As 2019 nears, taxpayers are facing sweeping tax changes and in some cases facing a deadline of Dec. 31 to make a major life decision.
Rates are lower for many. Deductions are different. Some old rules no longer apply. Some taxpayers may be in for surprises both pleasant and unpleasant come April.
New standard deductions are way up, nearly doubling to $12,000 for individuals, $18,000 for heads of households and $24,000 for married couples filing jointly and surviving spouses.
John Venturella, a shareholder with business consultant and accounting firm Clark Schaefer Hackett, noted that standard deductions are the go-to path for taxpayers who don’t itemize an array of write-offs or special deductions.
And since the new standard deductions are far higher, more taxpayers may take that route — especially married couples looking at the $24,000 deduction, he said.
“A lot of clients are just not going to get over that hump,” Venturella said.
Others may employ new strategies.
“Bunching” deductions is suddenly all the rage, some accountants say — concentrating or timing payments of tax-deductible items to maximize itemized deductions for one year while simply taking the standard deduction in the next year.
“They can try to do two years’ worth of charitable deductions in one year so they can get that deduction, so next year they may not,” Venturella said. “That’s where you see the bunching.”
Locally, taxpayers could, for example, donate $20,000 to the Dayton Foundation one year while forgoing a donation next year, said William Duncan, a certified public accountant with the Dayton firm of Thorn Lewis and Duncan.
A new wrinkle: Wage-earners may need to re-consider tax withholding. Withholding tables were changed early in 2018, so some withholding amounts have been reduced — leaving some taxpayers in a worse position when the bill comes due.
“It’s probably a little late now for people to do that, but you need to be aware that if you didn’t check that earlier on, you may be in a situation where you’re short,” Venturella said.
“People may not see as big a refund in April,” Duncan warned.
And there are new alimony rules. With divorces settled in court after Dec. 31, 2018, the payer of alimony doesn’t get a deduction for alimony. And the person receiving the alimony no longer has to pay a tax on it.
With any divorces finalized this year by Dec. 31, the old tax rules still apply, Duncan said.
Duncan also noted changes in allowed deductions for state and local taxes — they’re capped at $10,000, regardless of how much you pay.
“It’s causing a huge stir in those high-tax states,” said Cari Weston, director of tax practice and ethics for the Association of International Certified Professional Accountants.
Impacts will be varied, to say the least. When Weston and her family lived in Arizona, she paid $1,400 a year in real estate taxes, she said. After they moved to Texas, those taxes jumped to $12,000 a year.
Some states want to let taxpayers make a contribution to a general fund to ease the burden of the reduced cap on the deduction for state and local taxes, Weston said.
But that’s controversial. The IRS has said that to have a true charitable deduction, a taxpayer cannot receive a direct personal benefit.
“If you’re not talking to your CPA, you need to get on the phone,” Weston said.
Duncan said tax preparation season may be off to a slow start, especially if there’s partial federal government shutdown.
Duncan said this week the Internal Revenue Service still hasn’t approved a final 1040 tax form. The first page may be set — but then it gets tricky.
“They’ve now created six schedules — schedules one, two, three, four, five, six — so that if you have any complications in your life, you have to fill out these schedules,” he said.