A Letter to Our Clients

To Our Clients,

This year our letter is designed to give you the guidance needed for understanding some of the big new tax law changes that may personally affect you; to dispel some myths that are floating around; and to provide some basic ideas for tax planning.

2018 Tax Changes for Individuals

Everyone seems to think that the new “postcard” return will make income tax preparation easier! Not true. The recurring theme this year has been to expect a 20% increase in time to properly complete your return. Here are some of the major changes that have occurred.

The new Federal withholding tables were designed to lower your total tax bill for the year by giving you a bigger paycheck throughout the year. Unfortunately, they were not designed to give you a refund at year end, and for those of you that did not heed our warnings to change your withholding, your refund will be very small (if any) because you already received it in bits and pieces through larger paychecks throughout the year. One of our simple recommendations for 2019 is that all married individuals fill out a W-4 with zero exemptions and reflecting withholdings at the higher single rate.

The ability to itemize deductions has been dramatically decreased because the new law provides a much, much larger standard deduction. (You are allowed to deduct the greater of the two). However, many states, including New York, have decoupled from the federal returns on this, so we still need to accumulate the information on your medical, tax, mortgage interest, charity and other deductions in order to apply the new rules, and to complete your state tax returns.

A major change has occurred on home equity lines and 2nd mortgages, most of which are now not deductible. In order to get your largest deduction, we will need to know much more information on these amounts than in the past such as amounts borrowed and how those funds were used.

Employee work related business expenses are no longer deductible on the Federal return, but we may still need the information for your state return, and if you incur a lot of these types of expenses, you need to discuss the use of an accountable plan with your employer.

If you are retired, over age 70 ½, have an IRA, and plan to make charitable contributions, look into utilizing the direct IRA to charity transfer tool to make those contributions. This simple trick can save you hundreds of dollars in income tax.

With over 50% of working Americans now covered by high deductible health insurance policies, it is of absolute importance that you start a health savings account (HSA) to help cover out of pocket expenses.  And yes, you were still required to maintain health insurance for every member of your family for 2018 or face a potential penalty.

Due diligence requirements will result in our asking many questions that may seem to border on intrusive in order to qualify you for many credits and filing status.  If you expect to file as Head of Household, or plan to claim education credits, child tax credits, or Earned Income credits, plan on providing information to substantiate your eligibility.

Finally, in order to prepare your return this year we are required to obtain all of your W-2’s, 1099’s from financial institutions, forms 1095 for health insurance, bank forms 1098 and any other official IRS documents.

We are happy to meet with you throughout the year for tax planning, retirement and similar income tax related issues, and sincerely appreciate your continued business each year.

We will be holding our annual client brunch on January 12, 2019 where we will be reviewing these and many other tax issues.  Please check out the tab on our website for details and reservations.

We appreciate your continued trust in our services and look forward to seeing you soon.

The Staff at,

Dunn, Pedro & Butler CPA’s

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