Start Tax Prep Now for Success in the New Year

As the calendar year comes to a close and we find ourselves in the midst of a busy, festive holiday season, keep in mind that it’s never too early to begin preparing for another annual event: tax season. If you haven’t already begun your tax preparation, we’ve put together some helpful information and tips to start the process and set you up for success in the new year.

CHANGES IN TAX LAWS
Significant tax reform changes took effect January 1, 2018, including the following:

• Increased standard deduction – Regardless of your filing status, the standard deduction increases to $12,000 for those filing as single or married filing separately; $24,000 for married filing jointly; and $18,000 for head of household.
• Increased child tax credit – The Child Tax Credit increases from $1,000 to $2,000; the tax reform bill also introduced a new $500 credit for non-child dependents.
• Personal exemption eliminated – Taxpayers will no longer be able to claim the $4,050 personal exemption for each dependent.
• Mortgage interest deduction decreased – Individuals who purchased a home in 2018 can deduct interest up to$750,000 in mortgage debt, a change from the previous amount of $1 million. Also note that interest deductions on home-equity loans have been eliminated.

The IRS provides detailed information regarding these and all other recent tax reform changes for individuals, businesses, and tax exempt entities.

CHECK YOUR WITHHOLDING
If you haven’t already done so, check your current withholdings. Withholding too little could result in an unexpected tax bill or penalty. If you find that you have not withheld enough, it’s not too late to make additional withholding contributions or an estimated tax payment to make up for the deficit. Contact your tax professional or visit the IRS website to use a convenient withholdings calculator. The IRS recommends checking your withholding if you:

• Are a two-income family or someone with multiple jobs
• Work a seasonal job or only work part of the year
• Claim the child tax credit
• Have dependents age 17 or older
• Itemized deductions in previous years
• Have high income or a complicated tax return
• Had a large tax refund last year
• Had a tax bill last year

ADDITIONAL RESOURCES
It’s important to understand how these recent tax changes apply to your financial situation. Download Publication 5307 from the IRS, Tax Reform Basics for Individuals and Families, for details about the Tax Cut and Jobs Act provisions and how the changes will affect you. We recommend speaking with your tax professional, an accountant, or financial advisor for assistance. In the meantime, explore our helpful consumer resources. Determine your estimated federal income tax liability or visit our Practical Money Matters column for expert personal finance tips and information.

Contact us to learn more and to find out how The Bank of Elk River can partner with you for financial success in the year ahead.