During a recent webinar hosted by SobelCo, we offered advice and insights for the individual tax filers for a smoother and less stressful process. While just hearing the words, “tax return,” or “April 15!” can strike fear in the hearts of most of us, there are ways to lessen the anxiety around the experience.

Here is a brief synopsis of the areas we focused on during the webinar.

Don’t Wait to Get Started

The first and most obvious suggestion is to start the process early. Angst typically occurs when you wait until the very last minute to gather data and schedule an appointment with our firm. Organizing key documents well before the deadline alleviates most of the worry about whether or not you have all the information you will need. If anything is missing, this affords you ample time to correct the situation without a deadline closing in on you.Remember, nothing is going to happen as quickly as you might anticipate – so allow plenty of time to assemble your records and identify any missing pieces.

As you are getting your papers in order, refer to the SobelCo Tax Organizer or a similar checklist to jog your memory and to make sure that you have not omitted anything that is critical. You can save time completing the organizer by not filling out the sections that have an information returns that are to be attached. For example, the wage section does not need to be completed since you have a form W-2. All you have to do is check it off and attach the form to your tax organizer.

Know What Forms Will Be Required

There are several forms that are most often required when preparing and filing your tax return. The most common are:

  • Wages Form W-2
  • Interest and Dividends Forms 1099-INT or 1099-DIV
  • Sales of Investment Property Form 1099-B
  • Gambling or Lottery Winnings Form W-2G
  • Pension/IRA/Annuity Income Form 1099-R
  • Social Security Form SSA-1099
  • Unemployment Compensation Form 1099-G
  • Miscellaneous Income Form 1099-MISC

There are also several other key forms that you may need to have ready:

  • Schedule K-1 for reporting investments in an S Corp, Partnership, or Trust Estate
  • HSA DistributionsForm 1099-A
  • HSA Contributions Form 5498-SA
  • Student Loan Form1098-E
  • Tuition Payments Form 1098-T
  • Mortgage Interest Form 1098

Understand the Changes Based on the Tax Cuts and Jobs Act (TCJA) to the Standard Deduction

Under the Tax Cuts and Jobs Act passed at the end of 2017, the standard deduction has been increased as follows:

  • $24,000 for married individuals filing jointly
  • $18,000 for head-of-household filers
  • $12,000 for all other tax payers

And taxpayers who are 65 or older – or blind – or both also get an additional deduction:

  • $1,300 for married individuals
  • $1,600 for single individuals

You can take the higher of the standard deduction or the total of your itemized deductions on your return – you CANNOT take both. It is important to note that even if you take the standard deduction on your federal return you may still need to provide your tax preparer with your itemized deductions for your state income tax filing.

Understand the Changes to State and Local Taxes

One of the most significant changes in the new Tax Act is the cap on the state and local tax deduction, which is now limited to $10,000 or $5,000 for married individuals filing separately. The $10,000 limit applies to state income taxes and property taxes paid.

One bit of good news is that if you file in the State of New Jersey, the limitation on the total property tax deduction has been increased from $10,000 to $15,000.

You still need to gather the total amount paid even though this deduction is limited. Make a list of dates and amounts paid for all state and local property taxes and state and local income taxes paid in 2018.

Understand the Changes to Mortgage Interest

There have been changes in this area as well, but certain circumstances must be considered:

  • The home equity interest has been suspended and therefore is not deductible. However, if the proceeds can be traced to ‘qualifying’ uses that include home improvements, business loans, or investment loans, then you may still be able to deduct the interest
  • Home mortgage interest remains deductible for your primary residence and one additional residence but may be limited if the amount of the mortgage debt is greater than the threshold amount
  • There is a new mortgage debt threshold amount of $750,000 for debts incurred after December 15. 2017. The $1,000,000 threshold still applies if your loan was incurred prior to the enactment date stated

Do not forget to provide a 1098 for each loan!

Changes to Charitable Contributions

There are changes in the Tax Act that have impacted philanthropic initiatives. While the increase in the standardized deduction is expected to have an effect on giving, there are other points to consider if you will be itemizing your deductions in 2018:

  • You will need a written acknowledgement for a cash gift of over $250
  • You will need to provide the details of value for total non-cash donations valued at $500 or more, but less than $5,000. Note there are resources available on line that list thrift shop value for non-cash items
  • Non-cash donations over $5,000 require a qualified appraisal
  • The donation of cars requires special reporting

Changes for Miscellaneous Itemized Deductions

Another one of the major differences in the new Tax Act is the handling of miscellaneous itemized deductions. No deduction is allowed for the following items starting in 2018. However, non-New Jersey state filers may still get a deduction and may have to provide this information to the preparer:

  • Union dues
  • Unreimbursed employee business expenses
  • Financial advisors’ fees
  • Tax preparers’ fees

Pay Attention to Other Available Tax Credits

There are four important areas where tax credits exist that are important to note:

  • The Child Tax Credit is $2,000 per qualifying child (subject to phase-out if your income is too high)
  • The “New” Other Dependent Credit is $500 for each dependent that is not a qualified child (subject to phase-out if your income is too high)
  • The Dependent Care Credit - to take advantage of this, you must request a statement from the provider that includes the tax identification number and the total dependent care expenses paid by you
  • The Adoption Credit is up to $13,810 for qualified adoption expenses paid but is subject to phase-out if your income is too high

The Steps in the Work Flow Process at SobelCo

  1. Once we have received all your information, we will check your documents into our Work Flow System which allows us to know where your return is at all times
  2. All documents will be scanned and placed into your client folder
  3. All eligible forms will be Auto Flowed electronically into your return and validated
  4. A tax preparer is assigned
  5. Once completed, the tax preparer passes your return to a manager or partner for review
  6. The preparer assess all the notes from the reviewer and clears them
  7. A partner ensures that all review notes have been cleared and issues a sign off
  8. Your return is sent to the processing department to be assembled
  9. Your return is delivered based on your instructions for email or postal mail

What is in Your Electronic Tax Return Package?

When you opt to receive your tax return electronically, there will be four files. Each of these has very important information for you:

  • The first file contains the cover letter, tax return instruction sheet, payment vouchers if applicable, and your quarterly estimated tax vouchers with instructions
  • The second file contains your E-Filing checklist
  • The third file contains your Form 8879 which authorizes us to file electronically on your behalf
  • The fourth file contains your 2018 Federal and State Income Tax Returns

Once you have reviewed your returns for accuracy, and have returned the Authorization Form 8879, we will complete the process and file your tax returns. It is very important to return your form 8879 as soon as possible!

It is also important to remember that even if you file an extension, you must still pay any taxes that you owe. The extension does not give you more time to write that check!

If you have questions about any other deductions that you are concerned with, please do not hesitate to email me at Mary.Ford@SobelCoLLC.com or call me at 973-994-9494. I am happy to help you.