Don’t be embarrassed to ask. If you are thinking it, you are likely in good company. Just when you got used to the annual chore of gathering your tax information, the rules had to change. Understandably, folks have a lot of tax questions. Here are just a few.
Is home equity loan interest still deductible?
A game changer – the answer now depends on how the loan was used. Interest on a home equity loan or line of credit used to buy, build or substantially improve your home is typically deductible, while interest on the same loan used to pay personal expenses, such as credit card debt, is no longer deductible. The loan must be secured by your principal residence or second home, cannot exceed your home’s cost and meet the loan limit requirements discussed below.
I can deduct all of my home mortgage interest, right?
New homeowners could potentially get pinched under tax reform’s reduced loan caps. If you itemize deductions, you can deduct interest paid on your primary and secondary residence on combined mortgages up to $750,000 ($375,000 married filing separate). Don’t worry – if your mortgage was taken out on or before Dec. 15, 2017, the old limits remain at $1 million ($500,000 married filing separate) even if you refinance to get a lower rate.
What is that “QBI” deduction that seems to be a big deal?
The qualified business income deduction is a 20 percent deduction available for certain business owners and those with income from a pass-through entity. Generally, pass-through entities include partnerships and S corporations, but the QBI deduction also applies to sole proprietors. Rejoice further – certain rental activities also qualify for this tax perk. To maximize the full 20 percent deduction with no complications, you need income from one of the sources above. To avoid complications, keep your taxable income at or below $315,000 if married filing joint or $157,500 or less if single. For those above these income thresholds, the rules get much more complex but not too complex for a tax pro who can help you maximize the deduction.
Where is my refund?
If you e-file your tax return, most refunds are issued within 21 days. To check your Federal refund status 24 hours after e-filing or four weeks after you mailed your return, visit www.irs.gov/refunds or download the IRS2Go app. You will need your Social Security number or ITIN, your filing status and your refund amount. To check your Franchise Tax Board refund status, visit www.ftb.ca.gov/online/refund.
How long should I keep tax documents?
Generally, hold on to your documents three years from the date you file your return or two years from the date you pay the tax, whichever is later. As with life, there are many exceptions so check before chucking. The IRS can go back six years if more than 25 percent of income was omitted from the tax return. If the IRS proves fraud, they can go back to the beginning of time. If you didn’t file a tax return, there is also no time limit.
How do I know if I need an accountant?
The answer really depends on the complications of your finances. If you are going through big life changes, have complex investments, own your own business, dabble in rentals or itemize deductions, a knowledgeable accountant will not only save you money, but also save your sanity.
The bottom line
With tax reform, you may find yourself asking more questions than you have answers. It may be a smart move to hire a tax pro this year or at least have them review your situation for peace of mind. ￼
Chris Thornburgh is a CPA and partner at Brown Armstrong Accountancy Corp. Contact her at firstname.lastname@example.org or 661-324-4971. The views expressed are her own.