2018 tax filing season: Here are some handy deduction tips to save you time and headaches

Trump’s 2017 tax reform finally takes effect this tax season. Many of us will no longer itemize, but for those who still do, here are some deductions to keep handy.

First, maximize your retirement-saving contributions. There’s still time left to contribute before the April 15 tax filing deadline, according to Jeffrey Kim, CPA with McCarthy & Company in Lafayette Hill.

The new contribution limit for employees in 401(k) plans totals $19,000 in 2019, up from $18,500 in 2018. That limit also applies to 403(b), thrift savings and most 457 plans. In 2019, you will be able to save up to $6,000 in your IRA, up from $5,500 in 2018.

If you are 50 and over, catch-up contribution limits remain the same. For 401(k) and other employee plans, you can put in an additional $6,000 in 2019. For IRAs, you can put in an additional $1,000.

Self-employed? Retirement saving can be a powerful tax write-off tool for self-employed people.

One of the biggest benefits of self-employment is more retirement plan options available than most taxpayers: the Simplified Employee Pension (SEP IRA), the Savings Incentive Match Plans for Employees (SIMPLE IRA), and the individual 401(k). Contributions to these plans cut taxable income, and investments grow tax-deferred until you withdraw.

Wall Street’s delayed 1099s

Taxpayers who are investors, be aware: Brokers and mutual fund companies are not required to send your 1099 tax statements until mid-February, and many have received an “extension” from the IRS to not issue them until March 15, 2019.

“This may be a surprise to a lot of people,” said Asset-Map CEO Adam Holt.

Online versions of your 1099 are available in February. Charles Schwab and Raymond James, for instance, say investors can download their 1099s online instead of waiting for paper forms in the mail next month, said David Zalles, a CPA based in Blue Bell.

Rntal income, or Section 199A

Tax practitioners asked the U.S. 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) 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 with this new rule. 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 — otherwise, nasty things happen.

Funding education

Tax reform made 529 plans more flexible, in that up to $10,000 a year may be spent on primary or secondary education as well as college. The 529 plan is an attractive vehicle for funding education for children and grandchildren because funds grow tax-free and remain tax-free if used for qualified education expenses.

In addition, you can bunch up to five years of annual gifts in a single year. In 2018, the annual gift limit is $15,000. So, you could contribute $75,000 per person.

Another option is paying education costs directly to the institution, without gift tax consequences. Then, annual gifts can be made with other money.

Child and dependent credits

Child tax credits increased to $2,000 per child in 2018, up from $1,000 the prior year. There is a new “other dependent” tax credit of $500 per person starting in 2018, whereas there was none in 2017.

Tasting the SALT

Among the most painful changes to itemized tax deductions is that state and local tax (SALT) deductions are limited to $10,000 for married and single tax filers. That alone reduces the number of taxpayers itemizing deductions to fewer than 1 in 3 Americans.

However, there are ways to reduce the effect going forward. Convert your second residence to a rental property — that can change the character of the real estate taxes from itemized deduction to business expense, which is not subject to the $10,000 limit, according to Abbot Downing, a division of Wells Fargo.

However, there are strict rules around personal use of rental property. Before doing this, consider what your goals are for the property. At the expense of minimizing taxes, you may be limiting family time together or putting restrictions on when family stay at the property.

If you are keeping the second home in the family, consider transferring it to a trust. The trust will be subject to the limit on SALT deductions, but this provides an additional $10,000 deduction. This is a temporary provision that is set to expire Jan. 1, 2026.

Track your refund

Those who have already filed can use the “Where’s My Refund?” 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.

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