Tax season opened Jan. 29, and the IRS expects more than 155 million returns to be filed this year, of which more than 70 percent should receive a refund. Once again, due to a Washington D.C. holiday (Emancipation Day), the filing deadline is delayed. Procrastinators, mark April 17, rather than April 15, as your drop-dead date.
Although the IRS has already begun accepting electronic and paper tax returns, the agency begins processing paper returns later, in mid-February. Choosing e-file and direct deposit for refunds remains the fastest and safest way to file.
The IRS expects more than four out of five returns will be prepared electronically using tax software and anticipates issuing more than nine out of 10 refunds in less than 21 days. If you claim the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC), know that the IRS probably will not issue those refunds until the end of February.
Now onto the hard part – the completion of your returns.
You’ll feel most of the changes from the new tax code in 2019, the next tax season. But one big thing changes for 2018.
If you itemize deductions on Form 1040, Schedule A, the new law allows you to deduct qualified medical and dental expenses that exceed 7.5 percent of your adjusted gross income (AGI). That’s a lower threshold than the previous 10 percent. The level returns to 10 percent beginning Jan. 1, 2019.
This is a broad category. Take a look at the IRS list of medical and dental expenses, because it includes payments of fees to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and nontraditional medical practitioners, as well as insurance premiums you paid for policies that cover medical care or for a qualified long-term care insurance policy.
The new law repealed the individual mandate to carry health insurance. You still need to provide proof of coverage this year for 2017. If you don’t have it, you’ll pay the penalty, which is the higher of 2.5 percent of your AGI, or $695 per adult and $347.50 per child, up to a maximum of $2,085.
What about NEXT year?
This is where the process gets tricky. The IRS has created new withholding tables, but the recommended amounts may not be enough to cover a lot of taxpayers, especially those in high tax states who could lose certain deductions. To be safe, at least for the first year of the new law, you may want to assume that your tax liability will be at least the same as this year. To avoid a penalty, you can pay 100 percent of your income tax liability from 2017 or 110 percent if you earn more than $150,000.
To get a better sense of your situation, be sure to check out the revised IRS withholding tax calculator on IRS.gov, which should be available by the end of February.
- IRS Free File: Prep and filing software for individuals and families with incomes of $66,000 or less
- Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE): Free tax help to people who generally make $54,000 or less, persons with disabilities and limited English speaking taxpayers who need assistance
- Where's My Refund? tool on IRS.gov and the IRS2Go phone app
- Directory of Federal Tax Return Preparers: A database of return preparers with credentials and select qualifications
- Authorized e-File Providers: A database of all Authorized e-File Providers who chose to be included
A CFP® professional can help you prepare your taxes and develop strategies to minimize them over time.