Tax Reform – Compliance
A more complex result of tax reform is a re-invigorated emphasis on compliance.
You, the taxpayer, can’t just say, “I’m HOH” or “my mom is my dependent.” You are expected to follow the rules and be able to document and prove the truth of certain statements.
EIC, CTC, AOTC, ODC, AOTC and HOH, all deliver great tax advantages. Electing any of these without proper cause is considered fraud, and these frauds have been running rampant in recent years. Some estimate 1 out of every 3 EIC claims is fraudulent. Most returns with EIC also involve at least one more of these acronyms.
To fight back, there are penalties. In fact, if you lie to me, the IRS can fine me, too. Thus, if you qualify for EIC, CTC, AOTC, ODC, AOTC and/or HOH, and you file your taxes through a professional, be prepared to complete and sign additional paperwork that outlines the qualifying factors. Fun stuff for all of us.
The IRS has stepped up investigations of preparers who have high numbers of taxpayers taking these credits. Once they find a preparer with inadequate documentation, they fine the preparer, but there is little evidence they follow up with the actual taxpayers.
DIY? Apparently nothing has changed on the compliance front. Hmmm.
Tax Reform – Health Ins … still a “thing”
How about that health insurance issue?
Yes, they did repeal the “individual mandate,” but it does not go into effect until 2019. This means, you are still supposed to have health insurance or pay a penalty with your 2018 income tax filing, so I still need your 1095 A/B/C. (Why did Tax Reform delay this until 2019? Probably because folks had already signed up, and they didn’t want to jeopardize the industry mid-stream.)
However, with the 2019 penalty gone, it seems people have begun canceling coverage. That is, enrollment is dropping. Some of this might also be connected to the surge in politicians (particularly 2020 presidential contenders) who are already getting aboard the universal health care bandwagon.
But don’t worry – more and more states are implementing health insurance mandates, complete with the same penalty structure for non-compliance.
Tax Reform – Kiddie Tax
Another big change impacts Kiddie Tax.
Tax rates for dependent children with unearned (non-wage) income are no longer determined in conjunction with the parent return. Instead, Kiddie Tax will simply mimic the rates for trusts and estates.
Generally, this will be simpler.
And unless your child is an oil baron with a trust fund, it will probably result in less income tax.