In 2018, Some Tax Benefits Increase Slightly Due to Inflation Adjustments, Others Unchanged

October 19, 2017

The Internal Revenue Service today announced the tax year 2018 annual inflation adjustments for more than 50 tax provisions, including the tax rate schedules and other tax changes. Revenue Procedure 2017-58 provides details about these annual adjustments. The tax year 2018 adjustments generally are used on tax returns filed in 2019.   The tax items for tax year 2018 of greatest interest to most taxpayers include the following dollar amounts:

  • The standard deduction for married filing jointly rises to $13,000 for tax year 2018, up $300 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $6,500 in 2018, up from $6,350 in 2017, and for heads of households, the standard deduction will be $9,550 for tax year 2018, up from $9,350 for tax year 2017.
  • The personal exemption for tax year 2018 rises to $4,150, an increase of $100. The exemption is subject to a phase-out that begins with adjusted gross incomes of $266,700 ($320,000 for married couples filing jointly). It phases out completely at $389,200 ($442,500 for married couples filing jointly.)
  • For tax year 2018, the 39.6 percent tax rate affects single taxpayers whose income exceeds $426,700 ($480,050 for married taxpayers filing jointly), up from $418,400 and $470,700, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2018 are described in the revenue procedure.
  • The limitation for itemized deductions to be claimed on tax year 2018 returns of individuals begins with incomes of $266,700 or more ($320,000 for married couples filing jointly).
  • The Alternative Minimum Tax exemption amount for tax year 2018 is $55,400 and begins to phase out at $123,100 ($86,200, for married couples filing jointly for whom the exemption begins to phase out at $164,100). The 2017 exemption amount was $54,300 ($84,500 for married couples filing jointly). For tax year 2018, the 28 percent tax rate applies to taxpayers with taxable incomes above $191,500 ($95,750 for married individuals filing separately).
  • The tax year 2018 maximum Earned Income Credit amount is $6,444 for taxpayers filing jointly who have three or more qualifying children, up from a total of $6,318 for tax year 2017. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
  • For tax year 2018, the monthly limitation for the qualified transportation fringe benefit is $260, as is the monthly limitation for qualified parking,
  • For calendar year 2018, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage remains as it was for 2017:  $695.
  • For tax year 2018, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,300, an increase of $50 from tax year 2017; but not more than $3,450, an increase of $100 from tax year 2017. For self-only coverage, the maximum out-of-pocket expense amount is $4,600, up $100 from 2017. For tax year 2018, participants with family coverage, the floor for the annual deductible is $4,600, up from $4,500 in 2017; however, the deductible cannot be more than $6,850, up $100 from the limit for tax year 2017. For family coverage, the out-of-pocket expense limit is $8,400 for tax year 2018, an increase of $150 from tax year 2017.
  • For tax year 2018, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $114,000, up from $112,000 for tax year 2017.
  • For tax year 2018, the foreign earned income exclusion is $104,100, up from $102,100 for tax year 2017.
  • Estates of decedents who die during 2018 have a basic exclusion amount of $5,600,000, up from a total of $5,490,000 for estates of decedents who died in 2017.
  • The annual exclusion for gifts increased to $15,000, an increase of $1,000 from the exclusion for tax year 2017.
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With 2017 Extension Deadline Passed, All Eyes on 2018

October 18, 2017

Now that the tax return extension filing deadline has passed, the IRS suggests that taxpayers look ahead and get ready for next year.

Taxpayers still have time to take these three actions that may affect the 2017 tax return they will file in 2018.

  1. Charitable contributions. Taxpayers can deduct contributions that they make to charitable organizations only in the year the donation is made. There is still time for taxpayers to contribute to a charity before the end of 2017. After several storms this year, many taxpayers are making donations to disaster relief organizations. Taxpayers can use the IRS Exempt Organization Select Check tool on IRS.gov to make sure that these charities and any other tax-exempt organization is eligible to receive tax-deductible contributions.
  2. IRA distributions. Taxpayers over age 70 ½ should receive payments from their individual retirement accounts and workplace retirement plans by the end of 2017. A special rule allows those who reached 70 ½ in 2017 to wait until April 1, 2018 to receive their distributions.
  3. IRA Contributions. Taxpayers generally must make workplace retirement account contributions by the end of the year. However, they can make 2017 IRA contributions until April 17, 2018.

