More and more states are finding new ways to line their coffers without raising tax rates, and much of this emphasis involves sales tax. NJ has joined the list of states that REQUIRE you to deal with use tax in conjunction with your annual income tax filing.
Did anybody out there keep all their receipts for 2018 so they could tabulate the sales tax paid and reveal the actual use tax due?
If you read the questions carefully, you will be able to add back for cities/states where you paid more sales tax. I suspect the whole thing is really about the fines and penalties, both on you and on me, for failing to check all those boxes.
New Jerseyfornia has also established its very own health insurance mandate…but that’s for 2019 so let’s not borrow trouble. This year, all I have to do is ask you if you have health insurance at the time we file.
On the bright side, you no longer have to sign a specific form giving me permission to actually file your NJ taxes. My opinion? Since NJ doesn’t get any revenue from asking you to sign that form, they are willing to piggyback on the federal form. At least we’re saving trees.
A more complex result of tax reform is a re-invigorated emphasis on compliance.
You, the taxpayer, can’t just say, “I’m HOH” or “my mom is my dependent.” You are expected to follow the rules and be able to document and prove the truth of certain statements.
EIC, CTC, AOTC, ODC, AOTC and HOH, all deliver great tax advantages. Electing any of these without proper cause is considered fraud, and these frauds have been running rampant in recent years. Some estimate 1 out of every 3 EIC claims is fraudulent. Most returns with EIC also involve at least one more of these acronyms.
To fight back, there are penalties. In fact, if you lie to me, the IRS can fine me, too. Thus, if you qualify for EIC, CTC, AOTC, ODC, AOTC and/or HOH, and you file your taxes through a professional, be prepared to complete and sign additional paperwork that outlines the qualifying factors. Fun stuff for all of us.
The IRS has stepped up investigations of preparers who have high numbers of taxpayers taking these credits. Once they find a preparer with inadequate documentation, they fine the preparer, but there is little evidence they follow up with the actual taxpayers.
DIY? Apparently nothing has changed on the compliance front. Hmmm.
How about that health insurance issue?
However, with the 2019 penalty gone, it seems people have begun canceling coverage. That is, enrollment is dropping. Some of this might also be connected to the surge in politicians (particularly 2020 presidential contenders) who are already getting aboard the universal health care bandwagon.
But don’t worry – more and more states are implementing health insurance mandates, complete with the same penalty structure for non-compliance.
Another big change impacts Kiddie Tax.
Tax rates for dependent children with unearned (non-wage) income are no longer determined in conjunction with the parent return. Instead, Kiddie Tax will simply mimic the rates for trusts and estates.
Generally, this will be simpler.
And unless your child is an oil baron with a trust fund, it will probably result in less income tax.
Tax Reform – AMT got a makeover!
Some taxpayers will be delighted to hear that AMT finally got a makeover!
In 2017, AMT hit 5.2 million taxpayers, many with solid middle class incomes and lifestyles. This was never the intent of AMT, but simply the result of bad math and unexpected inflation.
Then, the good news for many filers is the nearly doubled standard deduction. Most tax policy wonks estimate more than half of all Schedule A filers will now happily take the standard deduction for federal purposes.
Formerly, you had a deduction, and an exemption.
Your itemized deduction included state income taxes, home mortgage interest and real estate taxes (for up to 2 homes) plus charity, medical (within limitations,) and certain business expenses (within limitations,) among other things. State and local taxes (SALT) now have a limitation of $10,000. This applies to your state income taxes, any sales tax, personal property taxes, and real estate taxes. Limiting this to $10K hurts a lot of people. However, the powers-that-be felt the new limit contributed to a leveling of the playing field. We shall see. I do know a lot of DIY people did not understand Schedule A, and mistakes were very common.
Also changed – you can no longer take a deduction for your investment fees, your tax prep, or your employee business expenses. Granted, most regular folks never got this deduction because even if they filled out the forms, the amounts did not go over the threshold. But it was apparently fun trying.
Some people will still itemize! I expect seniors will still have heavy medical expenses, and some people will still be extremely charitable. They talked about limiting charity, but they did not do it. (Yet.) Some people are reorganizing how they give so as to improve their tax situation. Example: Give a whopping amount every second (or third) year so as to itemize, but then slack off to the standard deduction in the off years.
As for that exemption – well, it’s just gone, too. No more multiplying by all the people you managed to cram into your tax return. Instead, there is an increased $2000 deduction for each child under age 17, and they’ve added a $500 “Other Dependent Credit” for miscellaneous other dependent relatives.
All people now file on the same Form 1040. No 1040-A. No 1040-EZ.
There is rumor of a new form for seniors (1040-SR,) but nobody really knows why. If both rich and poor non-seniors can file on the same 1040, why can’t rich and poor seniors file on the same 1040. Maybe 1040-SR will have larger type? Or bigger spaces to write in?
What happened to the postcard? Think about it – do you really want your SSN sent by postcard through the mail? Ted Cruz may be a helluva guy, but this was not a good idea.
Instead, we have 2 half-pages, which are thankfully being printed on 1 side of 1 piece of paper.
The second half of the page is a quick recap of your income, and how it’s taxed.
The most basic income information (totals for wages, interest, dividends, IRAs and pensions, and Social Security benefits) comes first. The rest of the information has been organized into 6 sections, which are called Schedules 1, Schedule 2, Schedule 3, Schedule 4, Schedule 5, and Schedule 6. (Clever.) Pretty much all of the forms and schedules we used to file have been coordinated into these 6 schedules, and their totals flow to the second half of the 1040 page.
But some information appears on its own line, with no help from a newly numbered Schedule. This includes your deduction (standard or itemized,) the new QBID, any withholding totals, and various refundable credits, plus the math. I think they could have done a better job.
It is interesting to note that they managed to highlight the refund section by putting the word “Refund” in large, bold type, offset to the left, while they downplayed any amount you might owe by using a smaller font and tucking this information at the very bottom.
And did you notice the very first line, up at the top, was your filing status? Now we know what they’re really interested in.