Tax preparers and accountants are tearing their collective hair out, as 2018 is turning out to be one of the most complex, on-the-fly tax seasons of the last few decades.
“It’s more complex than ever,” said Sam Silverman, a partner with Marcum LLP in Center City.
In an effort to help our readers, here’s a roundup of what you need to know, including deduction tips, options to file free, and, if all else fails, how to file for an extension.
Deductions? We got 'em
Property and mortgage interest: If you didn’t get it in the mail, call your bank or mortgage company for the proper amount to deduct for your mortgage interest. Then there are property taxes, deductible up to the $10,000 limit. One CPA asked that we clarify that the $10,000 cap on this deduction is for state, local, and real estate taxes, not the mortgage interest.
Dependents: There’s a new $500 credit for children older than 17. Take a look at the rules for “Is your qualifying relative your dependent” and “Does your qualifying relative qualify you for the credit for other dependents” in the 2018 Form 1040 guide.
If children go to college, parents become eligible for the $2,500 Education Tax Credit. More on that from Martin Abo of Abo & Co. CPAs:
Student loan borrowers may be eligible to deduct up to $2,500 in interest paid on college loans. But that’s phased out when your income is between $65,000 to $85,000 or $135,000 to $165,000 if filing jointly, he said.
Graduate students with qualified tuition deductions do not have to include that as income they report — if used for tuition, fees, books, or school supplies required by the institution.
Undergraduates, graduate students, and students taking professional degree courses may qualify for the $2,000 Lifetime Learning Credit. What’s great is that parents can shift the credit to their student by not claiming the student as a dependent. Finally, the American Opportunity Credit of up to $2,500 per student is good for the first four years of undergraduate education, phased out based on income.
Depending on the state, savings in 529 plans that are used for qualified education expenses of up to $10,000 may qualify for a tax credit or deduction (like Pennsylvania and New York).
Rental income, or Section 199A. Tax practitioners asked the Treasury to clarify whether all real estate rental income would be considered income from a trade or business — a requirement to qualify for the 20 percent business tax rate.
Treasury declined to go that far but issued a proposal (IRS Not. 2019-07, or www.philly.com/rental) that establishes what’s known as a “safe harbor” for real estate rental income earned by taxpayers who spend 250 hours directly or indirectly on their property, according to Brad Molotsky, a partner at Duane Morris law firm in Center City.
The IRS has strict rules: You must keep separate books and records to reflect income and expenses for each rental real estate enterprise, showing how you spent 250 hours, and if you use the property personally, it’s not eligible.
Check with an accountant or tax preparer to make sure your property rental income qualifies. It’s a tricky one. Finally, attach a signed statement with your tax return showing that you satisfied the Section 199A deduction or pass-through requirements.
Extras. We also heard from Michael Oleksiuk, a long-time volunteer tax preparer for Philadelphia nonprofit Campaign for Working Families. After 500-plus hours of tax prep over the last few years, he’d like to mention two Pennsylvania items that provide relief for low-income taxpayers:
The Pennsylvania property tax/rent rebate. This is “my pet peeve. It’s been around for almost 50 years and offers up to $650 annually to eligible home owners and renters. However, many taxpayers are unaware of the program and often first hear of it when getting their taxes done. It’s a separate Form Pa-1000 completed by the taxpayer and mailed to Harrisburg,” he said. It’s also separate from the state income tax filing. The annual application deadline is June 30, with rebates being sent out starting July 1 each year, he said.
Here’s a link for more information on Pennsylvania’s Department of Revenue website: www.philly.com/rebate/.
Track your refund. Those who have already filed can use the “Where’s My Refund?” (www.irs.gov/refunds) tool offered by the IRS to track their tax refund. It displays progress in three stages: Return received, refund approved, and refund sent.
Alternatively, you can call the IRS refund hotline at 800-829-1954 for automated refund information.
Free filing. Find free services to help you get your taxes filed; we have only this week left if you’re not a slacker.
Those who do their own taxes can use IRS Free File (www.philly.com/freereturns). Free brand-name software will figure out taxes automatically.
IRS volunteer programs offer free tax help at thousands of sites around the country. Visit the IRS website: irs.treasury.gov/freetaxprep or call 800-906-9887/888-227-7669.
The Campaign for Working Families has free tax filing sites all over the city to help taxpayers. Its website: cwfphilly.org to find the nearest location near you. Or call 215-454-6483.
File for extension
There’s only a week left. So if, like me, you haven’t filed your taxes yet, there’s still time to file for an extension.
Extension requests can be filed online with states and the federal government until 11:59 p.m. on Monday, April 15.
For Pennsylvania taxpayers, use the department’s website at www.revenue.pa.gov and click on Online Services, Personal Income Tax e-Services. In New Jersey, you can file for a tax extension online at: www.njtaxation.org.
You can also print out state and federal forms from the websites and send in by mail, which is another option. Extensions generally give an extra six months to file. Whew!
Next week, we’ll try to tackle the qualified business deduction. Please write to us if you have suggestions.