Tax season can spur a multitude of questions for taxpayers, no matter how simple or complex your tax return may be, and it often can be difficult to wade through internet resources and industry jargon to find the answers to the questions that you have about your taxes. With such a complex topic that’s unique to each person, how can you gain an understanding of what tax season means for you?
Recently, Warren Averett’s own Elizabeth Finley appeared on WSFA’s Alabama Live! on behalf of the Alabama Society of CPAs to answer some popular questions about filing taxes. In light of the insight and answers that Elizabeth gave to taxpayers, Warren Averett has compiled this resource of a few of the most-frequently-asked questions our accountants across the Southeast hear during tax season.
What are the benefits of filing early?
Typically, taxpayers benefit from filing early because, as the deadline approaches, more and more returns are filed. Filing early can help you to avoid the rush. Generally, returns that are filed early are processed quicker, and taxpayers are more likely to receive a refund sooner.
What is the difference between a tax credit and a tax deduction?
Deductions reduce a taxpayer’s taxable income, while credits reduce the actual amount of taxes owed after the amount due is calculated. If you have questions about which credits and/or deductions you may be able to claim on your tax return, you may want to consider consulting an accounting professional.
How has tax reform changed what I can expect?
Individual taxpayers can expect to see major changes with the standard deductions and exemptions. You can no longer claim an exemption for yourself or your dependents. However, the standard deduction has significantly increased from last year. Taxpayers elect to either itemize their deductions or take a standard deduction. With the standard deduction increase, taxpayers’ itemizations may not exceed the new threshold.
Despite losing the exemption for dependents, the child tax credit was doubled to $2,000 per child, and the phase-out threshold jumped all the way to $400,000 for married filing jointly returns. This means that many taxpayers will see benefit from this credit who haven’t in the past. Other dependents who don’t qualify for the child tax credit will be eligible to receive a $500 credit. Additionally, there was an average three-percent decrease in each tax bracket from last year. With this information in mind, taxpayers most likely saw a decrease in their withholdings during 2018, which allowed them to have more take-home pay.
The Tax Cuts and Jobs Act also gave birth to a brand new provision: Section 199A (or qualified business income deduction), which permits owners of sole proprietorships, S corporations or partnerships to deduct up to 20 percent of the income earned by the business. This deduction can be limited depending on the industry, W2 wages and various other factors. As a flow-through entity’s business owner, you can expect to receive additional requests for information you might not have typically submitted in the past and, possibly, a new deduction on your individual return. We would recommend contacting a professional to determine the benefit of this deduction.
Also, entertainment expenses, which historically qualified for a 50-percent deduction, may not be deductible at all. Conversely, capital items with a recovery period of 20 years or less now qualify for a 100-percent bonus deduction, as opposed to 50 percent in prior years.
How do I know if I need an accountant to file my taxes or if I can do it myself?
Knowing whether or not you need an accountant’s help with your taxes requires some self-assessment. If you have experienced a major life event, such as going through a divorce, or if you’ve recently changed careers, it may be in your best interest to consult a professional. An accountant can offer advice for alternatives that may be to your benefit.
If I need help from an accountant, how can I know which one to pick to do my taxes?
It’s best to find a firm that’s willing to invest in a relationship with you, not just a transaction with you every spring. Because the tax code is ever-changing, it can be helpful to establish a relationship with a professional who can give insight as to how a given tax change may impact you. Having consistent communication with your accountant throughout the year will set you up for success, and the more your accountant knows about your particular situation, the better service he or she will be able to provide.
What kinds of tax services would an accounting firm provide?
Accounting professionals can offer expert advice on how you can meet specific tax credit and deduction requirements and take advantage of those benefits. Additionally, accounting firms can help ensure taxpayers are paying the correct amount of estimated taxes during the year to minimize unpleasant surprises during filing season.
What kinds of receipts will I need to have on hand to file my taxes?
Individual taxpayers should keep documentation of their charitable contributions and donations to nonprofit organizations. It’s also beneficial to keep documentation for taxes you’ve paid throughout the year, such as your real estate taxes or the tags for your vehicle. You can also deduct medical expenses that you pay out of pocket (i.e., expenses not covered by insurance or FSA/HSAs), so it’s wise to maintain those receipts as well.
Who can I claim as a dependent?
Generally, a dependent is be someone for whom you provide a majority of support. Often, this can include unmarried children or elderly relatives you care for. Dependents must have income below a certain threshold. There are specific guidelines for determining who may qualify as a dependent, and there are many specifications and exceptions to the rule. If you have questions about your dependents, you can review requirement checklists provided by the IRS, or may want to consider consulting an accountant.
What should I do if I owe more taxes than I can pay?
Unfortunately, taxes are due when they are assessed. The IRS will allow you to pay your taxes in installments. Doing so will result in fines and penalties, but the IRS offers solutions for paying those as well.
If you have other questions about filing your taxes or if you would like to learn more about the tax services that Warren Averett offers, you can visit the tax section of our website here. This article is based on WSFA’s Alabama Live! interview with Elizabeth Finley, which you can watch here.