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Visit our blog frequently to read our take on developments and news about taxes, accounting, financial and retirement planning.

Preparing for Tax Season 2019

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We know it’s not even Christmas yet, but some of you are probably wondering what the new tax law will mean for your finances heading into 2018. The news can’t decide if the changes are good or bad, but the answer for you will depend on your individual circumstances. Here is some basic information to help give you an idea of what to expect, but don’t worry. This is what we do best.

Standard Deduction Doubled

You may be familiar with the standard deduction. Many people use it rather than itemizing. For 2018, the amount of the standard deduction will roughly double:

  • $12,000 for single filers, up from $6,350
  • $24,000 for married filing jointly, up from $12,700
  • $12,000 for married filing separately, up from $6,350
  • $18,000 for heads of household, up from $9,350

This means that many of you may receive more money back when you file your taxes. This increase is balanced by changes to many deductions.

Deductions and Exemptions Removed

The increase in the standard deduction is balanced by the removal of several individual deductions and exemptions, including all of the miscellaneous itemized deductions. Many of these apply to specific life circumstances, so they may or may not affect you. Examples include:

  • The personal exemption (an amount claimed against income for the filer and each dependent;
  • The unreimbursed employee business expense (when an employee pays business expenses out of their personal funds—such as nurses, salespeople, and educators); and
  • The home office deduction (for those who work out of their homes and pay for services related to their work).

Deductions Changed

While many deductions were removed, some of the most commonly used were preserved, though altered.

  • The mortgage interest deduction was limited going forward. It will only apply to a mortgage to purchase, renovate, or build your home up to $750,000 (up to $375,000 if married filing jointly).
  • The medical expenses deduction was made more accessible by lowering the floor to deduct such expenses from 10% of income down to 7.5% of income.
  • The child tax credit was expanded to $2,000 per qualifying child and is potentially refundable up to $1,400.

Conclusion

There are many changes starting with your 2018 taxes that will affect whether you get more or less back when you file. It can seem very confusing and overwhelming, but we are here to help you when the time comes. You don’t have to do it alone.

Three Financial Housekeeping Tips for the Post Tax Season

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You did it! Whether you’re patiently awaiting a refund or unenthusiastically writing a check, you can officially put tax season behind you. While tax time can be stress inducing for even the most seasoned accountants, not to mention taxpayers, it’s never too early to start preparing for next year. We always advise our clients to use this downtime as an opportunity to reflect on the past financial year and perform a little financial housekeeping.

1. Perform a year-end financial analysis

Having just reviewed your major financial documents for the year, you have a pretty good idea of your financial wins and losses. Taking a closer look with an open eye and willingness to learn can go a long way – in other words, use this last year’s financial experience to improve the future.

Analyzing your expenses can help identify ways to save more money. For example, consider raising your 401k contributions if you notice that your income rose last year and you are not maxing out currently. Or, if you aren’t there yet, committing to packing your lunch, or making your own coffee can add up throughout the year.

2. Consult with your accountant or financial advisor

Finances are complicated. After you’ve done your base analysis, consult with a professional for a deeper understanding. They can bring a fresh set of eyes to your financial situation and offer helpful solutions.

Maybe your goal is to buy a house this year. An accountant can help you prepare financially, compare different loan options, and explain how this will affect your taxes next year.

3. Implement new tools and strategies to track your finances

The best way to avoid a headache next April is to find ways to track and organize your finances throughout the year. Whether you file under a business or individually, there are simple things you can do.

For example, keep and organize your receipts. If you donate old clothes to Goodwill, be sure to take pictures of all items donated, and file your receipt now so you aren’t scrambling at tax time. Also, don’t be afraid to use technology to help you. Create an Excel spreadsheet to track your monthly expenses, or take advantage of mobile banking.

Final Note: With the recent changes to the tax law, it’s more important than ever to start planning now. If you have any questions about organizing your finances, we’re always happy to help – Just send us an email and we’ll talk.

When an Elderly Parent Might Qualify as Your Dependent

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

It’s not uncommon for adult children to help support their aging parents. If you’re in this position, you might qualify for an adult-dependent exemption to deduct up to $4,050 for each person claimed on your 2017 return.

Basic qualifications

For you to qualify for the adult-dependent exemption, in most cases your parent must have less gross income for the tax year than the exemption amount. (Exceptions may apply if your parent is permanently and totally disabled.) Social Security is generally excluded, but payments from dividends, interest and retirement plans are included.

In addition, you must have contributed more than 50% of your parent’s financial support. If you shared caregiving duties with one or more siblings and your combined support exceeded 50%, the exemption can be claimed even though no one individually provided more than 50%. However, only one of you can claim the exemption in this situation.

Important factors

Although Social Security payments can usually be excluded from the adult dependent’s income, they can still affect your ability to qualify. Why? If your parent is using Social Security money to pay for medicine or other expenses, you may find that you aren’t meeting the 50% test.

Also, if your parent lives with you, the amount of support you claim under the 50% test can include the fair market rental value of part of your residence. If the parent lives elsewhere — in his or her own residence or in an assisted-living facility or nursing home — any amount of financial support you contribute to that housing expense counts toward the 50% test.

Easing the burden

An adult-dependent exemption is just one tax break that you may be able to employ on your 2017 tax return to ease the burden of caring for an elderly parent. Contact us for more information on qualifying for this break or others.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.