Your Money Matters: End of the year tax strategies

Midday News
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Jackson Hewitt representative, Felecia Staggers, provides final year-end tax tips as well as prepare viewers for the upcoming tax season.

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What can our viewers do now before the end of the year?

  • Check tax withholding amounts. The withholding tables changed after the new tax law went into effect in 2018. If taxpayers haven’t yet reviewed their tax withholdings and provided their employer with an updated W-4, they could be surprised when they file their taxes. Update withholdings now so they are correct for the next tax year.
  • Taxpayers can donate their gently used, unwanted items to a qualified charitable organization. Only donations to IRS-approved charities are deductible. Receipts for purchased items, or a record of the purchase price and fair-market-value at the time of donation, should be kept.
  • Prepay spring tuition for college students before the end of the year. Tuition paid by December 31, 2019 for a session beginning before the end of March 2020 can be used to determine an education credit on 2019 tax returns.
  • Taxpayers with a Flexible Spending Account (FSA) have until the end of the year to spend the remainder of their account.
  • Consider contributing the max amount to a 401(k) or similar retirement plan before December 31, 2019 and reduce taxable income for the year.
  • Taxpayers have until April 15, 2020 to make 2019 IRA contributions. They also have until April 15 to set up a new IRA and contribute for 2019. Those aged 70½ or older with a traditional IRA, should take their annual required distribution to avoid a penalty.

 

What important, new changes are there that taxpayers should be ready for come Tax Day 2020?

  • The biggest change is the fact that tax reform reduced the Affordable Care Act (ACA) penalty or Individual Shared Responsibility Payment (ISRP) to zero.
    • Taxpayers who purchase health insurance from their State’s Health Insurance Marketplace are still required to file Form 8962, Premium Tax Credit, to reconcile any advanced payments and the actual insurance cost. These taxpayers can be eligible for a refundable tax credit when their pre-applied credit is lower than the cost of insurance or will pay back premium as an additional tax when their pre-applied credit is higher than the cost of insurance. The credit is usually paid directly to the insurance provider chosen in the Marketplace.
  • The tax forms changed again this year so watch out for a new form 1040 and new form 1040-SR for senior taxpayers.
    • Also, the supplemental schedules changed. 2018 had six tax information schedules to go with the 1040. This year there are only three with some schedules combined and others moving the information to the 1040.
  • Self-employed workers should gather receipts and income documentation for the year. A new Qualified Business Income (QBI) deduction allows most small self-employed taxpayers to deduct 20% of business income for small business owners.

 

How should our viewers start preparing NOW so they are ready to file in 2020?

  • Don’t forget if taxpayers changed their name or had a change of address, they need to update their information and fill out any special forms earlier rather than later.
  • Every year, some employees overpay their income taxes because they use the wrong filing status. Taxpayers shouldn’t let this happen to them. Jackson Hewitt Tax Service helps clients get everything they deserve on their tax returns.
    • Understand the difference between filing as “single,” “head of household,” “married filing jointly,” “married filing separately,” and qualifying widow(er)”
      • Knowing your IRS filing status is essential for making sure you get the Maximum Refund, along with all the credits and deductions you’re entitled to.
    • Income tax regulations place the burden of proof on the taxpayer. Taxpayers should keep accurate records that support all income, expenses, and credits reported.
      • Time to start digging through those piles; you've got documents to pull together that are needed to file your annual tax return and more coming in the next weeks. Stay organized by separating paperwork into four simple categories: income items, deductions, life changes, and other.

 

What are some common credits or deductions that our viewers are most likely qualified for that they should know about?

  • Having children is arguably the biggest life change in a person’s life. Having a dependent can significantly reduce one’s tax liability on a federal tax return and increase a tax refund. Some taxpayers may be entitled to a Child Tax Credit of up to $2,000 per qualifying child under age 17. There is a $500 nonrefundable credit, Credit for Other Dependents (ODC) for dependents that don’t qualify for the child tax credit.
    • Having a dependent may also affect filing status. Taxpayers may be eligible for the Head of Household filing status or the Qualifying Widow(er) filing status if they have a dependent. It’s always a good idea to consult a tax professional about any major life changes. Whether you have a dependent that is college-bound or you are adding a new bundle of joy to your family, our Tax Pros make sure you get every credit and deduction you deserve.
  • The Earned Income Tax Credit is one of the largest tax credits available to taxpayers. The credit is based on several factors, including income level and number of children. For taxpayers with three or more qualifying children, the credit could be worth up to $6,557 this tax year. Due to tax laws in place to reduce fraudulent claims for refunds, taxpayers who claim the EITC won’t receive their refund until mid-February.
  • Saver's Credit or the Retirement Savings Contributions Credit
    • Make sure you "pay yourself first." Even if it is only $20 each pay cycle, make sure you are putting some money into a retirement fund. If your company offers a retirement savings plan, like a 401(k), it is usually in your best interest to participate. If your income is lower than $60,000, you can receive a credit of up to $1,000 for a contribution of up to $2,000 into an IRA or an employer-provided retirement account, such as a 401(k). The credit is in addition to any deduction or exclusion from income for the contribution.

 

For more information, WGN-TV viewers can connect with the Tax Pros at Jackson Hewitt at: 515 Burnham Avenue in Calumet City, calling (708)832-9020, or visiting www.jacksonhewitt.com.

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