The U.S. tax code is constantly evolving. This means that each new year brings a slew of changes that taxpayers need to remember when filing their taxes.
What changes to the tax code took place last year, and how will they impact your federal taxes this year? Tax and financial experts say that the 2016 changes were relatively minor. But that doesn't mean that they won't have an impact on the amount of tax dollars you send to Uncle Sam this year.
Here is a look at five of the most important tax changes from last year, and what they'll mean to you as you file your taxes this April.
1. Standard deductions
The standard deduction for heads of households rose to $9,300 for the 2016 tax year, which was $50 more than in 2015. This amount was raised again for the 2017 tax year (which you'll pay in '18), bringing it up to $9,350.
Other standard deductions remained the same for the 2016 tax year: $6,300 for singles and married taxpayers filing separate returns and $12,600 for married couples filing jointly. For the 2017 tax year, both these numbers will increase again to $6,350 and $12,700, respectively.
2. Extra scrutiny for Earned Income Tax Credit, Additional Child Tax Credit
Dave Du Val, chief advocacy officer at TaxAudit.com, said that the returns of those taxpayers who claim the Earned Income Tax Credit or the Additional Child Tax Credit might receive more scrutiny in 2017. According to new federal law, tax preparers are required to complete several steps — or due diligence — when working with the returns of taxpayers who claim both of these credits.
The Earned Income Tax Credit is a refundable tax credit for working taxpayers with low to moderate incomes, and is designed to provide these filers some financial relief at tax time. The Additional Child Tax Credit is also designed for filers earning low incomes. These filers might receive a tax credit under this provision if their original child tax credit is more than the total amount of income taxes they owe.
Congress doesn't want filers to abuse these credits, Du Val said.
"What this means is that taxpayers who claim these credits inappropriately can lose the ability to claim them for years," Du Val said. "Also, those who use a professional tax preparer who follows the letter of the law might find themselves required to answer more questions and provide more documentation than they are generally used to."
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1. Alaskan Whaling Captain Deduction
Alaskan whaling captains can avoid tax on up to $10,000 of whaling-related expenses per year. Costs they can deduct include purchasing and maintaining the boat, weapons and gear, food and supplies for the crew, and storing and distributing the catch.
When a business pays for capital improvements — like building a new office or buying a new machine — it typically deducts those costs over the life of the asset, which could translate into decades. A special exception exists in the tax code for “certain motorsports entertainment complex property placed into service before Jan. 1, 2017,” which refers to NASCAR tracks and other racing facilities. The exception allows businesses to deduct the costs over seven years, which is much faster than usual.
(Onfokus via Getty Images)
3. Hawaii’s Exceptional Tree Deduction
If you take care of an “exceptional tree” in Hawaii, you can deduct up to $3,000 on your state taxes of what it costs you. A local county arborist advisory committee must declare it an exceptional tree and you’ll need an affidavit from the arborist stating the tree’s type and location and what you paid to maintain it. You can take this deduction only once every three years.
(agaliza via Getty Images)
4. Florida’s Rent-a-Cow Deduction
If you live in Florida and want to pay lower property taxes — perhaps on your second home that has a lot of open land — consider renting some cows. Under greenbelt laws, if you use your land for agricultural purposes, your real estate taxes are based on the agricultural value of the land, not its market value.
This deduction doesn’t explicitly state how many cows you have to raise or even that you have to own them. Developers often let a few dozen rented cows roam their land — sometimes even during construction — to lower their property tax bills.
5. New Mexico’s Centenarian Deduction
If you live to be 100 years old, moving to New Mexico will cut your tax bill because you will pay no tax to the state. A caveat: You cannot take the deduction if you claim someone as a dependent. Paying no state income tax might not be a huge break, but if it’s available, take it.
(gece33 via Getty Images)
6. Qualified Performing Artist Deduction
If you’re searching for a tax loophole you can use — one that doesn’t benefit only the 1 percent — the IRS allows qualified performing artists to deduct certain expenses. To qualify, you must have performed for at least two different employers during the year and received at least $200 from each, had business expenses that exceeded 10 percent of your performing arts income and claimed less than $16,000 in adjusted gross income for the year. If you’re married, that $16,000 limit applies to both your spouse’s and your incomes.
