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Tax Code Changes 2019    

The tax code gets a bit of an overhaul each year, and with the changes, it can get confusing. No worries, though; we’ll walk you through everything you need to know for 2019.

 

Most amendments to the tax code will only begin to affect taxpayers in April 2019. However, some of the changes can impact the financial choices you make this year. Learning about these changes early in the year will help you to make the best decisions possible.

 

Read on to learn about the most important changes to the tax code for 2019.

 

1.)   Changes to the amounts taxed for each income bracket

 

The 7 tax income brackets are unchanged at 10%, 12%, 22%, 24%, 32%, 35% and 37%. However, the amount each bracket is taxed has changed.

 

Here are the new rates for taxpayers filing as individuals.

 

Taxable Income Bracket                  Tax Due

 

 

10%     $0-$9,700                               10% of taxable income

12%     $9,701 -$39,475                     $970 +12% of income over $9,700

22%     $39,476 – $84,200                  $4,543+22% of income over $39,475

24%     $84,201 – $160,725                $14,382.50+24% of income over $84,200

32%     $160,726- $204,100               $32,748.50+32% of income over $160,725

35%     $204,101- $510,300               $46,628.50+35% of income over $204,100

37%     $510,301 and up                     $153,798.50+37% of income over $510,300

 

 

Taxable income rates vary for couples filing jointly and for individuals filing as heads of households. You can check out the changes to each bracket here.

 

2.)   Changes in standard deduction amounts

 

The standard deduction amounts will see slight increases over the deductions of 2018. The standard deduction in 2019 will be $12,200 for individuals, $18,350 for heads of household or $24,400 for married couples filing jointly and surviving spouses.

 

3.)   Elimination of personal exemptions

 

The personal exemption amount was set to 0 for 2019 under the Tax Cuts and Jobs Act, and is therefore no longer in effect.

 

4.)   Changes to itemized deductions on Schedule A

 

There have been several changes to itemized deductions for 2019 taxes. These include:

  • Medical and dental expenses. There is a new floor of 10% for medical and dental expenses. This means you can only deduct medical and dental expenses that exceed 10% of your adjusted gross income (AGI.)
  • State and local taxes (SALT). The new maximum for SALT deductions is a combined total of $10,000 for taxpayers filing jointly, and $5,000 for married taxpayers filing separately.
  • Home mortgage interest. In 2019, interest paid for acquisition purposes, like buying, building or improving your home, will be maxed at $750,000 for married couples filing jointly, and $375,000 for married couples filing separately.
  • Casualty and theft losses. The deduction for personal casualty and theft losses has been eliminated with the exception of losses incurred in a federal disaster area.
  • Job expenses and miscellaneous. All miscellaneous work-related expenses will be subject to a 2% floor, which means you can only claim deductions that are less than 2% of your AGI.

5.)   Changes to tax credits

 

There have been several welcome adjustments to various tax credits for 2019, including the following:

  • Child Tax Credit. The child tax credit has increased to $2,000 per child and is refundable up to $1,400. There is also a $500 nonrefundable credit for other qualifying dependents.
  • Earned Income Tax Credit (EITC). The maximum EITC amount for 2019 is $6,557 for married taxpayers filing jointly who have three or more children.
  • Adoption Credit. The maximum adoption credit in 2019 for a child with special needs is $14,080. The ceiling for other adoptions is $13,810.
  • Lifetime Learning Credit. For 2019, the AGI used by joint filers to determine the reduction in the Lifetime Learning Credit is increasing by $2,000 to $116,000.

6.)   Increases for contributions to retirement accounts

 

Retirement accounts do more than help you plan for a financially sound future; some of them can also significantly lower your taxable income.

 

Traditional IRAs and 401(k)s allow you to contribute pre-tax income, which decreases your taxable income. The new ceilings for contributions to these accounts can lower that number even more.

 

For 2019, you can contribute a total of $6,000 to one or more traditional or Roth IRA(s) if you’re under age 50, and $7,000 if you’re older than 50. For 401(k)s, the new maximum contribution amount is $19,000, and $25,000 for those aged 50+.

 

7.)   Health Savings Account contributions

 

Health Savings Accounts (HSA) are similar to traditional retirement accounts; they’re funded with pre-tax money and can lower your tax bill. You use the money in your HSA to pay for qualified medical expenses. When you turn 64, you can withdraw the money in your HSA and use it for any purpose. However, these withdrawals are subject to income tax.

 

In 2019, the maximum contributions for HSAs will increase to $3,500 for individuals and $7,000 for families. Taxpayers aged 55+ can contribute an additional $1,000.

 

The U.S. tax code can get confusing at times, but ultimately the amendments and adjustments to the code are to our benefit. Learning about the changes to the code will help you to take full advantage of any relevant credits and deductions.

