It’s tax time again and though we can’t predict if you’ll be happy or disappointed with the outcome, the one thing we can promise is that this year’s forms are going to look very different and the bottom line will probably surprise you.
The major difference this year is that far fewer people will be able to itemize deductions. With the $10,000 limitation on the deductibility of all state and local taxes (income and real estate) and the increase in the standard deduction to $24,000 for a couple filing jointly (which rises to $26,600 when both are over 65), it has been predicted that at least half of the taxpayers who previously itemized will no longer be able to do so. However, it is still going to be worth checking to see if it will be beneficial for you to do so if you have particularly high medical expenses and/or donated a large amount to charity.
New for this year is the Qualified Business Income Deduction which is a deduction of 20% of Schedule C net income for income, but not self-employment tax, and will be available to Schedule C filers and some, but not all individuals who receive pass-through income from other entities. Check with your tax preparer if you think you qualify for this.
So, tax rates have been lowered and we now have this much larger standard deduction, so why are we seeing reports that people have been shocked by the fact that they now owe money when they’ve been used to receiving substantial refunds? In addition to the limitation on the deductibility of all state and local taxes, (which will be particularly painful for people living in high tax states), several factors are contributing to this. One is that at the beginning of the year, taxpayers were encouraged to reduce withholdings in anticipation of a lower tax bill at the end of the year, and another is the elimination of the personal exemption, which in 2017 was $4,050 per person. It is true that child tax credits have been increased this year, but that won’t help empty nesters who were used to having significant itemized deductions and the personal exemptions.
What will your bottom line look like? With so many changes this year it has been very difficult to do accurate projections, so be prepared!South Carolina Taxes
Just a few reminders about South Carolina, and a word of caution if you are new to South Carolina or still use an out-of-state preparer: not all tax software calculates the following credits and/or deductions, so make sure you check the South Carolina forms to be sure you’re getting all the credits you’re entitled to! Here are some examples:
- Excess Insurance Premium Credit. This can be a big one. If your total Homeowners Insurance costs (including Wind and Hail, Flood and Earthquake) exceed 5% of your Adjusted Gross Income, there is a dollar for dollar credit of up to $1,250 for the amount in excess of the 5%.
- Nursing Home Credit. A credit of up to $300 for nursing home expenses or physician certified in-home care you paid for anyone, including yourself.
- Classroom Teacher Expenses Credit. A credit of up to $275 available to teachers in public or private schools for non-reimbursed classroom supplies or materials (Note to teachers, this is a credit and is in addition to the $250 deduction on your Federal return.)
- Contributions to SC College Investment Program (529 Plan) or SC Tuition Prepayment Program. This is a deduction but can be a big one as you can pay in up to $14,000 per year (or $70,000 over 5 years) per recipient without incurring Gift Taxes and it may all be deductible from your South Carolina tax liability.
- Two Wage Earner Credit. 0.07% of the lower income. Not exactly large, but worth knowing about if you and your spouse both work.
Be sure to check out the instructions for form SC1040TC for the complete list, as you may be eligible for some unlikely credits or deductions. (The Plug-In Hybrid Vehicle Credit may be relevant to some Seabrookers, but how about the Pre-Marriage Preparation Course Credit or the Venison for Charity Credit?)
New for the 2018 tax year is the new ‘Motor Fuel Income Tax Credit.’ If you’ve kept careful records and collected your gas receipts and receipts for any repairs and maintenance to your personal vehicles you will be able to claim the credit (which will be the lesser of any resident taxpayer’s increase in motor fuel payments (3 cents per gallon) or actual expenses for preventative maintenance on up to two private motor vehicles) on SC Form I-385. But don’t hold your breath thinking that this will make a big difference to your SC taxes. The state has already indicated that there are limited funds available for this credit. Having kept careful records and filled out all the forms, one taxpayer discovered that the maximum amount of his refund was likely to be was $9 for one car and $5 for the other!
New South Carolina residents should also be aware of the fact that South Carolina doesn’t have a ‘Part-Year Resident’ return. Assuming you move to South Carolina during the year, that year you are allowed to choose whether you file as a resident or a non-resident, so be sure to run the numbers both ways. It can result in very different total amounts of state tax. You should also know that there is a significant ‘Homestead Exemption’ on Property Taxes paid on your Primary Residence, which is available to residents over the age of 65, who have lived in South Carolina for more than one year.
As always, “be sure to consult your tax professional for more information or if you have any questions!”