The good news is there might be a literal payoff at the end: a tax refund. The IRS says 111 million refunds were issued in 2017, and it expects that more than 70 percent of taxpayers will get a refund this year. It can amount to a nice chunk of change, too: The average refund last year was $2,860.
To maximize your chances of getting a full refund, take the steps to claim all relevant deductions and credits. Even if money back isn't in the cards, it can help minimize your tax burden.
The 2018 filing season lasts from January 29-April 17, and recently there have been some big changes made to the tax landscape. With new tax laws in effect, there's a lot for taxpayers to digest, even though most of these laws won't have an impact on filing for the 2017 tax year.
H&R Block is a leading consumer tax services provider, and the company has a worldwide staff of more than 70,000 tax professionals. We spoke with Gil Charney, director at The Tax Institute at H&R Block, to get tips for taxpayers filing returns this year, and guidance regarding the new tax laws.
YP: What can taxpayers do to prepare for filing their taxes?
Gil Charney: "Organizing tax documents can make the tax preparation process go smoothly. Checking documents received off a checklist can help taxpayers ensure they aren’t missing any important documents. Taxpayers should follow up ... if an expected document is not received. Not doing so can lead to missing out on tax benefits. [It could also cause you to forget] to report income [and this could invite] an IRS inquiry. You can create your own customized tax prep checklist. It is also helpful to look at last year's tax return to get a good sense of what you’ll need this year."
YP: What tax-filing tips can you provide for small business owners?
GC: "Taxpayers who are self-employed generally have more complicated tax requirements than do wage earners. If you’re a sole proprietor, you may receive Forms 1099-MISC instead of a W-2, and you will need to pay self-employment tax, in addition to income tax. Because you do not have a paycheck from which taxes are withheld, you must make sufficient quarterly estimated payments to avoid underpayment penalties.
Also, you can deduct business expenses that are ordinary and necessary to your business, but you must be able to document these expenses. If you have one or more employee(s), or hire a family member, it gets a lot more complicated. Seeing the right tax professional will help clarify these tax requirements and help you get the most out of your business."
YP: What tax-filing tips can you provide for those who have full-time jobs?
GC: "Employees can deduct any ordinary and necessary job-related expenses that are not reimbursed by their employer. However, to deduct these expenses, the employee must itemize deductions. Also, the total of all unreimbursed job expenses (with certain other miscellaneous expenses) must exceed 2 percent of adjusted gross income. Employees who do qualify for these deductions should claim them, but they must have the proper documentation to support the deductions. This deduction will not be available after 2017.
"Also, employees should confirm the accuracy of their W-2s, as errors may occur. If the employee finds errors, or if any item on the W-2 is not explainable, the employee should contact the employer for correction or clarification. Finally, employees should understand all fringe benefits offered by their employer. Many of these benefits, such as 401(k) plans, flexible spending accounts, childcare benefits, and employer-provided education, can significantly lower an employee's tax bill."
YP: Do you have any advice for those seeking to boost their tax refunds?
GC: "Understand all the deductions and credits you qualify for and claim them. Additional forms and information may be necessary, but the extra effort can make a huge difference in maximizing your refund. For example, many taxpayers don’t claim education tax benefits because the forms are complicated, and about 20 percent of taxpayers who are eligible to claim the earned income credit don’t do so for one reason or another. This credit can be worth thousands of dollars, even if the taxpayer doesn’t owe any taxes.
"Update your W-4 to make sure your employer withholds the right amount of taxes for you. For example, if you prefer a large tax refund, have your employer withhold more from your paycheck. If you need more cash for living expenses, have fewer taxes withheld. Either option will affect the size of your refund. If you’re self-employed, make larger estimated payments to boost your refund, but you’ll have to decide if that’s more important than using the cash in your business.”
YP: What are the most important changes that the new tax laws will bring for taxpayers?
GC: "The new tax laws have many changes and thus will impact all taxpayers. Depending on your situation, you may be impacted in different ways. Some of the more significant changes that affect individual taxpayers include lower tax rates, a doubling of the standard deduction, a more generous child tax credit, and a new limit of $10,000 for all state and local income and property taxes paid. For a more comprehensive look at the changes, you can visit this page."
YP: The new tax laws will have an impact on tax returns filed in April 2019 for the 2018 tax year. Is there anything taxpayers can do this year to prepare for the new regulations?
GC: "Absolutely! There are many changes in the new tax law, and some of these changes affect some taxpayers more than others. Owning a home, having kids, changing jobs, starting a business -- all such life events are treated differently under the new tax law. Understanding how these affect your tax bill will help you know how to adjust your withholding, or the number of estimated tax payments you pay.
"But these changes will not affect the 2017 tax returns you’re going to file in the next few months, as the new law became effective on January 1, 2018. Employees may see a change in their take-home pay in February."
YP: Do the new tax laws have any retroactive provisions that affect filing for the 2017 tax year?
GC: "The only major provision in the new tax laws that affect individual taxpayers retroactively is a lower threshold to deduct medical expenses, from 10 percent of a taxpayer’s adjusted gross income (AGI) to 7.5 percent. Because of this lower threshold, more taxpayers may be able to take advantage of this deduction."
YP: What factors should taxpayers consider when deciding whether to file their returns on their own or hire a professional?
GC: "There are pros and cons for visiting with a tax professional or preparing your own return. Consider visiting with a tax pro if you experienced a life change (marriage, a new child, divorce, new job, starting college, etc.). Or, you may need professional assistance if you have ongoing tax complexity, [or] if you own your own business or rental property. Other complications occur if you recently retired, if you relocated for a new job, or if you live and work in different states.
"The personal attention and expertise from a professional could give you extra peace of mind that your return is accurate. [It] could also help you with tax planning to minimize tax obligations and maximize tax benefits in the future.
"Use a tax professional if you value the convenience of having a professional prepare and file your return for you. You should always use a tax professional if you have compliance issues with the IRS, such as responding to an IRS audit, or handling tax debt."
YP: How often should someone have their taxes looked at by a professional?
GC: "It's a good idea to visit with a tax professional occasionally, at least every third year, to review your return to make sure you didn’t miss anything. The IRS allows taxpayers to file or amend tax returns from the previous three years to claim a missed refund. Once that three-year window closes, the taxpayer can’t claim a missed refund even if they discover a mistake."
Warren Clarke is a writer/editor who loves providing information that helps people find useful solutions. His pieces about cars, home and garden, health, and finance have appeared in both digital and print. He lives in Los Angeles.