According to a recent quiz that was offered to random Americans on the street by GOBankingRates, 77 percent failed to understand some of the important changes in the tax law that take place starting this year.
The much talked about Tax Cuts and Jobs Act became official in 2019, and the new tax code may impact what you and your family see on a return. So, how do you know if you will be affected by the 2019 tax laws?
Do you know what tax bracket you are in?
One of the most confusing aspects of the Tax Cuts and Jobs Act are the different tax brackets. According to the study, 48 percent claimed they had no idea what bracket they were in and only 10 percent correctly guessed the right answer.
There are seven different tax brackets for 2019, according to the updated code (note: the number of brackets hasn’t change, but many of the percentages have shifted). It is important to note because a bracket determines the rate you pay on portions of your income for federal taxes.
New changes include:
- 10 percent (remains the same)
- 15 percent lowered to 12 percent
- 25 percent lowered to 22 percent
- 28 percent lowered to 24 percent
- 33 percent lowered to 32 percent
- 35 percent (remains the same)
- 6 percent lowered to 37 percent
Aside from no change in the lowest 10 percent of Americans (based on annual income), most tax brackets get a bigger break with the revised tax code, especially America’s top earners (37 percent compared to the previous 39.6 percent).
Do you know what is your standard deduction?
Standard deductions are one of the most significant changes to the tax law. A tax deduction is a specific amount of money the IRS allows taxpayers to subtract each year from their total income before taxes are calculated and there are a few options for it, including the “standard deduction”.
Many taxpayers may feel tempted to use the adjusted amount over itemizing deductions, primarily because it has been moved from $6,350 to $12,000 for single filers. Married filing jointly will also see a bump from $12,700 to $24,000.
There are pros and cons to each type of deduction based on your individual circumstances. The choice you make could improve or lessen your return. For that reason it is wise to contact a tax professional for a consultation.
Do you know that the personal exemption is gone?
While all of the above sounds like welcomed news to taxpayers, it does not necessarily equal more tax breaks and higher returns. In fact, it could go the opposite way. It’s just too early in the tax season to know quite yet.
The primary drawback to the new rules is that the personal exemption is gone. These resourceful exemptions helped save individuals with income tax in the past, yet now it’s essentially been combined with the standard deduction.
Furthermore, there are several other deductions that are no longer applicable to taxpayers.
Will you be affected by the 2019 tax laws?
There is evidence to support that some filers will see lower refunds, and approximately 30 million Americans might end up owing money to the IRS that are not used to paying back taxes.
Every new tax season, it is important to consult an expert if you are not used to dealing with income tax, but perhaps more than any other year, 2019 is crucial if you hope to see a return.
Levy Tax & Associates can get you up to speed on all the new tax laws for 2019, as well as explain your individual circumstances in relation to tax brackets, standard deduction vs. itemized deductions, and more.
For more information about how we can help you, give us a call at 800-TAX-LEVY or visit our website.