In this post, I will go over some of the major Tax Law Changes that took effect this year and may have an impact on you when you file your taxes in 2019. Make sure you are making the best choices for your tax implications!
You May Be Paying Less In Taxes!
Depending on where you fall in the tax bracket, you may be paying fewer taxes this year than you did in 2017. The standard tax brackets were readjusted from the past 10%/15%/25%/28%/33%/35% and 36.0% to the new brackets of 10%/12%/22%/24%/32%/35% and 37%. Keep these numbers in mind when you decide on the amount of taxes you are going to withhold from your income in 2019.
Itemizing May No Longer Be Worth It
Remember when you itemized and could write off a slew of purchases and interest to lower your taxable income? Well, the standard deduction that we are used to of $12,700 for married couples filing jointly increased to $24,000 in 2018. This new amount may be out of reach for most married couples as well as single tax filers.
If you file as the head of household, your standard deduction jumped from $9,350 (2017) to $18,000! It may be time to go back to the easy way of filing taxes on a Form 1040 if you don’t have a ton of deductions and other variables in your tax returns.
Dependent Personal Exemptions – GONE!
Before you freak out, the new tax plan actually benefits dependents in the long run. However, the normal exemptions you are used to filing, ($4,050 per exemption) will vanish and take on a new form. The standardized deductions will be increased to make up for this change in tax law.
Make Money Off Kids
Kinda, not really. OK, so this is a significant increase in the Child Tax Credit from previous years. The previous tax credit was $1,000 and it is increasing to $2,000 per child. In the past, when you made too much money you would lose out on this tax credit. The new income limits have significantly increased. You can make up to $200,000 as a single taxpayer or $400,000 for married couples filing jointly before you price yourself out of the tax credit.
The Moving Expense Deduction – GONE!
Did you know that in the past you could claim moving expenses if you moved at least 50 miles for your job? I didn’t either but it doesn’t matter anymore because that deduction has been stopped for those not in the military. If your employer is kind enough to pay you for the move, you will have to claim this money as income on your taxes.
On a side note, if you are in the military, the deduction remains intact for you. Thank you for your service!
Dave Ramsey’s 529 College Savings Plan Can Be Used For Elementary Schools
Have you heard about the 529 plan that Dave Ramsey and Suzie Orman recommend for college savings? Well, these tax-free plans can now be used to pay for your children to attend private elementary schools. Keep in mind that you are limited to drawing $10,000 out of the fund per kid, per year.
You Should Still Pay Your Mortgage Early
If you read my earlier article about Should I Pay Off My Mortgage ASAP?, you know I’m an advocate for paying off your mortgage rather than keeping it as a tax write off. Apparently, I can read the future because now you are only able to write off the interest on home equity loans used to improve your home, i.e. a pool. If you borrowed from your house to pay off other loans such as credit card debt – you are no longer allowed to write that interest off.
While you can still write off the interest on your original mortgage loan, with the increased standard deduction now at $24,000, most people will not meet the standard deduction. This means it doesn’t do you any good to itemize your interest if you fall below the $24,000. Plain English? Pay off your mortgage asap!
Custodial Accounts Make More Sense!
My earlier article on Kids And Money: Why Your Kids Need A Custodial Account still applies and makes even more sense. In 2017, if a custodial account made more than $2,100 in interest, the excess was taxed at the guardian’s tax bracket rate. Depending on which bracket the parents were in, this could be devastating to the investment because parents could be taxed as high as 39.6%! With the new law, the maximum interest increases to $2,550 and the tax brackets are set at 24%/35% and 37%.
This is not a comprehensive summary of all the tax laws that changed but these are some of the main ones that may affect you and your family. I encourage you to dig deeper into the changes and speak with your CPA to see if there are any additional write-offs you need to make before the end of the year.
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