Taxes can be confusing for many Americans, but knowing your income, understanding state and local taxes, and getting ahead of the game can make tax season a breeze.
Laura Hendrix, associate professor of family and consumer science for the University of Arkansas System Division of Agriculture, has advice on when to worry and what to worry about this tax season.
When to worry
When it comes to understanding your tax deductions, the earlier the better.
“It’s best to examine your tax situation at or before the first of the year before taxes are due for the next year,” Hendrix said. “Filers who didn’t pay enough in 2018 may find it difficult to make up the difference now.”
Hendrix recommends using the IRS Witholding Calculator at: https://apps.irs.gov/app/withholdingcalculator
“Use the IRS Witholding Calculator to estimate the amount you need to withhold from each paycheck,” she said. “Do this now and make changes to your W-4. The fewer withholding allowances, the higher the amount withheld. It won’t make any difference in the amount of taxes owed in 2018 but it will help tax filers get a head start on paying next year’s taxes.
“Entering a 0 or 1 will result in a greater amount of money being withheld from your paycheck each month,” Hendrix said. “Having too little withheld can result in owing taxes at the end of the year. Ideally, tax filers should aim as closely as possible to the amount of taxes owed.”
For tax filers with more complex returns, Hendrix recommends an earlier start than for those who don’t anticipate having many itemized deductions.
There have been some changes to standard deductions for the 2019 tax season.
“According to irs.gov, the standard deduction amount has nearly doubled for all filers,” Hendrix said. “This means that many filers who typically itemize deductions will take the standard deduction instead.
“Additionally, there are new limits on deductions for state and local taxes and home mortgage interest,” she said. “Some expenses previously itemized have been eliminated including employee business expenses, tax preparation fees, investment management fees and moving expenses to name a few. Filing is easier for filers who don’t itemize.”
For those wishing to itemize, now is a great time to get started.
“Now is the time to determine what records will be needed if you do decide to itemize,” Hendrix said. “This may include receipts, tuition statements and bank statements. Check out the new rules to see what may qualify this year.
“You may be able to deduct unreimbursed medical and dental expenses, mortgage interest and some other miscellaneous expenses,” she said. “Charitable contributions to qualified organizations may be deductible if you itemize deductions.”
Child Tax Credit
For those claiming the Child Tax Credit for 2018, it’s best to get records in order early.
“To claim the Child Tax Credit for 2018, you must have a Social Security number for each qualifying child,” Hendrix said. “Alternatively, you may be able to qualify for Credit for Other Dependents. Visit the IRS website to learn more about tax credits.”
Tax season typically opens at the end of January and the deadline is April 15.
For more help on understanding taxes, visit www.uaex.edu/Money and follow @uaexMoney on Facebook and Twitter.