FAYETTEVILLE, Ark. (KNWA) — Sweeping changes to the tax code are now in effect, and tax professionals say your tax refund could look dramatically different this year.
Congress passed the Republican-led Tax Cuts and Jobs Act in December 2017, the most significant change to tax code in 30 years.
It affects both individual and corporate tax rates.
The legislation included sweeping tax cuts for companies, lowering the corporate rate to 21% from 35%.
Now, we’re in the first tax season since the law went into effect, and early reports show the average refund is down 8%.
“It’s going to be more hectic than most seasons, for sure,” CPA Christian Vaught with Mauldin Vaught said.
According to the IRS, the average tax return for the last filing season was just over $2,000.
Early reports show this year, it’s around $1,900.
“With the IRS changing withholding tables, it’s going to be dramatically different for ’18 than it has been in the past,” Vaught said.
As part of the Tax Cuts and Jobs Act, tax withholding tables were adjusted to reflect the lower tax rates. So if you didn’t adjust your W-4, expect to see a change.
“Basically you’re getting more money in your paychecks each time, but when you go to expect that refund — like some people do for purchases or wanting to put down payments on houses, it might not be as big this year,” Vaught said.
The standard deduction has doubled from just over $6,000 to $12,000 for a single filer, and from $12,000 to $24,000 for married couples filing jointly.
“More and more people will use the standard deducation over itemizing, just because they have limited the taxes you can deduct and most people don’t have enough charitable contributions and home mortgages to get over that threshold,” Vaught said. “But it’s still important to keep track of those same receipts, the same donations, your property taxes. You’re CPA preparers are going to want that information, because you’re still going to itemize on the state.”
The personal exemption is also gone. Vaught adds, “they kind of compensated for that with the higher standard deduction, so you’re getting a bigger deduction overall.”
There’s new a $500 deduction for dependents over 17, like elderly parents or college students. The child tax credit has also doubled to $2,000 for kids under 17.
For Tracy Lindstrom, a mother of six, that’s a significant change.
“I think the fact we have several children really helped with that. I would say 40% of our return had to do with contributing too much to our federal taxes throughout the year,” Lindstrom said.
Whether you’re filing as an individual or for a business, you should still expect a delay because of the recent government shutdown.
And if you want your refund sooner, It’s best to file electronically. “Especially the paper check will be exasperated even more,” Vaught said.
And that, Lindstrom says, makes the whole process just a little more enjoyable.
“Having the technology to have easy processes in place is such a blessing for our generation. I think if I had to do it with pen and paper, I wouldn’t look forward to it,” Lindstrom said.
The filing deadline for 2018 tax returns is Monday, April 15.
For small business owners, the tax code is more complex.
1. The state and local deduation has a $10,000 cap.
Previously, filers could deduct an unlimited amount for state and local property taxes, plus income or sales taxes.
2. The mortgage interest deduction has been lowered.
Anyone buying a new home will only be able to deduct the first $750,000 of their mortgage debt. Previously, it was $1 million.
3. You can still deduct student loan interest, up to $2,500 per year.
4. You can still deduct medical expenses.
Filers can deduct medical expenses that add up to more than 7.5% of adjusted gross income.
5. If you’re a teacher, you can still deduct classroom supplies, up to $250.
6. 529 savings accounts can be used in new ways.
Up to $10,000 can be distributed annually to cover the cost of sending a child to a “public, private or religious elementary or secondary school.”
7. The deduction for moving expenses and alimony payments are no longer deductible.
8. For business owners, there is a new qualified business income deduction.
If you own your own business, 20% of that business becomes a deduction on your personal return, and you don’t have to pay income taxes on it. For example, if you have $100,000 in profits, the first $20,000 is not subject to income tax.