Frequently Asked Questions
What are the changes coming in 2018 due to the tax reform law?
Tax rate changes: Both individual and corporate rates have changed. The maximum individual rate is reduced to 37% and the corporate rate is now a flat 21%. The rate change could benefit you — or in some cases cause your tax liability to go up.
Standard deduction increases: However, there are no more personal exemption deductions allowed. So this may help you — or hurt you.
Increased Child Tax Credit and new Dependent Credit: The credit is increased for each child to $2,000 (up to $1,400 of which is refundable for each child) and each non-child dependent can now receive a new credit of $500. But you will have no exemption credit or deduction for yourself, your spouse, or your dependents.
Disappearing deductions: Beginning with the 2018 tax year, you will no longer be able to deduct:
- State income tax and property taxes above $10,000 per year in total;
Moving expenses (with an exception for certain military);
- Employee business expenses such as mileage, travel, entertainment, home office expenses, union dues, tax preparation fees, and investment fees, among others;
- Mortgage interest beyond interest on $750,000 of acquisition debt, if you purchase a new home; and
- Mortgage interest paid on equity debt (this is no longer deductible for any taxpayers).
Some new benefits for individuals: These new benefits include:
- The medical expense AGI threshold will temporarily drop to 7.5% of AGI for 2017 and 2018;
- The AMT threshold is increased, so fewer middle-income taxpayers will be subject to AMT;
- The estate tax exclusion has nearly doubled, to $10 million (adjusted for inflation); and
- The annual gift tax exclusion remains the same ($14,000 for 2017 and $15,000 for 2018), but the maximum rate on gifts is 35%.
Small business benefit: Beginning in 2018, there will be up to a 20% deduction from net business income for a sole proprietorship, LLC (excluding those taxed as a C corporation), partnership, S corporation, and rental activity. The rules are incredibly complex but there is a lot of planning that we can do to maximize this deduction for you.
These are the most common changes, and at your tax interview this year we will discuss any other changes that might affect you.
Is there an age limit on claiming my child as a dependent?
To claim your child as your dependent, your child must meet either the qualifying child test or the qualifying relative test. To meet the qualifying child test, your child must be younger than you and either younger than 19 years old or be a “student” younger than 24 years old as of the end of the calendar year. There’s no age limit if your child is “permanently and totally disabled” or meets the qualifying relative test. In addition to meeting the qualifying child or qualifying relative test, your child must also meet all of the other tests for claiming a dependent. For example the dependent taxpayer test, citizen or resident test, and joint return test.
How much income can an unmarried dependent student make before they have to file an income tax?
An unmarried dependent student must file a tax return if his or her earned or unearned income exceeds certain limits. To find these limits, refer to Dependents under Who Must File, in Publication 501, Exemptions, Standard Deduction, and Filing Information. Even if you don’t have to file a federal income tax return, you should file if you can get money back (for example, you had federal income tax withheld from your pay or you qualify for a refundable tax credit). See Who Should File in Publication 501, for more examples.
To qualify for head of household filing status, do I have to claim my child as a dependent?
Generally, to qualify for head of household, you must have a qualifying child or dependent. However, a custodial parent may be able to claim head of household filing status with a qualifying child even if he or she released a claim to exemption for the child. See Noncustodial parent is claiming an exemption for my child; do I still qualify as head of household?
What should I do if I made a mistake on my federal return that I've already filed?
It depends on the type of mistake you made. Many mathematical errors are caught during the processing of the tax return and corrected by the IRS, so you may not need to correct these mistakes. If you didn’t claim the correct filing status or you need to change your income, deductions, or credits, you should file an amended or corrected return using Form 1040X, Amended U.S. Individual Income Tax Return. When filing an amended or corrected return Include copies of any forms and/or schedules that you’re changing or didn’t include with your original return. To avoid delays, file Form 1040X only after you’ve filed your original return. Generally, for a credit or refund, you must file Form 1040X within 3 years after the date you timely filed your original return or within 2 years after the date you paid the tax, whichever is later. Allow the IRS up to 16 weeks to process the amended return.
What is a split refund?
A split refund lets you divide your refund, in any proportion you want, and direct deposit the funds into up to three different accounts with U.S. financial institutions. Use Form 8888, Allocation of Refund (Including Savings Bond Purchases), to request to have your refund split or to use part or all of your refund to buy up to $5,000 in paper or electronic U.S. Series I Savings Bonds for yourself or someone else.
How do I know if I have to file quarterly individual estimated tax payments?
You must make estimated tax payments for the current tax year if both of the following apply: You expect to owe at least $1,000 in tax for the current tax year after subtracting your withholding and refundable credits. You expect your withholding and refundable credits to be less than the smaller of: 90% of the tax to be shown on your current year’s tax return, or 100% of the tax shown on your prior year’s tax return (must cover all 12 months).
What are the tax changes for this year?
For highlights of the tax changes for the current tax year, refer to the “What’s New” section of the following: Individuals – Instructions for Form 1040, Instructions for Form 1040A, or Instructions for Form 1040EZ; Businesses – Publication 15 (Circular E), Employer’s Tax Guide, or the instructions of your current business tax forms.