The world economy is experiencing growing pains, prompting the IMF to lower global growth estimates for 2019 to 3.5 percent, the second downgrade in the past six months. This makes a lot of sense: In the U.S., the economy was already losing steam before the government shutdown; in China, growth backpedaled to 6.6 percent last year, the slowest since 1990; and Europe and the UK are bracing from Brexit-based downshifting. In fact, 2019 could see global growth fall to its weakest pace since the financial crisis, according to the analysts at Capital Economics. All of this data makes it likely that the Federal Reserve will hold interest rates steady, when they meet on Jan 29-30.
As these big issues unfold, you might be wise to concentrate on something you can control: your tax filing. January 28th is the opening day for tax season. The IRS has said all deadlines remain in place, except for those victims of federally declared disaster areas. The agency has said that even with a reduced number of workers, refunds should be processed within the traditional 21-day period for e-filers and 6 weeks for paper filers. (As a note, if you claim the Earned Income Tax Credit or Additional Child Tax Credit, the IRS cannot issue refunds before mid-February.)
The filing deadline is April 15, though due to local holidays, residents of Maine and Massachusetts have until April 16 and those in the District of Columbia can file as late as April 17. Because this is the first tax year of the Tax Cuts and Jobs Act (TCJA), there’s bound to be a lot of confusion. The IRS recognizes that fact and is providing some leeway by waiving the estimated tax penalty for many who under withheld their estimated tax payments for the year. If you paid at least 85 percent of your total liability through federal income tax withholding, quarterly estimated tax payments or a combination of the two, you are fine. (The usual percentage threshold is 90 percent to avoid a penalty.)
So where should you start? The IRS advises using tax preparation software, because it is the best and simplest way to file a complete and accurate return. The software guides you through the process and more importantly, does the math for you, which is often how the most common errors occur.
Electronic filing options include IRS Free File for those with incomes of $66,000 or less, Free File Fillable Forms for all taxpayers, commercial software (Turbo Tax, H&R Block, TaxAct), and individual professional assistance, which is best for those with complicated situations.
There are two additional resources, which bear noting: the IRS Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE). These organizations provide free tax help to people who generally make $54,000 or less, persons with disabilities and limited English speaking taxpayers who need assistance. Once you file, check out the Where's My Refund? tool on IRS.gov and the IRS2Go phone app.
To help you navigate the new tax code, your friends at the IRS have compiled Tax Reform Basics. Of course, it is the IRS, so “basic” is still 14 pages. Here is my not comprehensive cheat sheet, to remind you what has changed:
2018 rates: 10%, 12%, 22%, 24%, 32%, 35% and 37% (Go to IRS.gov to see the income ranges to which the tax rates apply). For child’s unearned income of more than $2,550: 24%, 35%, and 37%
Standard deduction: $12,000 for Individuals, $24,000 for Married Filing Jointly and $18,000 for Head of Household
Personal exemptions: GONE
Schedule A (Itemized Deductions):
-- Limit on overall itemized deductions suspended
-- Deduction for medical and dental expenses: must exceed 7.5% of your 2018 adjusted gross income (returns to 10% in 2019)
-- Deduction for state and local income, sales and property taxes: Limited to a combined, total of $10,000 ($5,000 if Married Filing Separately).
-- Mortgage interest deduction: Home acquisition debt acquired AFTER December 15, 2017 is limited to a total of $750,000 or less ($375,000 or less if MFS).