It can be frustrating and work-intensive enough to plow through tax preparation. But completing the forms, then having to redo the work because you weren’t aware of tax law changes is even worse.
Knowing current tax law is the best way to avoid either slipping up on your return or making costly, time-consuming mistakes. If you’re not aware of what lies ahead for you as you prepare for the 2019 tax season, it’s best to consult a legal professional, who can save you both time and money. In all cases, check with your state to educate yourself on changes to local laws in addition to federal updates.
If just a few changes to your return are necessary, here are some updates to become familiar with before you dive in to all those receipts.
1.) Alimony Payments & Child Care Credits
Taxes can be complicated for single parents who are paying or receiving alimony. Sometimes your income or state of residence can affect your return when it comes to making these payments. Definitions of filing status and identification of care providers can also change.
If you have depended on deducting alimony as income to make for a healthy tax return, 2018 is the last year for that. If, however, you and your spouse’s divorce became official in December of 2018, you can be included in the write-off. However, even if you are modifying a pre-2019 divorce or obtain a divorce after January 1, 2019, the ability to use alimony as a tax write-off vanishes. Take this into consideration as you plan your 2019 budget and plans for your 2020 tax return; it will likely not be as large as you’re accustomed.
Where child care credits are concerned, a personal exemption from 2018 to 2025 is in place for $4050. However, the next tax code removes it for the time being. At the same time, it’s important for parents to continue naming dependents under the age of 18, as the child tax credit has doubled from one thousand dollars to two thousand dollars. If you don’t qualify for the two thousand dollar credit, you may apply for a $500 tax credit.
In all, you cannot claim credit for more than $3000 for one qualifying individual or $6,000 for two. To qualify, your dependent child must be under the age of 13 at the time that the care was provided. Those whose spouses are unable to care for themselves, either physically or mentally, and who lived with them for at least six months are also eligible.
Income plays a part here: The entire child care credit is on its way out for married couples who earn a combined income of over $400,000. Single parents who bring in $200,000 a year will also be hit. If your former income is $110,00 as a couple and $75,000 as a single parent, you qualified last year. That, however, is no longer the case.
2.) Changes in Tax Rates
We’ve all heard of changes to tax brackets in which adjusted gross income is concerned. This was perhaps the most sweeping change the Trump administration has made so far regarding tax cuts. The majority of the brackets were lowered. Tax deductions have changed as well.
Federal withholding payments are still in the process of clarification. The new brackets are clear enough, but just how much taxpayer should set aside to meet potential tax burdens after income and outlay are assessed is under debate. Different advisors have different ideas; the revised tables presented by the IRS were supplied to employers at the beginning of 2018, but whether or not they are applied correctly is a matter of concern for some. A few employees began seeing changes as quickly as February of 2018, but those whose employers may have implemented it incorrectly might be in for a surprise.
Employees who were subject to wage withholding likely saw their income rise at the beginning of 2018. However, this could mean that an anticipated tax return check might be lighter. While some families appreciate having their income as soon as they earn it, others might plan on a large refund at the beginning of the year to make investments or clear out debt. Fully understanding the impact of these changes can help lessen the blow if confusion has resulted from the tax cuts.
3.) Standards Medical & Charitable Deductions Have Dropped
Those struggling under the weight of enormous medical bills will see some relief in their 2018 returns. This year, the limit of deducting health care related bills dropped from 10 percent to a momentary level of 7.5 percent. However, taxpayers must still meet the standard deduction threshold in order to itemize and deduct medical bills from their taxes.
Most Americans receive a rush of requests for donation requests from their favorite charities as the year draws to a close. Some depend upon a charitable giving tax credit in order to meet the dividing line between the ability to itemize and the lack of legal standing to do so. Not meeting the standard deduction point can be costly on a tax return. Some advisors suggest increasing donations to charities in order to meet the itemization threshold.
4.) Tax Code Business Income Changes
Again, income levels are the key to figuring out if changes in the tax code apply to income from your business, even if you are self employed part time. Those who have an S-corporation, a sole proprietorship, or a limited liability plan are now more free to deduct expenses related to running their business. Some proprietors may deduct up to a hundred percent depreciation on new assets they have purchased in 2018, but their business must be demonstrably profitable. However, this boon only applies to equipment bought by the business, not the individual business owner, past the end of September, 2017.
Changes in federal income taxes also affect individually owned and small businesses. Assuming such businesses turned a profit, their federal tax rate could drop as much as 20 percent.