The tax overhaul retained the existing benefit for home sellers. Jointly filing married couples can exclude $500,000 from taxes on the sale of a primary home. The exemption for single filers is $250,000 in profit. For inflation, these amounts are not indexed.
For example, say Sam and Suzan bought a home for $150,000 many years ago and later made improvements that added $100,000. They’re selling the home for $600,000 this year. The sale’s gain or profit is $350,000. Because of their $500,000 exemption, it would all be exempt from capital gains tax.
The homeowner must have used the house as a primary residence for two of the previous five years in order to be eligible for this benefit. Taxpayers are generally not eligible for the full exemption if they excluded the profit from the sale of another home two years before the sale. There are other limits and exceptions, such as for some military personnel.
The abolition of the personal exemption is also a significant shift. This provision was a subtraction from income before the overhaul for each person included in a tax return-typically family members. The amount for 2018 was set to be $4,150 per person, and for higher earners it was phased out.
Personal exemption was also essential in determining the correct withholding of pay by an employee. The interaction between expanded standard deduction, abolished personal exemption and increased child credit is complex and the effects on individuals vary widely depending on their circumstances. This is partly because the personal exemption was a deduction from income, while the child credit is a tax offset for the dollar.
Many families with younger children will come forward under the new law in 2018, especially if they have in the past taken the standard deduction due to the increased child credit of up to $2,000 per child, which extends to far more households. But some will not, especially if their dependents are 17 years of age or older. Instead of the exemption, they will receive a $500 tax credit. Both the extended standard deduction and the abolition of the personal exemption expires at the end of 2025.
The tax overhaul placed a limit on deductions for state and local taxes, known as SALT, in a landmark change. These deductions were previously unlimited for individuals, although many people who owed the alternative minimum tax lost some or all of their SALT write-offs. Taxpayers can deduct property and income taxes or sales taxes for 2018, but only up to $10,000. At the end of 2025, this change expires. For example, say Sam is a single filer who owes $6,000 in government income tax and $6,000 in property tax. He could deduct the total $12,000 of these taxes for 2017. But the deduction is limited to $10,000 per return for fiscal years 2018-2025, and is not indexed for inflation. This change is expected to hit hardest in the six states where SALT deductions are highest as a percentage of revenue; New York, New Jersey, Connecticut, California, Maryland and Oregon.
The new cap affects more single then married couples, because the $10,000 SALT limit is per return and not per person. Although married couples can file separate returns, each spouse receives a deduction of $5,000 for state and local taxes in this case.
When filing your taxes, you will often have to choose between itemizing your deductions and taking a standard deduction. You should determine the amount of your deductions using both methods, then select which option reduces the amount of tax you owe. The method that leads to the greatest deduction typically provides the greatest credit. How to determine Itemized Deductions: First, you will have to calculate the total amount of all deductions individually in a list. Any expenditure you paid during the year may include: Interest paid on a mortgage loan either sales tax or state and local income tax (choose one). Charitable donations Losses due to theft or casualties Medical expenditure not covered by a third party Business expenditure or work expenditure not reimbursed Taxes paid on real estate and personal property What is the standard deduction? If you choose not to specify your deductions, the standard option based on your filing status can be selected.
The standard deduction for 2018 is this: $12,000 for single filers and separate married filers, $24,000 for married filing jointly filers and $18,000 for head of household.
If you are over 65 or legally blind, the standard deduction rate is higher. In addition, if you can be claimed by anyone else as a dependent, your deduction may be limited. Which one should be used? For each deduction option, you will have to check the requirements, as some taxpayers are not eligible for a standard deduction and are forced to itemize. The other spouse may also be required to do so if a married couple files separately and one spouse chooses to itemize. When you decide which option to choose, you should carefully determine the method for which you are eligible and which benefits the most.
If you try to determine the difference between taxable and non-taxable income, remember one basic fact: All income that is not specifically excluded by law is taxable. In essence, any money you receive in the form of wages or tips for work is taxable. In addition, any revenue you earn from property or services, whether cash or non-cash, is also taxable. For example, if you exchange non-cash goods with another party, both of you must include in your tax return the market value of the items. The law excludes certain types of income from taxation, such as: Payouts for life insurance. These are usually not taxable if they are paid to you. However, the amount received above the cost of the policy will be taxed if you cash out a life insurance policy.
Any income from a scholarship is usually not taxable. The money you use for education costs such as books and tuition is not taxed, but it is used for room and board. Payments made to you by an agency may not be taxable if they fall into one of the following categories: Inheritance gifts, child support payments, welfare benefits, compensation for physical injury, cash discounts offered by the manufacturer of the product, reimbursement of expenditure incurred by adoption. If you received a reimbursement from local or state taxes, the money may be taxable. A third party agency may submit a Form 1099-G by mail or electronically. To report any taxable refunds you may have received, you should use this form. Even if you do not receive the form, you still have to report the income, so you should contact the agency to find out how to obtain Form 1099-G.
In 2018, it’s $12,000 for single filers and separate married filers, $24,000 for jointly filing married filers and $18,000 for head of household.
Even if you have no other qualifying deductions or tax credits, the IRS lets you take the standard deduction on a no-questions-asked basis. The standard deduction reduces the amount of income on which you must pay taxes. You can either take the standard deduction or itemize on your tax return — you can’t do both. Itemized deductions are basically expenses allowed by the IRS that can decrease your taxable income. The standard deduction means that you can not deduct interest on home mortgages or take many other popular tax deductions-for example, medical expenses or charitable donations. (But if you itemize, you should hang onto records supporting your deductions in case the IRS decides to audit you.)
