DiSabatino CPA - DiSabatino CPA Blog - March 2018 DiSabatino, CPA Newsletter

Answers to Commonly Asked Tax Questions

With all of the headlines about the changes in the Tax Cuts and Jobs Act (TCJA), you probably have lots of questions. Here are answers to some of the most common questions taxpayers have this year.

I'm hearing a lot about changes to 2018 taxes. What should I do?

The simple answer to the question "What should I do?" is to not make any major changes until you finish filing your 2017 taxes. Once you understand your 2017 tax obligation, you are in a better position to plan for 2018.

However, there are a few things you can start thinking about now. Depending on where you fall in the new income tax brackets, you may want to consider ways to lower your taxable income. This could include increasing your contributions to 401(k) retirement accounts or health savings accounts (HSAs). You'll also want to make sure your employer has adjusted your federal tax withholding so that you don't have a large refund (or tax bill) next year. You can review the IRS withholding calculator using your latest pay stub data to make sure the changes are accurate.

	What is the penalty if I didn't have health insurance in 2017?
	The penalty per adult is calculated as the greater of either $695 or 2.5 percent of your yearly household income, up to a maximum of $3,264 for individuals or $16,320 for a family of five or more. Note that the penalty is still in place for tax years 2017 and 2018. The TCJA eliminates the penalty for 2019 through 2025.

	Is Social Security taxed?
	It depends. You won't pay tax on more than 85 percent of your Social Security income, but how much gets taxed depends on your income bracket. If your combined income is less than $25,000 for the year, you won't pay any tax on Social Security income.

	When is the last day to file my taxes?
	Technically, Tuesday, April 17. But don't wait until the last minute. Ask for help to get started now, or to file an extension so you have time to complete your tax return later. The sooner you file, the sooner you can get your refund. Refunds usually take about three to six weeks to arrive from the date you file. And remember, you need to keep most tax-related documents for at least three years, so don't toss your paperwork after you file.

	The IRS contacted me, what should I do?
	Ask for help. There are numerous scammers who impersonate the IRS during tax season. The real IRS will never contact you via social media, email or text message. In addition, an IRS agent will not contact you over the phone unless you first receive official correspondence in the mail. If you have received a notice in the mail, immediately ask for help to determine how to proceed.

These are just a few of the questions people have during tax season. If you have more, don't forget to bring them to your 2017 filing appointment.

Alert: Expired Tax Breaks Revived for 2017

Congress passed a federal budget bill in early February that revived many expired tax breaks for the 2017 tax year. They include a deduction for education expenses as well as several tax breaks for homeowners.

If you have not yet filed your 2017 tax return, please be aware these changes are retroactive to the beginning of 2017. If you have filed, your return may be amended to capture any tax benefits that apply to your situation.

Review these tax breaks to see if they apply to your situation:

	Tuition and fees deduction. If you paid qualified tuition or expenses related to higher education, you may be able to deduct as much as $4,000 of those costs. This can be done on a regular return (without itemizing). The deduction is capped at $4,000 for single filers with adjusted gross income (AGI) of $65,000 or less ($130,000 married filing jointly) and capped at $2,000 for single filers with AGI of $80,000 or less ($160,000 married filing jointly).
	Mortgage insurance deduction. If you paid mortgage insurance premiums, you can once again deduct those amounts as an itemized deduction. This deduction begins to phase out for taxpayers with AGI of $100,000 or more.
	Mortgage debt forgiveness exclusion. If qualifying mortgage debt on your primary residence was discharged or forgiven, you can exclude that amount from your income.
	Energy-efficient home improvement credit. Energy-efficient home improvements (such as upgrades to windows, or heating and cooling systems), may be eligible for a tax credit equal to 10 percent of the amount paid, up to $500.

Your Brain on Social Media

How to make online interaction better for your health

About three billion people use social media sites such as Facebook, Twitter, Instagram and Snapchat every day. The average user spends about two hours on these platforms, clicking, liking and replying to content sent from around the world.

However, a growing body of research shows
that too much or the wrong kind of social media
use can have negative effects on mental health.
This appears to be especially true for children
and young adults. Here are some problems
associated with the misuse of social media and
some ideas to deal with them.

The problems

Anxious and depressed. Several studies have shown that high social media use is correlated with anxiety and depression. It's not known why this is, but some theorize that it can inadvertently replace more positive activities that promote well-being or cause users to compare their lives negatively with others'.