What Were The Actual 2018 Tax Changes?

Member Q&A

Q: There was so much talk about the proposed changes to the tax code. Now that the changes have finally been signed into law, I’m wondering which planned modifications actually became a reality. What were the exact changes made to the U.S. tax code this year?

A: Many of the changes signed into law with the official Tax Cuts and Jobs Acts were quite different from those planned. Remember, though, that none of these changes will take effect until April 2018 at the earliest.

Let’s take a look at exactly how the tax code will be different for 2018.

1.) Changes for the seven income brackets

The current administration initially planned on condensing the income bracket system into just three brackets. However, when the law was finally passed, the seven-bracket system remained in place, though income levels for each bracket were tweaked.
The old income levels for the seven brackets were as follows: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. The new rates are now 10%, 12%, 22%, 24%, 32%, 35% and 37%.

2.) Removal of Obamacare penalties

While the administration was not successful in repealing the Affordable Healthcare Act, there will be no penalties for those who choose not to have adequate health coverage starting in the year 2019. For your 2017 and 2018 taxes, though, you will still need to provide proof of health coverage or be held liable for the penalty.

3.) Changes in standard deductions and personal exemptions

The personal exemption has been eliminated, while standard deductions have increased.
In 2017, the standard deduction for the single taxpayer was $6,350, in addition to one personal exemption of $4,050. For 2018, those deductions will be combined into one larger standard deduction of $12,000 for those filing separately, and $24,000 for joint filers.

4.) Child tax credit

Deductions and credits for children under age 16 have doubled from $1,000 to $2,000. There is also a new tax credit for non-child dependents.

The Child and Dependent Care Credit, offering parents deductions for specific child care expenses, remains as-is.

5.) Estate tax exemption

Before the current changes, the 40% estate tax applied to the portion of an estate was valued at $5.6 million for the individual, and $11.2 million for a married couple. The new law will double these exemptions. Taxpayers filing as individuals will be granted an exemption of $11.2 million, while married couples will have a $22.4 million exemption.

6.) Education tax breaks
Original versions of the tax bill included plans for reducing or eliminating several education tax breaks, but none of these changes actually made it into the Tax Cuts and Jobs Acts.

The Lifetime Learning Credit and Student Loan Interest Deduction remain unchanged, and the exclusion for graduate school tuition waivers is also still in place.

However, the new tax bill has expanded the available use of funds in a 529 college savings plan to include other levels of education. You can now use money in those funds to pay for private school tuition or tutoring services for children in grades K-12.

7.) Deduction changes

There have been slight changes in the mortgage interest, charitable contributions, medical expense and State and Local Taxes (SALT) deductions.

The mortgage interest deduction was previously in place for any mortgage debt totaling up to $1 million. Under the new tax code, all mortgages taken after Dec. 15, 2017 and totaling up to $750,000, are qualified for this deduction. Also, the interest on a home equity loan can no longer be deducted.

The charitable contribution deduction has seen two minor changes. Taxpayers can now deduct as much as 60% of their income for charitable donations, up from the previous 50% limit. Also, donations made to universities in exchange for the privilege of purchasing tickets to athletic events can no longer be deducted as charitable expenses.

The cap for the medical expenses deduction has been cut from 10% of adjusted gross income (AGI) to 7.5% of AGI. Unlike nearly all other provisions in the bill, this change is retroactive to the 2017 tax year. Also, it will only apply through 2018.

The SALT deduction, which includes property and income tax, was originally slated for elimination, but was preserved with some changes. The total SALT deduction now cannot exceed $10,000.

8.) Corporate tax rate changes

The modified tax code lowers the corporate tax rate to a flat 21% on all profits. This simplifies taxes for most businesses while providing them with a significant cut as well.

9.) Disappearing deductions

Not every deduction survived the new tax law. Here are some that won’t be in effect for 2018 taxes:
Casualty and theft losses that were not caused by a federally declared disaster
Unreimbursed employee expenses
Tax preparation expenses
Miscellaneous deductions previously subject to the 2% AGI cap
Moving expenses
Reimbursement for employer-subsidized parking and transportation
10.) Repatriation of foreign assets

In an effort to bring some of the country’s largest companies’ profits back to American shores, the new tax law features a one-time repatriation rate of 15.5% on all cash and similar foreign-held assets, and 8% on non-liquid assets held overseas.

11.) Changes to the AMT exemption amount

The alternative minimum tax (AMT) exemption was permanently adjusted to account for inflation. These changes will be most dramatic in 2018 and are as follows:
For a single taxpayer or one filing as head of household, the AMT rate will increase from $54,300 to $70,300.
For a married couple filing jointly, the AMT rate will increase from $84,500 to $109,400.
For married couples filing separately, the AMT rate will increase from $42,250 to $54,700.