The timing of tax refunds plus the confusion about tax reform are generating a long list of myths this filing season.
The false notions raise questions such as: Will all refunds be delayed? Isn’t there a secret way to uncover your refund date? Why do I even need to worry about digging up receipts to claim charitable deductions on my 2017 return? Aren’t all deductions eliminated with tax reform?
Too many consumers are befuddled about taxes every year. But things got even more mixed up after Washington lawmakers passed the Tax Cuts and Jobs Act, a sweeping tax reform package, in late December.
Since then, tax professionals and the IRS have been getting phone calls indicating that many taxpayers think the new rules will change the game for their 2017 returns. The reality: Not much has changed for the 2017 return.
Consider the mistake some tax filers are making with home equity interest.
George W. Smith IV, a Southfield-based accountant, said he’s had some clients forget to bring him paperwork for their home equity loan interest because they were under the impression that home equity loan interest is no longer deductible. The rules don’t change for 2017 returns.
“We’ve conditioned ourselves to ask (about those forms) when we see big drops in mortgage interest deductions on the return,” Smith said.
The rules will change for 2018. The IRS noted last week that the interest on a home equity loan or home equity line of credit would still be deductible on 2018 returns in many cases if the loan is used to buy, build or substantially improve the taxpayer’s home that secures the loan.
But the interest would no longer be deductible on 2018 returns if you used the home equity loan to pay off credit card debt or buy a car. Again, though, these new rules don’t apply to 2017 returns.
Here are the myths — and the reality:
Myth No. 1: Calling the IRS, calling your tax professional or ordering a tax transcript will speed up your refund.
Reality: That won’t work.
But getting a transcript is not a “secret way” to get more information on when your refund will arrive. Or speed up that refund.
“If you order your tax transcript, it doesn’t do anything to expedite your refund,” said Luis D. Garcia, a spokesperson for the IRS In Detroit.
Myth No. 2: All refunds are being delayed.
Reality: All refunds won’t be late. In fact, some earlier filers should see refunds soon.
Beginning this week, the IRS expects to make refunds available in bank accounts or on debit cards for early filers who claimed the Earned Income Tax Credit and the Additional Child Tax Credit.
In order to combat fraud, the IRS had to hold back the entire refund, not just the part related to the credits, early in the season.
But overall, the IRS said it issues more than nine out of 10 refunds in less than 21 days. Using e-file and direct deposit can speed up refunds.
Myth No. 3: All deductions are eliminated.
Reality: You could pay more than you owe in taxes, if you believe this one.
If you itemized your deductions on your 2016 return, you still may be able to itemize them on the 2017 return. Dig up your receipts for charitable contributions, find your paperwork for what you paid for state income taxes and property taxes.
Under the new tax law, a $10,000 limit will apply on 2018 returns as the maximum deduction for all state and local taxes combined. But the 2017 returns do not have this limit — so you need all your paperwork now.
Deductible expenses include home mortgage interest, state and local income taxes or sales taxes (but not both), real estate and personal property taxes, gifts to charity, casualty or theft losses, unreimbursed medical expenses, and unreimbursed employee business expenses. Special rules and limits can apply.
The standard deduction will nearly double under the new tax law but, again, that doesn’t take place until the 2018 returns.
The standard deduction for single taxpayers and married couples filing separately is $6,350 in 2017, up from $6,300 in 2016.
For married couples filing jointly, the standard deduction is $12,700 on 2017 returns, up $100. And for heads of households, the standard deduction is $9,350 for 2017, up from $9,300.
Myth No. 4: Bigger paychecks mean you don’t have to tinker with your withholding.
Reality: You’re risking an unexpected, and possibly unpleasant, surprise next year — if you don’t review your withholding now.
Alison Flores, principal tax research analyst at the Tax Institute at H&R Block, said some taxpayers will want to adjust the amount of money that’s being withheld by their employers by updating their W-4 forms.
If they don’t, some filers risk a smaller refund next year or maybe even a bigger than expected refund.
Many different outcomes are possible because unique circumstances in a taxpayer’s life influence the appropriate withholding.
The changes in the withholding tables that took place as a result of tax reform do not mean that you’re all set and should bank on a similar refund when you file your taxes next year.
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Myth No. 5: You won’t be penalized if you don’t provide proof of health insurance.
Reality: You need that proof or you face a penalty on 2017 returns.
Flores said a big point of confusion involves future changes regarding the Affordable Care Act. Too many consumers mistakenly think changes apply to 2017 returns.
“For 2017, there’s really no change,” Flores said.
“On your tax return you’re either going to report you had coverage all year, you qualify for an exemption or that you’re liable for the individual shared responsibility payment and the amount that you will pay.”
That’s true for the 2017 tax return you file this year, as well as the 2018 tax return that you file next spring in 2019, she said.
The tax reform law repealed the Affordable Care Act mandate that requires Americans to have health insurance or pay a penalty. But such changes aren’t immediate.
If you didn’t have health insurance in 2017, and you don’t claim a waiver or exemption, you’ll still face a penalty.
This article was originally published at USA Today.