If there's one thing the tax code is known to be, it's complicated. And for the average American, it's also probably not all that interesting. As such, many filers are apt to lack certain in-depth knowledge about our tax system, and understandably so.
But while it's OK to not be well-versed on the intricacies of the tax code, it's important to know the basics. And in that regard, most Americans have work to do. That's because an estimated 77% aren't up to date on some big changes to the tax code that took effect last year, or so found GOBankingRates in a recent survey.
Specifically, only about 18% of participants could correctly identify the standard deduction for single tax filers to claim this year on their 2018 taxes (it's $12,000), while just 10% of Americans knew that there are now seven individual tax brackets. If you're in the dark about taxes following the massive 2018 overhaul, here are few key things you should know as you sit down to prepare your return.
1. It might no longer make sense to itemize
Filers have two options for taking deductions on their taxes: Go with the standard deduction, or itemize. If you own a home and have other expenses to deduct, then you might assume that itemizing makes sense. But one thing the 2018 tax overhaul did was nearly double the standard deduction. Prior to 2018, it was $6,350 for single tax filers and $12,700 for married couples filing jointly. But for the 2018 tax year, it's $12,000 for singles and $24,000 for joint filers. As such, you might find that itemizing won't do you any good this year.
2. Your refund might be smaller this year
Another major impact of the 2018 tax overhaul was a lowering of virtually all individual tax brackets. Your tax bracket determines how much tax you pay on your highest dollars of earnings, and a big goal of the 2018 overhaul was to put more money back in Americans' pockets. As such, the IRS issued new withholding taxes that determined how much tax employers were to hold back from workers' paychecks.
During 2018, many folks saw their take-home pay go up. The flipside, however, is that many will also inevitably see smaller refunds than they're used to, since much of the money they'd normally get back at tax time was, in fact, paid to them already during the year.
If you saw a large boost in your paychecks but didn't get a raise, then chances are, your refund won't be as substantial as it may have been in the past. You might even end up owing the IRS some money, depending on your circumstances. For example, if you made a lot on investments or earned a good income from a side job, and you didn't pay estimated taxes on that money last year, then you might end up with an underpayment for 2018.
3. You might need some professional (tax) help
The tax code has always been cumbersome, and the 2018 overhaul didn't help that much. If you're self-employed or own a small business, or have multiple sources of income, you might find that your tax return is even more complicated this year than ever before. And if that's the case, you shouldn't hesitate to hire a tax preparer. If you go it alone and make a mistake, your tax return might get flagged for an audit, or get rejected outright. And those are headaches you don't want to deal with.
The fact that most Americans aren't up to speed on tax changes isn't surprising, but it could prove problematic in terms of filing returns correctly. Therefore, give yourself plenty of time to get your taxes done. Waiting until the last minute might've worked in the past, but this year, the last thing you want to do is take chances.