(DragonImages via Getty Images)
7. Home Landscaping Deduction
If you regularly see clients at your home office, you might be able to write off a portion of your landscaping costs. The IRS allows a deduction for the portion of your home costs that are related to your home office, so as long as you use your home office exclusively for business, you might be able to take this one. If keeping your lawn looking good for your clients is part of the job, you’re in luck.
(Elenathewise via Getty Images)
8. Personal Pool Deduction
Install a pool for medical treatments and you could be in for a big tax break. One taxpayer suffering from emphysema and bronchitis was prescribed swimming by his doctor as part of his treatment, so he built a pool and wrote off a portion of the costs as a medical expense. He could deduct only the amount by which the installation cost exceeded the home’s increase in value, but he did get to include upkeep costs.
Deducting body oil on your taxes might sound downright crazy, but you might be able to. One professional bodybuilder needed to shine a little brighter during competition so he applied body oil. When tax season rolled around, he included the cost as a business expense. At first, the IRS disallowed the deduction, but the Tax Court approved because using the oil made him more competitive.
(bekisha via Getty Images)
10. Charity Meat Deduction
Meat packers, butchers and processing plants in South Carolina can earn a $75 state tax credit for each deer carcass they process and donate. You must be licensed with the state or the U.S. Department of Agriculture and you must have a contract with a qualified nonprofit that distributes food to the needy. If you use any of the deer for commercial purposes, you will not qualify for the donation.
3. You might need a driver's license to file electronically
Michael Eckstein, a tax accountant and owner of Michael Eckstein Tax Services in Huntington, New York, said that several states are now requesting or even requiring that taxpayers provide their driver's license information if they want to file their state tax returns electronically.
"Tax return fraud has been a growing problem," Eckstein said.
States are requesting the driver's license information as one way to cut down on tax-related identity theft.
Most states are only requesting that taxpayers who electronically file provide either their driver's license number or state ID numbers. You'll still be able to submit your state tax returns electronically without providing this information, but doing so might trigger a manual review by your state to verify your identity. This means it make take longer to receive a refund if you don't provide your driver's license or state ID number.
You won't be asked to provide this information, though, when filing your federal tax returns electronically.
4. Mileage deduction rate dips
Do you use your car for business? Then you know you can deduct those miles on your taxes. Unfortunately, that deduction has decreased. For the 2016 tax year, you can deduct 54 cents per mile that you drive your vehicle for business. That is down from 57.5 cents a mile in 2015. For the 2017 tax year, the deduction will decrease again to 53.5 cents per mile.
Be careful when deducting miles, though. You can't deduct the costs of your regular commute to and from work.
5. Three extra days to file
And maybe the most important change for the procrastinators out there? This year, you have a few extra days to file your taxes.
Sure, April 15 is the traditional day in which we're all supposed to file our taxes. But this year, filing day has been pushed back to April 18. Credit this bit of relief to the combination of a weekend and a Washington, D.C. holiday.
The usual April 15 deadline falls on a Saturday this year. Normally, taxpayers would have to file their income taxes on the following Monday, which would be April 17. But the D.C. holiday Emancipation Day is held on Monday, April 17. That gives taxpayers across the country one more extra day to file, April 18.
Federal law states that Washington, D.C. holidays impact tax deadlines the same way federal holidays do.
Generally, when you give money to a charity, you can use the amount of that donation as an itemized deduction on your tax return. However, not all charities qualify as tax-deductible organizations. While there are many types of charities, they must all meet certain criteria to be classified by the IRS as tax-deductible organizations. There are legitimate tax-deductible organizations in many popular categories, such as those listed below.
Married couples have the option to file jointly or separately on their federal income tax returns. The IRS strongly encourages most couples to file joint tax returns by extending several tax breaks to those who file together. In the vast majority of cases, it's best for married couples to file jointly, but there may be a few instances when it's better to submit separate returns.