Monday, Oct. 16 is the extension deadline

October 5, 2017

Every year, millions of taxpayers ask for an extra six months to file their taxes. These taxpayers should have paid the tax they owed by the April deadline, but those who requested an extension should mark Monday, Oct. 16 as the extension deadline for 2017. While the deadline normally falls on Oct. 15, that date falls on a Sunday this year so the due date is moved to the next business day.

Here are reminders for taxpayers who have not yet filed:

Try IRS Free File or e-file. Taxpayers can e-file their tax return for free through IRS Free File. The program is available on IRS.gov through Oct. 16. IRS e-file is easy, safe and the most accurate way to file your taxes.

File by Oct. 16. Taxpayers with extensions should file their tax returns by Oct. 16. If they owe, they should pay as much as possible to reduce interest and penalties. IRS Direct Pay allows individuals to securely pay from their checking or savings accounts. These taxpayers can consider an installment agreement, which allows them to pay over time.

More Time for the Military. Military members and those serving in a combat zone generally get more time to file. If this applies to you, you typically have until at least 180 days after you leave the combat zone to both file returns and pay any taxes due.

More Time in Disaster Areas. People who have an extension and live or work in a disaster area often have more time to file. The disaster relief page on IRS.gov has more information.

Use Direct Deposit. The fastest way for taxpayers to get their refund is to combine direct deposit and e-file.

Use IRS Online Payment Options. Taxpayers who find they still owe taxes can pay them with IRS Direct Pay. It’s the simple, quick and free way to pay from a checking or savings account. For other payment options, taxpayers can click on the “Payments” tab on the IRS.gov home page.

Keep a Copy of Tax Return. Taxpayers should keep a copy of their tax return and all supporting documents for at least three years. Among other things, this will make filing next year’s return easier. When a taxpayer e-files their 2017 return, for example, they will often need the adjusted gross income amount from their 2016 return.


IRS Gives Tax Relief to Victims of Hurricane Harvey; Parts of Texas Now Eligible; Extension Filers Have Until Jan. 31 to File

August 28, 2017

WASHINGTON –– Hurricane Harvey victims in parts of Texas have until Jan. 31, 2018, to file certain individual and business tax returns and make certain tax payments, the Internal Revenue Service announced today.

This includes an additional filing extension for taxpayers with valid extensions that run out on Oct. 16, and businesses with extensions that run out on Sept. 15.

“This has been a devastating storm, and the IRS will move quickly to provide tax relief to hurricane victims,” said IRS Commissioner John Koskinen. “The IRS will continue to closely monitor the storm’s aftermath, and we anticipate providing additional relief for other affected areas in the near future.”

The IRS is now offering this expanded relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance. Currently, 18 counties are eligible, but taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief.

The tax relief postpones various tax filing and payment deadlines that occurred starting on Aug. 23, 2017. As a result, affected individuals and businesses will have until Jan. 31, 2018, to file returns and pay any taxes that were originally due during this period. This includes the Sept. 15, 2017 and Jan. 16, 2018 deadlines for making quarterly estimated tax payments. For individual tax filers, it also includes 2016 income tax returns that received a tax-filing extension until Oct. 16, 2017. The IRS noted, however, that because tax payments related to these 2016 returns were originally due on April 18, 2017, those payments are not eligible for this relief.

A variety of business tax deadlines are also affected including the Oct. 31 deadline for quarterly payroll and excise tax returns. In addition, the IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due on or after Aug. 23 and before Sept. 7, if the deposits are made by Sept. 7, 2017. Details on available relief can be found on the disaster relief page on IRS.gov.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Thus, taxpayers need not contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2017 return normally filed next year), or the return for the prior year (2016). See Publication 547 for details.

Currently, the following Texas counties are eligible for relief: Aransas, Bee, Brazoria, Calhoun, Chambers, Fort Bend, Galveston, Goliad, Harris, Jackson, Kleberg, Liberty, Matagorda, Nueces, Refugio, San Patricio, Victoria and Wharton.

The tax relief is part of a coordinated federal response to the damage caused by severe storms and flooding and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

For information on government-wide efforts related to Hurricane Harvey, please visit: https://www.usa.gov/hurricane-harvey


Job Search Expenses Can be Tax Deductible

August 25, 2017

Taxpayers who are looking for a new job that is in the same line of work may be able to deduct some job-hunting expenses on their federal income tax return, even if they don’t get a new job.

