2019 is here, and with it comes a whole new year of life, fun, and of course, the income to support that life and fun. But as 2018 now lies behind us, we must close out the previous year’s financial position by filing taxes no later than April 15th. Whether this is your first year filing taxes or your 30th, some major changes were made to the taxation laws this previous year.
In Donald Trump’s taxation reform, citizens will experience more efficiency both in the time it takes to file and in their finances if the laws are correctly observed. The following article is a brief overview of some of the major changes made in the taxation laws back in 2018. Here is what you need to know about filing taxes in the year of 2019.
For more information, please see the list of references below.
Itemization:
Every year, responsible taxpayers demonstrate their pack rat skills and produce hundreds—if not thousands—of receipts for their various purchases throughout the year. These deductibles not only offer them the opportunity to receive a fairly high tax return but also help them keep track of their spending habits from year to year.
However, when filing taxes from 2018, these hundreds of receipts may be extraneous data. With the 2018 tax reform, detailed itemizing is becoming a relic of the past. Of course, no longer having to stockpile information from every single transaction might make the financial filing system easier to manage. However, depending on your tax bracket, this change could both harm and save your tax return.
Itemization is still relevant for certain monetary transactions, particularly those in reference to charitable donations and homeowners fees, or claiming small business deductions.
While the reduction of itemization allowances may seem like a major blow to the familial budget, the math behind it is rather brilliant. For case studies to outline how this reduction actually improves families financial situations, look no further than Fidelity’s research link found below..
The 2019 Tax Brackets:
Among other changes, the major impact the tax reform has on individuals throughout the country lies in the transformation of the tax brackets. In effect, the new tax bill retains the seven main tax brackets that were originally in place. Creating lower taxable percentages for lower income households makes a big difference in how those living from paycheck to paycheck view tax season. Of course, more money in anyone’s pocket is helpful throughout different phases of life. Keep in mind, more money upfront may create less in with holdings and therefore may equal a slightly smaller refund at the end of the year.
In a nutshell, the 2019 new tax brackets are as follows:
2019 For Married Joint Filers
—-10% will be paid of $0 to 19,050 taxable income
—-12% will be paid of $19,051 to $77,400 taxable income
—-22% will be paid of $77,401 to $165,000 taxable income
—-24% will be paid of $165,001 to $315,000 taxable income
—-32% will be paid of $315,001 to $400,000 taxable income
—-35% will be paid of $400,001 to $600,000 taxable income
—-37% will be paid of anything more than $600,000 taxable income
2019 For Single Filers
—-10% will be paid of $0 to $9,525 taxable income
—-12% will be paid of $9,526 to $38,700 taxable income
—-22% will be paid of $38,701 to $82,500 taxable income
—-24% will be paid of $82,501 to $157,500 taxable income
—-32% will be paid of $157,501 to $200,000 taxable income
—-35% will be paid of $200,001 to $500,000 taxable income
—-37% will be paid for anything more than $500,000 taxable income
Additionally, as observed by the researchers at Turbo Tax, “The bill also eases the burden of individual alternative minimum tax (AMT) by raising the income exempted from $84,500 (adjusted for inflation) to $109,400 married filing jointly and from $54,300 (adjusted for inflation) to 470,300 for single taxpayers, so fewer taxpayers will pay it.”
All of this means greater taxation relief for families and single filers alike. With inflation rates growing every year, having a lower tax bracket coupled with rising costs of living gives citizens some breathing room when it comes to preparing their taxes as well as managing their day to day expenses.
The savings generated could be funneled into getting out of debt or saving for retirement. It could also be set aside in “taxes only” fund so the cost of a taxation service is now fully covered, making filing quick, simple and effective.
Dependency:
The allowances for dependency have been altered under this new law as well. Families who have children—those who file under the Child Tax Credit—are now permitted up to $2,000 worth of write offs per child under the age of 17. The refundable amount has also grown to a bracket of $1,100 to $1,400 per child. Additionally, this new segment also allows a non-refundable deduction of $500 for any dependents in the household who are not children. This can include invalid parents, siblings, or any unemployed member of the household—so even children above the age of 18 still living at home.
Exemptions:
Lastly, tax exemptions have undergone some major changes which need to be highlighted.
Personal and dependent exemptions have been entirely eliminated from the process. In previous years, these exemptions ranged from $4,050 to $4,150, but now they are no longer in the picture.
State and local taxes have changed their deductible rates to a maximum of $10,000. While this will not affect everyone, those living in higher-priced areas will end up losing a great deal of money. In addition, this bill caps the amount of mortgage deductions that can be redeemed. While the old cap used to be up to $1,000,000, it now sits resolutely at $750,000. While this will not affect most paycheck-to-paycheck families, this will certainly have a great impact on those taxpayers in the higher brackets.
The last exemption which needs to be considered is the health care exemption. This portion of the bill liberates people from the fees associated with Obama Care by eliminating the tax penalty for those who do not have health insurance in place after the final day of 2018. Also, this bill places a temporary advantage onto the healthcare section. It lowers the out-of-pocket medical expenses which can be deducted to 7.5 of your adjusted gross income.
These changes certainly place a new dynamic on the taxpayer’s tax return and financial standing.
Conclusion:
In conclusion, the taxation changes marked in 2018 are designed to save families and single entities alike more money. However, the loss of some deductions and the power of itemization does cause some tax payers a bit of pause. For those unsure of what is deductible, consulting a professional tax counselor would be a good investment of time and revenue to ensure you get the most out of your 2018 and future tax returns.
References:
“How Tax Reform Changed Deductions.” Fidelity Viewpoints, 05 November 2018, https://www.fidelity.com/viewpoints/personal-finance/how-has-tax-reform-changed-deductions. Accessed on 15 February 2019.
“2018 Tax Reform Impact: What You Should Know.” Turbo Tax Intuit, 2018. https://turbotax.intuit.com/tax-tips/irs-tax-return/2017-tax-reform-legislation-what-you-should-know/L96aFuPhc. Accessed on 15 February 2019.
“10 Tax Changes You need to know for 2018.” CNBC, 5 February 2018. https://www.cnbc.com/2018/02/16/10-tax-changes-you-need-to-know-for-2018.html. Accessed on 15 February 2019.
“2018 Tax Reform Changes for Self-Employed Businesses.” Turbo Tax Intuit, 2018. https://turbotax.intuit.com/tax-tips/self-employment-taxes/tax-reform-changes-for-self-employed-businesses/L4OoLLhqR. Accessed on 15 February 2019.
