Learn the lingo
Credits mean more than deductions. They come right off the taxes you owe, dollar for dollar. Deductions just reduce; it’s not dollar for dollar.
— Lisa Greene-Lewis, CPA and tax expert for TurboTax
Be prepared for a (potentially) smaller refund
The new tax rules likely mean that many people will pay less in overall taxes for 2018, but one big unknown is how the new withholding tables that employers started using last year will affect people when they file. Some taxpayers may find their tax refund is smaller than expected, or that they owe money.
— Andrea Coombes, NerdWallet tax specialist
The new tax law lowered the tax rates and lowered the withholding tables. These things combined will likely lower taxpayer refunds, or possibly cause a balance due, where in past years there may not have been one. Discuss proper withholding with your tax preparer to avoid unwelcome surprises in the future.
— Cindy Hockenberry, director of federal tax research and government relations, National Association of Tax Professionals
Adjust your withholding
If your refund was big, that’s money you could have been getting in each paycheck. It could be smart to let your employer know you want to adjust your W-4 form, so that less is taken out of each paycheck. And vice versa: If you got a big bill, or a refund that was smaller than you wanted, then consider changing your W-4 so that more is withheld.
— Andrea Coombes
Take advantage of the standard deduction
Since the standard deduction has increased, fewer taxpayers will itemize their deductions. This won’t cause them to lose out, economically— it just means that they’ll be getting a better tax result from claiming the standard deduction than they would have gotten through itemizing their deductions.
— Julie Roin, professor, The University of Chicago Law School
Know which deductions have been limited or eliminated
Many taxpayers will stop itemizing — not because the standard deduction has been raised, but because many of the deductions they formerly claimed were limited or disappeared entirely due to the new tax act. For example, the deduction for employee business expenses has gone away. The deduction for state and local taxes (income and property taxes, primarily) is limited to $10,000 per year. Moving expenses can’t be deducted. Business entertainment expenses, which used to be 50 percent deductible, are now completely nondeductible. Alimony is no longer deductible, so that it will end up, generally speaking, being taxed to the higher earning ex-spouse.
— Julie Roin
Each person — married, single, head of household — should check to see if they still qualify for a tax exemption.
— Anita R. Johnson, financial psychologist
Don’t forget about your dependents
If you’re taking care of both of your parents, they don’t have to live with you for you to claim them as dependents. This triggers a brand-new credit that’s worth $500 per dependent. Say you had a dependent that went from 17 to 18 years old, but they’re still living at home — that dependent is now worth a $500 credit under the new tax law. Other dependent credits — that could be a parent, a grandparent, a child — any of those dependents, you can put them on the tax return and you can claim $500. If you’ve got a child that’s an undergraduate, you can claim them up to age 23. Say they finish college, and they’re 24 and they move back in the home — now you can put them back on the tax return and get another $500 even though they’re past the age of 23.
— Aaron Martinez, master tax advisor at H&R Block
Know your self-employed tax benefits
There are some tax benefits, especially for the self-employed, that were voted into law. One of them is a 20 percent qualified income deduction. People will be able to get this deduction on their qualified business income, which is in addition to deducting business expenses — for example, when you’re a freelancer, you can deduct advertising or travel, and this new 20 percent is on top of those deductions.
— Lisa Greene-Lewis
Open an IRA
If you haven’t yet filed your taxes, you still may be able to reduce your 2018 tax bill by opening and funding a traditional IRA. If you qualify to deduct your contributions, every dollar you put into a traditional IRA will reduce your taxable income, and you have until April 15 to apply your contribution to 2018.
— Andrea Coombes
Take a personalized approach
While it’s important to understand how to maximize the current tax code, it’s also important to look at your tax plan from a comprehensive approach, including what’s important to you. For example, liquidity may not be the most tax-efficient approach to investing, but there may be reasons a client needs investments or cash to be liquid (new home purchase, college, health-related needs, retirement income). It may be that someone highly values charitable giving, but the benefit of the deduction is not as significant — this doesn’t necessarily mean that they should stop giving to organizations that are important to them.
— Katherine Liola, CEO and Founder of Concentric Private Wealth
There are people who love getting a big refund check at the end of the year. There are other people who don’t like the idea of the government holding on to their money. It really is a lifestyle choice, where each person has to look at their own individual situation and make a decision based on what they prefer.
— Aaron Martinez