Breaking out in a cold sweat at tax time is nothing new and you’re certainly not alone. But this year’s a little special, with the new Tax Reform Bill.
We’re offering this post about your 2019 taxes: what you need to know about the Tax Reform Bill, so you can come out the other side of tax time unruffled, with all your ducks in a row.
Because to be honest, it’s not as bad as you think. So, wipe your sweaty brow and get ready to go into the season of white knuckled terror unterrified!
The Tax Cuts and Jobs Act
That’s the official name of the Tax Reform Bill and indeed, a satisfyingly simple moniker. Part of the reforms represented by this legislation is that workers will see fewer payroll deductions.
You’ve gotta like that!
But income tax brackets and marginal tax rates are impacted by TCJA, too.
Marginal tax rates are what you pay in taxes and that amount is determined by your earnings. This is where tax brackets come in. Find yours here, updated to reflect the TCJA.
The legislation brought both good news and bad. First, the good news – individual income tax rates have been cut and the standard deduction has been doubled. The bad news? Individual tax deductions have been eliminated.
Interesting to note that individual income tax rates as stipulated by the Act expire in 2026, while corporate tax rates are permanent, at 21% (down from 35%).
The Standard Deduction and Exemptions
Single filers can now claim $12,000 as the standard deduction (up from $6,350). Married couples see their deduction rise to $24,000 from $12,700. But like the income tax rate, this increase expires in 2026. It’s estimated that 94% of taxpayers will claim this.
The trade off is the elimination of the $4,150 personal deduction for each dependent claimed. This will, unfortunately, be tough on families with many children. Itemized deductions are also eliminated, for the most part. For example, moving expenses are now only deductible for members of the military.
Parties paying alimony can no longer claim it but parties receiving it can. This is applicable only to divorces occurring in 2018.
But there’s a little more goods news – charitable donations, interest on student loans and retirement savings can still be claimed.
Mortgages may still be deducted up to the first $750,000 of your loan. That said, interest accumulated for home equity lines of credit are no longer eligible.
Other Notable Items
If you live in a high-tax state like California or New York, you’re as eligible as anyone else for the state and local tax deduction of $10,000. But you must choose to apply this deduction to one of either property tax or income and sales taxes.
The child tax credit is a bright spot in the TCJA. It rises to $2,000 from $1,000, with low wage earners able to claim up to $1,400, whether they make enough to pay taxes or not.
Let Norton Financials take the books off your plate.