With the new tax laws going into effect this year, there are several major changes that you should be aware of when planning your tax strategy. While we won’t get into the new tax rates and brackets here, just know that they have decreased across the board, which should lead to lower taxes for most people. Also, we have had some questions about the new “postcard” tax form. The short answer to this is that yes, there is a postcard-sized form, but it most likely will not affect you much. If you are using a tax preparer or tax preparation software, you will still need to supply/input all the information you have previously. The new form also includes more schedules that, depending on your situation, could possibly even increase the time spent preparing the return, rather than simplifying things.
While not an extensive list, the following are some of the changes that seem most likely to affect the most people:
- There are new, lower income tax rates for individuals
- There are no longer any personal exemptions
- There is no longer a phase-out of itemized deductions based on your adjusted gross income (AGI)
- You may no longer deduct interest from home equity loans unless the loan was for major remodels and/or additions to your home (called home acquisition debt)
- Total mortgage debt on which you make take an interest deduction is now limited to $750,000
- 2% floor itemized deductions are no longer allowed; these include employee business expenses, tax prep fees, and investment expenses (investment interest is still allowed)
- Personal casualty loss and theft deductions are eliminated unless the loss is incurred in a federally declared disaster area
- You may no longer take a deduction for moving expenses, unless you are a member of the armed forces
- You may not take a charitable contribution deduction for a donation to a higher educational institution if you receive the right to purchase tickets or seating at an athletic event in exchange for the donation
- Alimony is no longer deductible by the payer nor included in income by the recipient, for divorce agreements entered into after December 31, 2018
- Beginning 2019, there is no penalty for not having health insurance coverage
- The itemized deduction for state and local taxes is limited to $10,000 (including income and real property taxes)
- The standard deduction has increased across the board:
- Single or Married Filing Separate $12,000
- Married Filing Joint or Qualifying Widower $24,000
- Head of Household (HOH) $18,000
- Add $1,600 for a Single or HOH taxpayer age 65 or older or blind, $1,300 for all other filers, per person, per event
- The Child Tax Credit is now $2,000 per qualifying child
- There is also a credit of up to $500 for dependents who are not qualifying children
One particular item of note is that employee expenses are no longer deductible. We recommend that if you aren’t already receiving reimbursement from your employer for these expenses, that you set up an accountable plan where you can receive them tax free. You can even suggest your employer reduce your salary by a bit to account for the expenses; this could save both of you some tax without affecting your take-home pay. Let us know if you have further questions regarding these expenses, or any of the new tax law changes.
We thank you and wish you a very Merry Christmas!
-Heritage Accounting and Tax Services