Between the just-ended federal government shutdown affecting the Internal Revenue Service and a new federal tax law, there is a lot of uncertainty around this tax season, according to area tax experts.
But one thing is certain: You still have to file.
“You still have to pay, you still have to file, you are still beholden regarding all federal laws regarding your tax return,” said Jennifer Graybill, director of opportunity programs at Human Services Programs of Carroll County Inc., where she is in charge of the Volunteer Income Tax Assistance, or VITA program. “Because of the uncertainty I think really there will be a lot more questions this year.”
That’s one reason why taxpayers might wish to consult a professional — be it a paid preparer or a VITA program, which is free for those who earned less than $55,000 in 2018 — at least this first year under the new Tax Cuts and Jobs Act, according to Lee Sturgill, the head CPA at Puckett & Sturgill Financial Group, in Westminster.
“I think this is a good test period for them to see,” Sturgill said. “Maybe I go to somebody this first year to see how the tax act really impacts us, make sure I have all my variables making decisions going forward.”
For people with complicated tax returns or those earning more than $55,000, Graybill suggests visiting a CPA. But many people who fit the income constraints can get their taxes prepared for free through IRS sponsored VITA sites like HSP's, she said.
“This will be our 10th tax preparation season, which is pretty bananas,” she said. “Our first year we did 132 taxes, last year we did over 1,000 and this year we are pushing for more. We know there continues to be a great need in Carroll County we know that we are still only barely scratching the surface of people who can qualify and that need the great services VITA sites provide.”
HSP’s VITA program will begin scheduling appointments on Jan. 28 — the day the IRS tax season begins — for its 10 Distillery Drive location in Westminster. Those interested should call 410-386-6653.
McDaniel College is also operating a VITA site, and will offering appointments on Fridays and Sunday from Feb. 1 through April 5 at the college campus. Those interested should call 410-871-3344 to make an appointment.
One thing tax payers should keep in mind is that the whole filing and refund process may take longer this year due to the government shutdown, according to Graybill. Those claiming the earned income tax credit might have to wait even longer.
“The last couple of years, the IRS has delayed releasing tax returns for people that received the earned income tax credit until later in the season, because of the opportunities for fraud and wanting to look over those tax returns,” she said. “I think that deadline will get pushed back even further and we know that is incredibly critical money for our community.”
There is some good news related to the shutdown, which ended Friday after 35 days, and the IRS, according to Graybill.
“The one really cool thing is IRS is waiving the penalty for underpayment of taxes this year,” she said. “People who might be negatively impacted by the new tax law changes may not be penalized this year.”
Understanding exactly how the Tax Cuts and Jobs Act, which was signed into law in late 2017, will affect your 2018 taxes or refund could get complicated, according to Sturgill, and will be highly dependent on an individual or couple’s situation.
“Higher incomes I do see some more tax savings, lower incomes, not so much,” he said. “Whether you could itemize in the past or not, and the number of children you have all impact how this new tax law is going to hit you this year for ‘18.”
One of the bigger changes? No more exemptions.
“A husband and wife with a couple of kids, three kids lets say, have a $20,000 exemption deduction in 2017,” Sturgill said. “They will have nothing this year.”
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But at the same time, he said, the standard deduction, a write-off based on your age and filing status, has been expanded.
“For a married couple it went from $12,000 and change to $24,000,” Sturgill said.
The child tax credit was also expanded, according to Sturgill, so that a hypothetical married couple earning $130,000 with three children will go from a $2,000 child tax credit in 2017, to $6,000 on their 2018 taxes. Their taxable income would go up due to losing $20,000 in exemptions after 2017, but their net tax would decrease $1,200.
The increase in standard deduction along with changes that will limit itemized deductions — particularly with regard to real estate, state and local taxes, or re-salt — might make taking the standard deduction alone more appealing to some filers than deducting their itemized expenses, according to Sturgill. But because of the way Maryland tax law works in conjunction with the new federal law, he said it’s not always going to be a clear decision.
“Maryland has a quirky piece of law, if you don't itemize on your Federal return then you can't itemize on the State,” Sturgill wrote in an email. Forgoing itemizing on their federal taxes could save the hypothetical couple in his example almost $400, but failing to itemize on their state taxes would cost them more than $13,000 in state tax deduction, since Maryland’s standard deduction is just $4,000.
Figuring out the best strategy in such a situation is another reason Sturgill suggests checking with a professional when filing this year.
“Sometimes,” he said, “a tune-up is helpful.”