Today we are talking taxes, but we are months away from April. Why?
There are a couple of reasons 2018 taxes are on my mind. First, the IRS began accepting tax filing last week. But more importantly, there are a few things that our listeners need to be aware of, including the importance of filing your taxes as early as possible going forward.
Why is it important to file early this year?
The big reason is the increased potential for tax scams and fraud this year as a result of the Equifax breach. The hack at Equifax, which is estimated to have affected half of all Americans, exposed information including social security numbers, credit card numbers, addresses and driver’s license numbers.
If hackers gained access to that information, not only can they could open credit accounts in your name, they can potentially file a fraudulent tax return in order to get a large refund, costing you money and possibly getting you in trouble with the IRS. As a result, in September the Federal Trade Commission urged Americans to file their taxes “as soon as you have the tax information you need, before a scammer can.”
Wow. Can you remind us what we need to have on hand for our taxes?
You want to start with your employer forms – most likely a W2, which documents your pay from your employer – or a 1099 if you are self-employed. These forms contain most of the information required to file. Next, gather documents that allow you to claim deductions or qualify for tax breaks.
These include the charitable donations, tuition bills, and child care expenses, all of which are deductible. You also need your investment statements and retirement contribution records, along with copies of marriage licenses, custody agreements, wills and insurance policies, contracts, and property records, deeds and titles. You are always better safe than sorry when it comes to the IRS, so having all of these documents in one place is a best practice.
Great! Once we have assembled our documents, what should we keep in mind as we are doing our taxes?
This year, more than ever, you want to take your time even as you work to get your taxes filed early. This is because there is the elevated risk of scam or confusion. You do not want to make easily avoidable mistakes, like forgetting an important document or using the wrong form, which could mean months of headaches if a fraudulent filing in your name is submitted.
You also want to double-check all of your forms, since it is not uncommon for employers or others to send over amended versions of a form to fix a mistake or update figures. Since filing incorrectly or forgetting documents altogether can result in owing additional taxes or penalties and interest, be thorough, and double-check your tax return, even if someone else does your taxes.
Are there changes to our taxes we should know about this year?
Though we have talked a lot about the recent tax cuts, most of the changes from that legislation will take effect for the 2018 tax year, which you will file in 2019. However, there is one major change will affect the 2017 filing season related to healthcare costs.
Under the previous tax law, filers could only deduct qualifying medical expenses that exceed 10 percent of their adjusted gross income (AGI). Now, that threshold has been dropped to 7.5 percent. Also, remember that you can still make ira contributions until April 17, which will reduce your tax burden and allow you to save on this year’s tax bill.
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