Tax laws aren’t what they used to be thanks to the Tax Cuts and Jobs Act (TCJA) passed in December 2017. Most of these changes happen automatically but it’s important to understand how you might be impacted. So we’ve compiled 9 tax tips to help make filing on April 15, 2019, as painless as possible.
Establish a single location to collect all of your W-2’s and other tax-related documents. If you receive these electronically, create a special folder. Having everything in one place makes it faster and easier to file.
Tax Bracket Changes
Under the new tax laws, income tax brackets have changed. If you are now in a different tax bracket, there’s nothing you can do about it for the taxes you’ll pay for 2018. However, if you find your bracket has changed and you are paying more taxes, consider changing your withholding now. That way your next tax bill won’t be as high.
Bigger Standard Deduction
The standard deduction is a dollar amount determined by your filing status— married, single, married but filing individually, head of household or widower with a child. This amount is subtracted from your Adjusted Gross Income (AGI) to determine your taxable income. For everyone, the standard deduction doubled for the 2018 tax year. If you usually claim the standard deduction and don’t itemize, this change should help reduce your tax bill.
Itemized Deductions Must Exceed Standard Deduction
If you’re used to itemizing, this one may hurt. Now if you file under the single filing status, you must have itemized deductions that exceed $12,000 before you can itemize and save any money.
Savings if Married Filing Jointly?
The marriage penalty no longer exists for couples who make less than $60,000. What that means is that if you both have the same income and file jointly, the tax on your combined income will not be more than what it would be if you filed separately. In addition, the marriage bonus still exists, which allows more income of a higher earning spouse to be taxed at a lower rate when his or her spouse has lower or no income.
Kids Get Twice the Credit
The Child Tax Credit increased and more of the credit is refundable. This credit lets you reduce your federal income tax up to $2,000 per qualifying child (previously up to $1,000). A tax credit reduces your tax bill directly so a $2,000 credit, reduces the amount of tax you owe by $2,000. Learn more about the changes to this credit.
Contribute to an IRA
Most Americans can contribute $5,500 to a Roth or traditional IRA for 2018 ($6,500 for those age 50 and older) until the tax filing date. In 2019, get ready to save more in your IRA because, for the first time in six years, the IRS increased the contribution limits. In 2019, the amount you can contribute to an Individual Retirement Account is going up to $6,000. The catch-up contribution limits if you’re 50 or older in 2019 remain unchanged at $1,000 for IRAs. Members Trust offers a variety of IRA options. Let us know if we can help.
Consider a Tax Preparation Service
With all the new changes in effect, you may find it more complicated to file your own taxes. A professional tax preparation service can help you navigate the changes, especially if you are dealing with a complex tax return or you are unsure of your tax situation. They can identify errors and review your tax documents to make sure you are taking full advantage of every credit and deduction available so you get the maximum tax refund.
Use Direct Deposit
Regardless of whether you file electronically or on paper, consider having your refund directly deposited into your Members Trust account. It’s safer and you get your refund faster.
There are a lot of other tax changes for 2018 not address in this blog post. Visit the IRS website to learn more about these sweeping legislative tax changes and how it will impact you. Tax Cuts and Jobs Act