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With April 15 closing in, it’s time to get serious about finishing your 2018 taxes (if you haven’t already). That’s all the more important this year when you’ll be facing, for the first time, a whole host of changes resulting from the 2017 tax reform bill.
What’s more, Americans may be overestimating their tax know-how. In a new survey by the online financial advisor Betterment, 85% of respondents reported feeling at least somewhat confident in their tax knowledge. But when asked true/false questions about basics like the standard deduction, filing deadline, and changes to tax rates, far fewer got the answers right.
“In general, people are overconfident in their knowledge of taxes, especially given that there’s over a thousand pages of new tax law,” says Eric Bronnenkant, head of tax at Betterment.
Age and experience do temper that confidence: Only 14% of baby boomers are “very confident” about their tax knowledge, compared to 25% of millennials who say so. “Boomers have been doing taxes for a long time and recognize complexity,” says Bronnenkant. “They have gone through tax law changes before.”
Here are ten key things you need to know about filing your taxes this year:
1. Chances are you won’t itemize
The tax reform bill made big changes to what you can deduct. Gone are write-offs like unreimbursed business expenses, job search expenses, and tax-prep and investment fees. The deduction for state and local income and property taxes has been capped at $10,000.
In exchange, Congress nearly doubled the standard deduction, the write-off anyone can take instead of going to the trouble of itemizing. This year married couples filing jointly get a standard deduction of $24,000; for singles it’s $12,000.
As a result, an estimated 90% of filers will be better off taking the standard deduction.
“The positive change people will be surprised by this year is the increased standard deduction,” says Cari Weston, director of tax practice and ethics for the American Institute of Certified Public Accountants. “For some folks, that means no need to keep detailed records.”
2. You still can’t do your taxes on a postcard
One of the promises of tax reform was that you could do your taxes on a postcard. “That was a nice sound bite,” says Brian Ashcraft, director of compliance of Liberty Tax Service, “but it’s not happening.”
Still, your tax forms will look different. The 1040A and 1040EZ—two forms that filers with simple returns could use—are gone. And the standard Form 1040 now fits on two half pages instead of two full pages.
But to fill out the condensed 1040, you may need to use one of the six additional schedules. For example if you fund a deductible IRA or have investment gains, that means filling out another form.
Of course, if you do your taxes online or use a tax preparer, you won’t even notice the new look of the paper forms.
3. There’s free help out there
With the IRS’s Free File program, you can prepare and file your federal tax return online using software from a dozen commercial tax preparers, including H&R Block, TaxAct, and TurboTax.
Anyone who earns $66,000 a year or less is eligible. But each tax-prep company sets different rules for who qualifies, with some imposing age caps or lower income cut-offs.
You can find free in-person help too. The AARP Foundation offers free help from IRS-certified volunteers. The IRS’s Volunteer Income Tax Assistance program is available to anyone who earns $55,000 or less. You can search by zip code for your nearest location.
4. Early refunds were smaller, but yours might not be
Typically more than two thirds of tax filers get refunds. In the first few weeks of tax season this year, though, many early filers were surprised to see that their refund was smaller than expected. Or worse, they owed taxes. But more than a month into tax-filing season, refunds were back to normal, averaging about $3,000.
Many people count on a tax refund as a way to save money. But a big tax refund means you gave the government an interest-free loan, notes Bronnenkant. “Tax refunds are good for the government, not good for taxpayers. For some, though, it’s the only way they can save. In that case, it’s not the worst option if it gets you where you want to go.”
5. Even if you can’t itemize, you have other ways to trim your income
The near doubling of the standard deduction means that most filers won’t itemize. Even so, you can write off certain expenses.
Depending on your income, you may be able to deduct an IRA contribution of up to $5,500, or $6,500 if you’re 50 or older. You have until the April 15 filing deadline to put aside money for 2018.
The new tax law did not eliminate the deduction for student loan interest, worth as much as $2,500 if you qualify. As a teacher, you can write off $250 worth classroom supplies you paid for out of pocket.
With a high-deductible health insurance plan, you can still put money in a health savings account for 2018—$3,450 as a single filer, $6,900 for a family—and that’s deductible. If you’re 55 or older, you can save another $1,000.
6. Young kids are even more precious
The tax reform bill eliminated personal exemptions for you and your kids. But another change could more than make up for that loss. A key tax break for parents of young children has become more valuable—and more widely available.
The child tax credit is now worth $2,000 for every child under 17, up from $1,000. Married parents earning as much as $400,000 a year now qualify for a full break. For single parents, that threshold is $200,000.
Credits are especially valuable because they cut your tax bill dollar for dollar.
Are you supporting older children or other family members, like a parent or a sibling or even a niece or nephew? Tax reform added a new $500 credit for other dependents like these.
7. Losing money isn’t all bad
Last year investors went on a roller coaster ride, as stock prices dropped sharply before recovering.
If the big stock dips means you sold a stock or mutual fund for a loss, that’s valuable on your tax return. The tax reform bill lowered income tax rates but kept capital gains rates as is—0%, 15%, or 20%, depending on your income.
By pairing your investment losses with your gains, you can avoid paying taxes on your profits. If you have more losses than gains, you can use up to $3,000 worth to offset your ordinary income. And then save what’s left to cut your taxes next year.
8. The tax perks of owning a home are less generous
One big change is that you can no longer deduct interest on home debt in excess of $750,000, down from $1 million. This applies to loans taken out after Dec. 16, 2017.
That change will affect mainly homeowners in expensive parts of the country. But two other changes could hit more people.
The first is that you can deduct no more than $10,000 in state and local taxes, including property taxes.
The second is that you can deduct interest on a home equity loan only if you use it to buy or improve your home. If you tapped your home equity to pay college costs, consolidate credit card debt, or cover a medical bill, that interest is no longer deductible.
9. With planning, you might be able to get credit for charitable gifts
You can write off gifts to charity as long as you itemize deductions. But because fewer filers will itemize this year, that means no direct credit for charitable gifts.
If you want to earn a tax break on your donations, you’ll need to plan ahead. One strategy is to bunch deductible expenses. That could mean making three years of gifts at once. You’d itemize that year and then take the standard deduction the other years.
Retirees have another option. If you’re over 70 and a half and taking money from your retirement accounts, you can instead donate that withdrawal to charity and avoid paying income taxes on the income.
10. If you can’t finish on time, you have options
The April 15 tax filing deadline falls on a Monday this year, giving you a full weekend for last-minute tax prep. If you still can’t make it, apply for a six-month extension using Form 4868. You can do that via tax software, downloading the form, or filing online using IRS Free File.
Even with an extension, you must pay what you owe by April 15 to avoid interest or penalties. If you don’t have the cash, you can put your tax bill on a credit card. But you’ll pay a processing fee of nearly 2% at a minimum, plus interest until you can pay off that balance.
Once you do file, a better option might be to apply for an installment agreement with the IRS. That lets you can designate how much time you need to pay your bill.
