Tax season opened on January 29 and the IRS expects more than 155 million returns to be filed this year, of which more than 70 percent should receive a refund. Once again, due to a Washington DC holiday (Emancipation Day), the filing deadline is delayed. Procrastinators, mark April 17th, rather than April 15th as your drop-dead date.
Although the IRS has already begun accepting both electronic and paper tax returns, paper filers really are second-class citizens, the agency begins processing them later in mid-February. As always, choosing e-file and direct deposit for refunds remains the fastest and safest way to file. The IRS expects more than four out of five returns will be prepared electronically using tax software and anticipates issuing more than nine out of 10 refunds in less than 21 days. If you are claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC), know that the IRS is not going to issue those refunds probably until the end of February.
Now onto the hard part -- the completion of your returns. Here’s what you need to know about this filing season: While almost all of the changes to the recently enacted new tax code go into effect next tax season, one big thing changes this year. If you itemize deductions on Form 1040, Schedule A, the new law allows you to deduct qualified medical and dental expenses that exceed 7.5 percent of your adjusted gross income (AGI) – that’s a lower threshold than the previous 10 percent. (The level returns to 10 percent beginning January 1, 2019.)
Medical care expenses is a big category and you should check out the IRS list, because it includes payments of fees to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and nontraditional medical practitioners, as well as insurance premiums you paid for policies that cover medical care or for a qualified long-term care insurance policy.
Although the GOP tax plan repealed the individual mandate to carry health insurance, that does not go into effect until 2019, so you still need to provide proof of coverage, or pay the penalty, which is the higher of 2.5 percent of your AGI, or $695 per adult and $347.50 per child, up to a maximum of $2,085.
What about NEXT year?
This is where the process gets tricky. The IRS has created new withholding tables, but the amount may not be enough to cover a lot of taxpayers, especially those in high tax states who could lose certain deductions. To be safe, at least for the first year of the new law, you may want to assume that your tax liability will be at least the same as this year. To avoid a penalty, you can pay 100 percent of your income tax liability from 2017 or 110 percent if you earn more than $150,000.
To get a better sense of your situation, be sure to check out the revised IRS withholding tax calculator on IRS.gov, which should be available by the end of February.
- IRS Free File: Prep and filing software for individuals and families with incomes of $66,000 or less
- Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE): free tax help to people who generally make $54,000 or less, persons with disabilities and limited English speaking taxpayers who need assistance
- Where's My Refund? tool on IRS.gov and the IRS2Go phone app
- Directory of Federal Tax Return Preparers: A database of return preparers with credentials and select qualifications
- Authorized e-File Providers: A database of all Authorized e-File Providers who chose to be included.