2018 Tax Filing Season Starts January 29 with Fatter Paychecks for Most Wage Earners
By Rafique S.M. Ahmed
2018 Tax Filing Season is just around the corner. The Internal Revenue Service announced recently that the 2018 tax season will begin Monday, January 29 and will last until the final deadline of April 17, 2018 extended by two additional days this year because of the traditional deadline of 15th April and Emancipation Day, a Washington DC holiday both falling on Sunday and Monday respectively.
The IRS will begin processing tax returns filed electronically or received by mail on January 29 and is also expecting 155 million individual tax returns to be filed in 2018. It is also expected that more than 4 out of 5 tax returns will be filed electronically this year. The IRS is geared towards issuing nine out of ten refunds in less than 21 days. However, there are certain refunds which will be delayed for sure. By law, the IRS cannot issue refunds on tax returns claiming the Earned Income Tax Credit or the Additional Child Tax Credit before mid-February. The IRS expects the earliest release of EITC/ACTC related refunds will start from February 27, 2018.
The 2018 tax season is off to a late start by six days compared to last year as a result of the Tax Cuts and Jobs Act which was passed by the Congress and signed into law by the President in late December 2017. A large number of drastic changes were enacted in the Tax Cuts and Jobs Act repealing the personal and dependent exemptions, most itemized deductions, and capping the deduction for state and local taxes at $10,000. In addition, the IRS has succumbed to the political pressure from the Trump administration and has released guidance for employers to intentionally withhold too little in federal taxes from their employees' paychecks. Of course, 90 percent of wage earners would be ecstatic with fatter paychecks in 2018. They may also be in for a dreadful surprise later. Since employees would have paid lot less taxes and if a large amount of taxes is under withheld by employers this year, obviously millions of taxpayers will owe taxes next year instead of receiving refund or would get a lot less refund comparatively.
The IRS updated withholding tables showing the new rates for employers to use this year. The IRS and the Treasury Department have urged employers to begin using the new withholding tables as soon as possible, but no later than February 15, 2018.
In accordance with the Tax Cuts and Jobs Act, taxpayers can claim 100% Bonus Depreciation on all qualifying assets acquired in 2017 after September 27. Qualifying assets acquired in 2017 prior to September 28 will receive 50% Bonus Depreciation.
The Disaster Tax Relief and Airport and Airway Extension Act of 2017 contains several changes which provide relief to taxpayers in federally declared disaster areas.
The Social Security Administration has announced a 2.0% cost of living adjustment in 2018, the biggest increase since 2012.
The IRS began a new Private Collection Program of certain overdue federal tax debts. Only four private groups are authorized to participate in this program. The taxpayer's account will only be assigned to one of these agencies, never to all four. Taxpayers will be notified accordingly. No other private group is authorized to represent the IRS.
The following are other significant changes in the tax landscape of 2017 which may affect your tax returns:
• Foreign earned income maximum exclusion for 2017 increased to $102,100.
• Personal and Dependent Exemption amount remains at $4,050 and is subject to phase-out if income exceeds specified amounts.
• Social Security Tax will be computed at 6.2% up to a maximum wage limit of $127,200.
• Standard mileage rate for business use of vehicle decreased to $.535 per mile. No change in rate for charitable use. However, the rate for medical care and moving of residence reduced to $.17per mile.
• The Adoption Credit in 2017 has increased to $13,570 of total costs and is completely phased out at a modified AGI of $243,540.
• Prepaid Real Property Taxes may be deductible in 2017 if assessed and paid in 2017.
• The election to deduct state and local sales taxes instead of state and local income taxes is still available.
• The IRS will not accept electronically filed tax returns without health coverage.
• The extension period to file a California Partnership (565) return has changed from six months to seven months.
• The extension period to file California LLCs (568) classified as Partnerships has changed from six months to seven months.
• In addition to W-2s, employers are now required to issue 1099s reporting non-employee compensation to IRS by January 31 every year.
• The filing date for owners of foreign accounts to file FinCEN Form 114 has moved up to April 15.
• Small start-ups can opt to claim $250,000 of R&D costs to offset payroll taxes instead of their regular income tax liability.
• Businesses that hire long-term unemployed get a tax credit.
• Employees covered by health flexible savings plans can defer up to $2,600.
(Rafique S.M. Ahmed is a professional Tax Accountant and has been providing accounting and tax services in California for more than thirty-five years. He is also an Authorized IRS Electronic Filing Provider. His office, Automated Tax & Financial Services is located at 1109 Via Verde, San Dimas, California 91773. Rafique Ahmed can be reached at(909)599-1412 or (909)599-1414.)
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