Here are some important facts to know about deducting costs related to job searches:

  1. Same Occupation. Expenses are tax deductible when the job search is in a taxpayer’s current line of work.
  2. Résumé Costs. Costs associated in preparing and mailing a résumé are tax deductible.
  3. Travel Expenses. Travel costs to look for a new job are deductible. Expenses including transportation, meals and lodging are deductible if the trip is mainly to look for a new job. Some costs are still deductible even if looking for a job is not the main purpose of the trip.
  4. Placement Agency. Job placement or employment agency fees are deductible.
  5. Reimbursed Costs. If an employer or other party reimburses search related expenses, like agency fees, they are not deductible.
  6. Schedule A. Report job search expenses on Schedule A of a 1040 tax return and claim them as miscellaneous deductions. The total miscellaneous deductions cannot be more than two percent of adjusted gross income.

Taxpayers can’t deduct these expenses if they:

  • Are looking for a job in a new occupation,
  • Had a substantial break between the ending of their last job and looking for a new one, or
  • Are looking for a job for the first time.

Divorce or Separation May Affect Taxes

August 23, 2017

Taxpayers who are divorcing or recently divorced need to consider the impact divorce or separation may have on their taxes. Alimony payments paid under a divorce or separation instrument are deductible by the payer, and the recipient must include it in income. Name or address changes and individual retirement account deductions are other items to consider.

IRS.gov has resources that can help along with these key tax tips:

  • Child Support Payments are not Alimony.  Child support payments are neither deductible nor taxable income for either parent.
  • Deduct Alimony Paid. Taxpayers can deduct alimony paid under a divorce or separation decree, whether or not they itemize deductions on their return. Taxpayers must file Form 1040; enter the amount of alimony paid and their former spouse’s Social Security number or Individual Taxpayer Identification Number.
  • Report Alimony Received. Taxpayers should report alimony received as income on Form 1040 in the year received. Alimony is not subject to tax withholding so it may be necessary to increase the tax paid during the year to avoid a penalty. To do this, it is possible to make estimated tax payments or increase the amount of tax withheld from wages.
  • IRA Considerations. A final decree of divorce or separate maintenance agreement by the end of the tax year means taxpayers can’t deduct contributions made to a former spouse’s traditional IRA. They can only deduct contributions made to their own traditional IRA. For more information about IRAs, see Publications 590-A and 590-B.
  • Report Name Changes.  Notify the Social Security Administration (SSA) of any name changes after a divorce. Go to SSA.gov for more information. The name on a tax return must match SSA records. A name mismatch can cause problems in the processing of a return and may delay a refund.

Taxpayers Should Review Their Withholding

July 21, 2017

Avoid Having Too Much or Too Little Federal Income Tax Withheld

WASHINGTON — The Internal Revenue Service today encouraged taxpayers to consider checking their tax withholding, keeping in mind several factors that could affect potential refunds or taxes they may owe in 2018.

Reviewing the amount of taxes withheld can help taxpayers avoid having too much or too little federal income tax taken from their paychecks. Having the correct amount taken out helps to move taxpayers closer to a zero balance at the end of the year when they file their tax return, which means no taxes owed or refund due.

During the year, changes sometimes occur in a taxpayer’s life, such as in their marital status, that impacts exemptions, adjustments or credits that they will claim on their tax return. When this happens, they need to give their employer a new Form W-4, Employee’s Withholding Allowance Certificate, to change their withholding status or number of allowances.

Employers use the form to figure the amount of federal income tax to be withheld from pay. Making these changes in the late summer or early fall can give taxpayers enough time to adjust their withholdings before the tax year ends in December.

The withholding review takes on even more importance now that federal law requires the IRS to hold refunds a few weeks for some early filers claiming the Earned Income Tax Credit and the Additional Child Tax Credit. In addition, the steps the IRS and state tax administrators are now taking to strengthen protections against identity theft and refund fraud mean some tax returns could face additional review time next year.

So far in 2017, the IRS has issued more than 106 million tax refunds out of the 142 million total individual tax returns processed, with the average refund well over $2,700. Historically, refund dollar amounts have increased over time.

Making a Withholding Adjustment

In many cases, a new Form W-4, Employee’s Withholding Allowance Certificate, is all that is needed to make an adjustment. Taxpayers submit it to their employer, and the employer uses the form to figure the amount of federal income tax to be withheld from their employee’s pay.


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