	Sleep deprived. High social media use is correlated with sleep deprivation, which is a trigger for poor mental health.
	Addicted. Many users report feelings of addiction to social media as well as psychological withdrawal symptoms when its use is restricted. High social media use can affect productivity and cause feelings of distracted attention for hours afterward.
	Bullied. Users are less inhibited and more hostile toward others online, particularly when they can hide their identities behind pseudonyms. "Cyberbullying" is a real problem, particularly among school-age children, and victims can suffer from mental health issues.
	Misinformed. The old saying that "a lie can travel halfway around the world before the truth can put on its shoes," is probably an understatement today. Studies have shown that those who get their news from social media are more likely to be misinformed. In just one example, several online communities have emerged in recent years promoting the idea that the earth is flat.

The solutions

Despite the potential negative effects, social media also has positive aspects. The right communities are a source of positive interaction, self-expression and emotional support. Here are some tips to a healthier use of social media.

	Limit time. At least two separate studies have shown a correlation between more than two hours of daily social media use and negative mental health symptoms. Try limiting your family's use to less than two hours a day. Many in the tech community say no to their children using these social media platforms all together. Others require phones and electronic devices to be checked in when at home and restrict their use during the school week.
	Set bedtime limits. Stop all social media use for at least an hour before bedtime, turn off your electronics, and place them outside of bedrooms to avoid disruptions. Neither brightly lit electronic screens nor upsetting online content right before bed tend to promote restful sleep.
	Discourage mobile use. If you or your kids have a social media problem, delete the apps from your phones and only allow social media use from a home desktop computer. This will help you control the amount of use and avoid the distraction throughout the day.
	No private social media. Ensure you have access to all social media accounts of your children and review them periodically.
	Use real names. Having you and your kids use your real names and identities when using social media may seem risky, but experts at the youth social media advocacy group SmartSocial.com say it actually promotes positive use and avoids negative interactions and communities. It also helps teach kids to be responsible users who are conscious of the risks and consequences of online activity.
	Find real communities. Use social media to join communities devoted to your favorite hobbies and interests. Talk to your kids about the communities they've joined and the interactions they have to make sure they are using social media for positive learning experiences and self-expression.

Staying Organized Before and After Tax Time

Organizing your tax records not only makes filing your tax return easier, it also helps you find the financial documents you need throughout the year. Whether you've already filed your tax return or are about to, here are some tips to get organized.

Go with the flow (of your tax return)

Try organizing your records in the same order
as they are required to fill out your 1040
individual tax return.Here are common categories
and items to be collected in each:

Income. Copies of W-2s, 1099s, Social Security statements, interest income and investment income.

Charitable donations. Charitable donation receipts, separated by cash and noncash contributions. Include a copy of your charitable activity mileage log, if you have one.

Medical and dental. All documents related to medical expenses. You may also include a note calculating your medical deduction threshold (which is 7.5 percent of your adjusted gross income during 2017 and 2018).

	Other itemized deductions. All proof of other itemized deductions, including state and local tax statements, mortgage interest, casualty and theft losses, unreimbursed business expenses and other miscellaneous itemized deductions. Note that miscellaneous itemized deductions are eliminated after the 2017 tax year, but keep all records for this tax season on file.
	Business and hobby activity. Keep separate records for each hobby and business activity. Include records of related investments, expenses and mileage logs.
	Education. Records of all education expenses for tuition, fees and materials (such as books or music instruments).
	Investments. Records of investments in tax-advantaged retirement accounts, as well as contributions to investable accounts such as health savings accounts (HSAs) and 529 education savings plans. Also include records of capital gains and losses, particularly for tax-loss harvesting purposes.
	Odds and ends. Put all the miscellaneous receipts that don't fit anywhere else into this file. Depending on your situation, you may be able to get tax breaks for a variety of expenses.

Bonus tips:

How long should you keep your records? For tax filings, the IRS requires you to keep your records on hand for at least three years after you file. Some states require you to keep records longer than that and the federal government can ask you to keep records for six years if you understate your income.

Keep track by going digital. If keeping track of your tax records year after year sounds like a chore, at least things are easier in the digital age. You can scan your paper records and keep them digitally, but remember to keep your records backed up and secure from identity theft.

Make a checklist. If you're still waiting for some tax forms to arrive, go back to last year's return and make a checklist of all the forms you received. Add items for any new accounts or vendors you added since then and check off the forms as they arrive.