Employers are starting to hand out W-2 tax forms for the 2017 tax year. While this April’s forms, credits and deductions won’t change much because of the new tax laws passed by Congress, certified public accountants in Flagstaff such as Johanna Klomann and Bradley Scott are already looking at ways to advise their clients for next year.
Both Klomann and Scott said they are still waiting for the Internal Revenue Service to come out with all of the recommendations on how to apply the new tax laws, and they’re studying the ones that the IRS has already posted. Those laws took effect Jan. 1, but most taxpayers won’t see the effects of those changes until they file their 2018 taxes in April 2019.
“It’s still very up in the air,” Klomann said.
Some of the biggest changes in the new tax laws include a 20 percent deduction that small businesses will be able to take, a larger standard deduction for individuals and families, the lowering of individual tax brackets, the removal of some of the personal tax exemptions for individuals and a larger child tax credit, Scott said.
Both Klomann and Scott said that most individuals and families will probably see an increase in their tax refund in 2019 and most people will switch to filing with the standard deduction rather than itemize their taxes in 2019.
This is because of a few reasons. First, the federal government has increased the standard deduction that an individual can take to $12,000 for individuals and $24,000 for married people filing jointly. This higher deduction may make it easier to file taxes for some people who normally itemize their taxes, Scott said.
A second reason, is that the child tax credit is expected to double to $2,000 for every dependent child in a household that is under the age of 17.
Another reason is the lowering of the tax brackets, Klomann said. In February of this year, people may see a change in their tax withholdings on their paycheck stubs because they have moved into a lower tax bracket.
This can be good news and bad news, she said. It can mean more money in your pocket, but it can also mean that your employer is withholding less taxes from your paycheck. This could result in a nasty surprise bill when you go to file your 2018 taxes in April 2019, she said. Klomann recommends checking your tax withholdings partway through the year with your human resources department to make sure that your employer is taking enough taxes out of your pay so that you don’t end up owning money to the government in 2019.
Some of the bad news coming out of the next tax year that Klomann and Scott are trying to prepare their clients for is that many of the personal exemptions that people used to take when they itemized their taxes are going away.
For example, taxpayers who take exemptions for work expenses that aren’t covered by their employer will no longer be able to do that.
The mortgage deduction is still available on homes that are less than $1 million in value. And deductions for charitable gifts is still available, Klomann said. However, most people will probably not take those deductions because they won’t be able to exceed the new higher standard deduction.
Scott said the 20 percent deduction for most small businesses may make a huge difference for some small business owners. Most owners file their business taxes with their personal taxes. The hope is that the 20 percent deduction off of business income will generate some economic growth, he said.
“But the answer always depends on that person’s unique circumstances,” Klomann said. So it is always best to check with your tax preparer on what’s best for your situation.