Even an expert needs a guide to filing taxes. And for those of us who can barely balance a checkbook, there’s an even greater need for guidance.
Every American who gets a paycheck is already paying income taxes. Depending on how you claim your taxes throughout the year on your income, it will affect the amount you owe or the amount you receive in a tax refund.
There are a lot of changes to the tax code this year, mostly due to the Tax Cuts and Jobs Act, which was passed in December of 2017. That means a greater challenge for individuals who were already wondering, “How do I file taxes?” There were new tax brackets created, changes to itemization, and an expansion on the Child Care credit.
More than a quarter of Americans don’t understand the code changes, which means they can’t completely understand how to file taxes, says an article posted by CNBC. And it’s disappointing for many, as refund totals have dropped by 8.7 percent this year based on early returns.
With or without a guide to filing taxes, parents aim to score the highest on their returns for taxes 2018, particularly those with kids younger than 18 living at home, and primarily in low-income states – Texas, Wyoming and Washington. They’re able to deduct up to $2,000 per child, which is double what they previously could deduct.
There are new deductions for older children still living at home also. College-age kids under 23 give the parents or grandparents, depending on their residence, a $500 credit.
Five of seven tax rates were lowered, so some people see their refund shrinking. Up to 20 percent of citizens didn’t have their employers withhold enough taxes throughout the year, so they may be paying rather than collecting an overage when they file taxes.
Ways You Can File Taxes 2018
If you’re one of the approximately one-third of Americans who hires a certified public accountant to prepare your taxes, you probably choose to do so because either your financial situation is complicated, or you just don’t have time. You also may simply like the comfort of knowing someone professional is filing your taxes correctly.
If hiring a CPA is new territory for you, the first task is to find someone who is competent, but also fits your budget. According to personal finance website The Balance, you can expect to pay approximately $273 for an itemized tax return and $176 if you aren’t itemizing your taxes. But be aware, if you’re disorganized and require extra time by your CPA while you collect receipts, your W-2s, 1099s, etc., you’ll be charged more.
If you’re comparing the cost of tax preparation by various CPAs, you’ll find they may price their services in different ways. Those include:
• Fees from each tax form/schedule needed
• Based on fees from the previous year and adding costs if your situation is more complicated
• A set minimum tax return fee and additional fees if your situation is complicated
• Hourly rates
You may not know this, but there are actually illegal forms of pricing – actions prohibited by the United States Treasury Department. CPAs cannot charge “an unconscionable fee” to file taxes, nor can they charge you based on the content of your tax return.
The Balance article says, “Several cases of fraud have involved tax preparers taking inappropriate deductions and tax credits and charging large fees to their clients. If your invoice is much higher than you anticipated, be sure to ask your accountant how the fees were determined.”
They have various types of memberships you can purchase, and they each offer an interactive online service to answer questions and clarify throughout the process.
You may also file taxes by going straight to the IRS website where you can manually print and complete a 1040 form. The agency provides online instructions there as well. After printing the Taxes 2018 forms, you mail the paperwork and any payments owed to the IRS to the address provided.
Paperwork for Taxes 2018
If you’re accustomed to IRS Form 1040 used in the past, you’ll note some changes. For taxes 2018 you won’t use Form 1040-A or Form 1040-EZ. Now there’s a redesigned Form 1040. You may not need to file a Schedule with your 1040 form either.
Schedule Forms for taxes 2018 are designed for use when you have a more complicated return. If you are claiming deductions or credits, or if you owe additional taxes, you need one of them included.
The Form 1040 Schedule A is used by taxpayers who have deductions they need to itemize. These deductions tend to lower your federal income taxes, but you can’t include any expenses you've already been reimbursed for.
Some of the categories for deductions are:
• Medical and dental expenses: IRS instructions say, “You can deduct only the part of your medical and dental expenses that exceeds 7.5% of the amount of your adjusted gross income on Form 1040, line 7.”
• State and local taxes paid, including real estate and personal property taxes: There’s a limit on how much you can deduct in this category. Of your state and local taxes, including real estate, personal property and income taxes, you cannot deduct more than $10,000 if filing jointly. If you’re paying foreign real estate taxes, that is not deductible.
• Home mortgage interest and points: This year there’s a limit to the total dollars Americans can deduct for their home mortgage interest. You can deduct the interest on the first $750,000 of indebtedness. That number is $375,000 if you’re married, but filing separately. You can deduct more if your indebtedness was incurred on or before December 15, 2017. And in an even more dramatic shift, you cannot deduct interest for a home equity loan where the money was used for something other than buying, building or improving your home.
• Investment interest
• Casualty and theft losses from a federally declared disaster
• Gifts to Charity – The Schedule A form says that the limitation threshold for certain charitable contributions has gone up. It says, “For most gifts by cash or check, the total amount of such contributions that can be deducted is now limited to 60% of your contributions base, instead of 50%. See Pub. 526 for more information.” (See bottom for more about charitable giving.)
