It seems like 2019 will be one of the more monumental years for taxes in quite some time, even though every year has some shift in tax laws and rules that applied from the year before.
It is due to the Tax Cuts and Jobs Act of 2017, which finally goes into effect this year.
The legislation is a mixed bag for taxpayers. Some people are overjoyed about the changes it will make to their federal filings while others are not nearly as thrilled.
What is the Tax Cuts and Jobs Act of 2017?
It has been proclaimed by some to be the biggest tax overhaul in the last three decades, with some critics applauding the overhaul as long overdue. Others, though, are adamantly against how it could shrink the return for many taxpayers.
There are 12 crucial tax deductions that individuals are used to claiming and will not be able to do so for 2019:
- Personal exemptions
- The standard $6,350 deduction
- Unlimited local and tax deductions
- Mortgage interest deductions (over a million)
- Unrestricted deductions for home equity loan interest
- Deductions for unreimbursed employee expenses
- Miscellaneous itemized deductions
- A deduction for moving expenses (potentially related to a job)
- Unrestricted casualty loss deduction
- Alimony deduction
- Deductions for certain school donations
- Deductions from tax extenders
According to the experts, if you claim any or most of these in any given tax year, your return could be significantly altered this year.
The Good News – Standard Deductions
If there is one aspect of the new tax law that just about everyone can get on board with its the raised standard deduction.
Single taxpayers used to be the only ones eligible for the $6,350 standard deduction, however, due to the new legislation married couples will also get a standard deduction of $24,000. It is up from $13,000 in 2017, a significant increase.
Head of household filers will also get rewarded as their standard deduction jumps from $9,550 to $18,000.
The Frustrating News – Personal Exemptions
The catch with the standard deductions is that taxpayers must now deal with personal exemptions getting eliminated. It strikes families especially hard since they used to be able to subtract over $4,000 for each dependent they claimed.
It is difficult right now to forecast if the increase in standard deductions will make up for a loss in personal exemptions for families.
The Wild Cards – Other Deductions Impacted
Alimony: While not applicable to everyone, those that are in an alimony agreement will experience a let down as that money is no longer deductible on a federal return.
SALT deductions: They used to be utilized by taxpayers for local and state taxes and are now capped at $10,000. According to some experts, they project this could impact the middle class the most.
Mortgage Deductions: The unrestricted deduction for home equity loan interest and $1 million mortgage interest deduction, two initiatives that used to benefit homeowners are gone this year.
Employees: Workers that used to get reimbursed for purchases related to the job were able to deduct any amount that exceeded 2 percent of their adjusted gross income. However, now that privilege is no longer viable. Moving expenses related to a job relocation are no longer deductible.
Miscellaneous: There are several minor benefits that taxpayers used to be able to claim to offset the income tax owed. Now, taxpayers will no longer be able to deduct various consulting fees in addition to certain donations to schools.
How will it impact tax rates?
Though tax brackets for adjusted gross income are lower, it is hard to say if this will really lead to more income because of all the changes in deductions. One recommendation is to review federal withholding payments to make sure you avoid underpayment penalties.
Other Impacts from the 2019 Tax Law
What other tax education do you need leading up to the new tax season? Here are a few other changes/impacts:
- Changes to the Child Tax Credit: The credit has doubled from the year before.
- $500 credit for Dependents age 17-24. If the child does not qualify for the CTC, they may still be eligible for this tax credit.
- Expansion of the 529 Savings Plan. The U.S. government is providing more incentives to save with this plan for your child’s education.
- Changes to the Kiddie Tax. Now taxed at the same rates as estates and trusts.
Higher amounts from your medical expenses are now deductible. It still includes the penalty for electing to not have health insurance under The Affordable Care Act, though that penalty will be removed starting next year (for the 2019 year).