also reduced. We now have lower 12%, 22%, and 24% brackets down from 15%, 25%, and 28%. The tax brackets have been widened as well, allowing more of your income to be taxed at a lower rate in 2018.
Tax Tip - 2018 Individual Changes 2
Reminder, everything from the 2017 tax reform will affect the tax returns you are getting ready to file right now! The child tax credit has been doubled for 2018 from $1,000 up to $2,000. If you claim a child that is under the age of 17 during 2018 you might qualify for that $2,000 credit. Also, many items on Schedule A, which is commonly known as “the long form”, have changed or been eliminated for 2018. The state tax deduction will be limited to $10,000 and all miscellaneous itemized deductions have been eliminated. So if in the past you deducted employee business meals or miles, union dues, or other unreimbursed employee expenses, please know that those deductions have been eliminated from the tax code!
