There are a lot of things that have changed about the tax code. Things that were deductible before that will no longer be, as well as things that could not be done in the past that now can be. There’s a lot of confusion and it will take time for the public to slowly get used to things that they have turned into habits, keeping medical receipts, keeping traveling expenses, deducting moving expenses. There is a lot that has changed, but the most important things haven’t changed Organizing and record keeping are more than ever extremely important, and that’s the place that most of the people who are confused about the new tax rules have already got an ongoing deficit that they should fix.
What am I saying?
If you are going to move, you are going to move whether the moving expense is a deduction on your tax return or not. You’re not moving for the sake of a tax deduction. So, the behavior of moving isn’t going to change whether it’s tax deductible or not. However, people who think it’s deductible and are good at keeping records, will keep records that they’ll take to their tax preparer in 2019, only to be told “Oh, I’m sorry, this is one of the expenses that is no longer deductible”. Disheartening, yes, but the fact that they kept the records and were simply told they can’t use this one, is not the end of the world. There may be things that they aren’t keeping records for that are now deductible. That is a much bigger issue for the majority of folks. So, if you don’t know which tax rules have changed, and you don’t keep good records, how are you going to know, without becoming a tax expert yourself, what behavior you should modify this year? The answer is simple. Modify the behavior of not keeping good records! Simple financial statements on everything you spend is good from a financial planning perspective, whether things are deductible or not. Knowing how much money you have coming in, where it is going when it goes out, and in what category it falls into – business, leisure, house expenses – is important, but most folks don’t have a system for keeping good solid records on money in and money out of their household, unless they’re in business.
Then, even with a business, many people keep sloppy records at best, some not at all. If you want to understand the new tax code and how to take advantage of it, let’s just start with making a new promise to yourself for 2018, followed up with the actual behavior, of setting up a process for keeping track of all money in and all money out, by categories. QuickBooks software, Excel spreadsheets, multiple apps for your phone or other device. There are so many easy ways now to track money in and money out and to categorize them that just adjusting to that new behavior itself will be a huge step for the majority of folks that want to understand the new tax code. Then at least when you go to your tax preparer in 2019, you can say, “Well, I spent this on heat and this on lights and this on dining out and this on car repairs and this on prescription drugs”. They can then tell you what’s deductible and what’s not, but it’s better than going to your preparer with no idea of what you spent on so many things, because of the lack of any formal way of keeping track of your household cash flow.
Want to fix your taxes in 2018?
Want to understand the new tax code better?
That will take time. This year, make it a job to work on your own record-keeping process so that you’ll know exactly what you spent, and then your preparer will help guide you for 2019 and beyond about which records are important and which records are not. Step one is have the records!