There’s a comment section on the Schedule A form, where you can provide feedback with your opinion about the form itself and the process of guiding you through how to file taxes. The IRS will not respond to you as an individual, but the agency will take into consideration the comments received by the taxpaying public.
The comment section is not for questions to the IRS. The appropriate place for that is the Tax Law Questions page.
Form 525 is important to check if you need clarification about which of your gifts and income should be taxed. The three forms of income are money, property and services.
Form 525 covers several categories, including:
• Income you get from S Corporations, royalties, partnerships and bartering
• Money from wages and fringe benefits for employees
• Disability pensions
• Public assistance such as welfare
• Proceeds from life insurance
If you’re filing on your own using a tax software program such as Turbo Tax
or H&R Block
you have access to resources provided by these programs. They offer assistance for you through filing your taxes, and ask you questions about your income and any possible deductions. They have various types of memberships to purchase.
If you begin one of these programs and determine it’s too complex, you may want to turn to a professional, especially if you have multiple sources of income or investments. Ask H&R Block or Turbo Tax about refund policies.
Guide to Filing Taxes – the Process
The actual steps are outlined on the websites mentioned, but to get an idea what you’re looking at when considering how to file taxes, here is a list of some of those matters you need to collect or consider for completion.
• Collect any and all W2s, says The Balance. These are received by corporations or small businesses you worked for last year. You’ll see on the form the amount of taxes withheld for federal and state purposes and your social security and government healthcare withholding. Employees must report wages they earned if they exceeded $600.
• Proof of health insurance
• Receipts for charitable donations, business or medical expenses
• Decide on your filing status. Factors affecting your status include marital status, income and age.
• Understand your tax bracket, which is important in determining how much you owe or how much you will get back
• Add up income, investments, pensions, retirement funds, interest, and the taxes you owe
• Check common available tax deductions, education, claim dependents, or donations
How to File Taxes with Charitable Contributions
If you’re asking yourself, “How do I file taxes so I come out ahead?” there are some win-win ways to do that. One of those is by giving to charity.
Donations to charity fell by more than 6 percent at the beginning of last year, reports The Balance. But if you’re committed to promoting good in the world by supporting such nonprofits, keep it up.
There are many different types of charities, such as places of worship, global contributors such as Reach Out World Wide, Goodwill, CARE and Salvation Army. Other tax-deductible contributions can be made to 501(c)(3) groups, including educational organizations, some hospitals and medical centers, volunteer fire companies, private foundations associated with service groups, some veterans’ groups, and membership organizations that receive more than one-third of their money from the general public.
When you have a cause you care about – perhaps you spend time volunteering for a nonprofit organization – you can benefit the cause and gain a tax credit. You can do a “tax exempt organization search” on the IRS website to determine if the nonprofit you support has tax-deduction status. The organization needs to be a 501(c)(3).
To determine if your contribution is tax-deductible you need to gather for the IRS:
• Your filing status
• Gross income
• How much you donated and to who
• Does that organization qualify as tax exempt
When you make a non-cash contribution, such as when you donate a car to charity, there are breakdowns in paperwork required, based on value of the car. The IRS site breaks it down for you.
If you donate a vehicle such as a motorcycle, which is valued between $250-$500 you need an acknowledgement from the nonprofit including:
• The name of the charitable organization.
• The date and location of the charitable contribution.
• A detailed description of the car.
• Whether the charity provided any goods or services in return for the car and a description and good faith estimate of the value of any goods and services received.
• If the charity provided solely intangible religious benefits, a statement to that effect.
When your car donation to charity totals $500-$5,000 you need from the nonprofit:
• Your name and taxpayer identification number (TIN).
• The vehicle identification number (VIN).
• Beyond the above items, what the written acknowledgment must contain depends on what the charity does with the vehicle. If the charity sells the vehicle, the written acknowledgment must contain the date the car was sold by the charity, a certification that the charity sold the car in an arm’s length transaction between unrelated parties, the gross proceeds of the sale, and a statement that your deduction may not exceed the gross proceeds of the sale.
When your car exceeds $5,000 in value, the acknowledgement from the charity needs the information from both of the above categories. Section B of Form 8283 needs to be completed and attached to your return.
You don’t have to know how to file taxes to make a car charity donation. There’s an advantage to making your donation through a seasoned car donation company. They should have experience completing the process and it’s ideal if the company fills out all of the paperwork for you.
Vehicle donations through Cars2Charities are handled from start to finish, includingthe title transfer, and paperwork follows the IRS tax code. And because a car donation tax deduction is based on the sale price of the vehicle, Cars2Charities aims to bring a higher price through making improvements to donation cars when needed.
There are many roads you can take this year in submitting your paperwork for taxes 2018 but everyone has the same responsibility. It’s nice to know there are many resources offering a guide to filing taxes, so you’re not alone.