The standard deduction is $1,300 higher for those who are over 65 or blind; it’s $1,600 higher if also unmarried and not a surviving spouse. If someone can claim you as a dependent, you get a smaller standard deduction.
The bottom line is this: If your standard deduction is less than your deductions, you should probably itemize and save money. If your standard deduction is more than your deductions, it may be worth taking the standard and saving some time. Try this fast check. Although it is easier to use the standard deduction than to itemize, if you have a mortgage or home equity loan, it is worth seeing whether it would save you money. Use the numbers on Form 1098, the Mortgage Interest Statement . Compare the deduction amount of your mortgage interest to the standard deduction. Property taxes, state income taxes or sales taxes, and charitable donations may also be deductible. Run the numbers in both directions. If you use tax software, it’s probably worth the time to answer any questions you may have about detailed deductions. Why is that? The software can run both ways to see which method will produce a lower tax bill. Even if you end up with the standard deduction, you’ll at least know you’re coming forward.
If you choose not to have taxes withheld from your wages, or if you have not paid enough for each paycheck, you may have to make estimated tax payments. Similarly, self-employed people typically pay income tax by estimated payments. Four Important facts about estimated taxes If you think you need to pay estimated taxes, or if you are looking for more information about making estimated tax payments, please refer to the following tips: If you expect to owe more than $1,000 in federal income tax for 2018, you should be prepared to pay estimated tax.
To determine the amount you may need to pay, you should estimate your total annual income, taking into account any deductions or credits for which you are eligible. Any changes in your status, such as a child’s birth or marriage, may change the amount you are responsible for paying. Those who rely on estimated tax payments usually pay four times a year, on or about 15 April, June and September, and again on 15 January next year. So you’d pay for your 2018 taxes in April, June and Sept. in 2018, and the last payment would be in January 2019. Payments can be made via the internet or by phone. If you wish to send payments to the IRS by mail, you should use the relevant vouchers provided with Form 1040-ES, Estimated Individual Tax.
It can be stressful to deal with the loss of a job, even if you have just been laid off. You’re struggling to find out how to meet the ends, and unemployment benefits can be the answer to the help you’re looking for. You must remember, though, that they are taxable. You must include any compensation you receive from unemployment benefits when calculating your income for the year. This amount should be reflected in Form 1099-G, Certain Government Payments, which details any already withheld federal tax and the amount of benefits paid to you.
Although there are several different types of unemployment benefits, you should typically include any income you have paid under the federal or state government’s unemployment law. You should also include benefits paid to you by a union. Separate rules apply to non-deductible contributions to specific union funds. In the case of non-deductible contributions, you only have to include the amount of income higher than your contribution. You can choose to withhold federal tax from unemployment benefits using FormW-4V, Voluntary Withholding Application. Otherwise, payments based on an estimated tax amount may be required.
If you plan to retire by building a savings plan through an IRA or 401 (k) plan, there is a good chance that you can qualify for a special tax credit. The Saver’s credit is available to pensioners and can help reduce your tax liability. The Saver’s Credit, also known by its extended name, The Retirement Savings Contribution Credit, can provide a maximum benefit of up to $2,000 for married couples who file together ($1,000 for individual taxpayers). The eligibility requirements are based on your annual revenue and your selected filing status.
In order to qualify for the 2018 tax year, the following criteria must be met: A single taxpayer or married couple filing separately, who earned no more than $30,000 Filing as head of the household with an annual income of up to $45,000 Married Filing Jointly taxpayers who have a combined income of up to $60,000 The Saver’s Credit has additional rules that may affect your credit. You must be at least 18 years old and not a full-time student for the year. You can’t also be listed as a dependent on the return of anyone else. Obviously, if you want to claim the benefit on your tax return, you must have actually put money into workplace retirement savings, such as a 401 (k) or similar by the end of 2018. Contributions to an IRA may be claimed as late as the due date for tax returns, typically 15 April 2019. You must file Form 8880, Credit for Qualified Retirement Savings Contributions, in order to claim the credit. Many tax software programs will do this for you if you choose to e-file. The Saver’s Credit is just one of several tax savings that you can benefit from if you save later. You can also deduct any contributions to a traditional IRA.
If you enjoy trying your luck at the tables, watching the slots spin, or hoping to win your horse, any money you have earned from these activities is taxable, the IRS must be advertised. Every once in a while you can enjoy a game of chance, but you should never play your taxes. Follow these basic tips to ensure that the odds remain in your favor at the time of taxation: Revenue from gambling: Anything won from a casino, lottery or horse racing is included in the revenue from gambling. Apart from cash and money, the fair market value includes prizes such as cars and holidays. Tax form: If you receive money for gambling winnings, you can receive a FormW-2 G, Certain Gambling Winnings, to report the income to the IRS.
The payer can provide the form at the time of payout depending on the type of game you played, how much you won and some other factors. If the payer immediately withholds taxes, you will still receive the form. Reporting: Anything won from gambling must be reported as income, even if you do not receive a FormW-2G. Typically, gambling income falls under the “other income” category. Deductions: Losses from gambling can be deducted up to the amount of gambling income you report using Schedule A, Itemized Deductions. If you report winnings of $3,000, you can only deduct losses of $3,000 at most. Receipts: You will need proof, such as gambling logs, statements, tickets or receipts, just like any other deductions. A clear record of all wins and losses should be kept.