Recent Tax Law Changes Could Trigger Mistakes, Audits
Recent tax law changes have caused countless people to make mistakes that could trigger an audit. Changes in the tax code have caused taxpayers to withhold too little from their paychecks, make errors when itemizing, and depend on credits and deductions that no longer exist. Understanding the Tax Cuts and Jobs Act and other tax reform can help people take advantage of tax breaks and avoid mistakes when filing this season.
TCJA Still Creating Havoc for Taxpayers
The massive Tax Cuts and Jobs Act (TCJA) came into effect for the 2018 tax year. However, it is still wreaking havoc for taxpayers despite its promise to cut individual, corporate, and estate tax rates. While the Act was expected to simplify the tax process, it has led many taxpayers to make tax-filing mistakes, instead. Such mistakes on tax filings can lead to tax audits.
Taxpayers Should Be Aware of Changes
The standard deduction for single-filing taxpayers and those who are married filing separately increased from $6,350 to $12,000. Married couples filing jointly now have a standard deduction of $24,000, while heads of households have a standard deduction of $18,000. However, the personal exemption for individuals, spouses, and dependents has been eliminated.
For families with children, this has resulted in a lower tax break. In some cases, if eligible, the child tax credit might offset some of the loss. However, taxpayers who have college-aged dependents or are caregivers to dependent parents can only claim a nonrefundable $500 credit per dependent. This credit is dependent on the same income limits as the child tax credit.
For people who itemize, familiarity with tax law changes is key. Simple mistakes could trigger an audit. Taxpayers can no longer claim casualty and theft losses unless they occurred within a federally declared disaster area like an area affected by a wildfire, flood, or hurricane. Interest on home equity loans can no longer be deducted. There is now a $10,000 cap on deducting state and local income and sales taxes. And a number of miscellaneous deductions have been eliminated.
Homeowners who held mortgages before December 15, 2017, are still entitled to deduct interest on a mortgage of up to one million dollars. However, for mortgages taken out between December 15, 2017, and December 31, 2025, homeowners may only deduct interest on a mortgage of up to $750,000.