Each new tax year, there are changes that affect you as a taxpayer. Sometimes, the advantages that you use to enjoy get scrapped off. In other times, new rules are introduced which may either lower or increase your tax bill. So, it’s up to you to ensure that you are brought up to speed concerning the latest developments. One way to do it is to talk to a tax professional. The other way is to do your own research.
Tax laws are concept-based and so it’s understandable that a majority of taxpayers find it difficult to digest the concepts. Since the formal enactment of the Tax Cuts and Jobs Act (TCJA) in 2018, a lot has changed. The Act has seen so many laws come into effect. Here are the most notable ones:
- Channeled CPI for Annual Adjustments
Before the 2018 JCJA enactment, annual tax adjustments like inflation tariffs, tax brackets, and standard deductions were based on an indexing system called consumer price index for urban consumers (CPI-U). Now, there’s a new metric going by the name channeled consumer price index (channeled CPI). Without going into details, channeled CPI has a slow rate and so its long-term effects are things like:
- Inflation rate to rise much faster
- The higher income tax brackets to first apply to low-income earners
- Improved Standard Deductions
You might not be aware of this but the standard deductions have been improved for both singles and couples. For single taxpayers, the amount has almost doubled up. From $6,350, they’ll be offered a standard deduction of $12,000. The deductions for couples have also almost doubled. From $12,700, they’ll be offered a standard deduction of $24,000. This is a good thing if you didn’t manage to exceed the number in your previous tax filing year.
- SALT Deductions Cap
For high-tax states like California and New York, it’s bad news for them when it comes to the state and local taxes (SALT). You are allowed to deduct payments for automobiles and personal residence but there’s a cap. The SALT cap allows you only up to $10,000. For most people, this figure looks like a hefty one. However, this is not always the case for taxpayers in high-tax states as they have been deducting more than this.
- Alimony Deductions
If you are planning to divorce in 2019 onwards, then you should be aware of the deductions that apply to you. This law came into effect from January 1st, 2019 and allows you to deduct the alimony amount that you pay the other party. In case you are the recipient of the payout, then you are expected to include the amount as payment and it should be reflected on your taxable income. But, if the divorce was finalized by January 1st, 2019, then none of the party is legally obliged to include these deductions.
- Zero Personal Exemptions, But Double CTC
So many taxpayers have been savoring on the advantage of getting a standard $4,050 personal exemption for themselves, for their spouses, and for their dependents. Now, this benefit is no more and so you can longer enjoy it. The only thing that you can enjoy at the moment if you have kids is child tax credit (CTC). It has been increased from $1000 to $2000 for every child who’s less than 17 years. The credit has doubled and this is really a great boost for taxpayers with kids. Additionally, you can have the credit refunded. This advantage was not there before the 2018 TCJA.
- CTC for Dependents Aged 17-24 and Vulnerable Individuals
Though your child may not get a $2,000 CTC if they are above 17 years, they can get a $500 credit if they are not over 24 years. This is according to the new TCJA. Apparently, this new law also applies to vulnerable members of the community such as the disabled and elderly. They too also get to enjoy $500 tax credit.
- No Tax Advantages for Moving
In the old days, you used to enjoy tax advantages on moving expenses. Now, this benefit is gone for civilians. Only military personnel can enjoy tax-free advantages when they relocate. Actually, it doesn’t apply to all military persons. So, it’s important to confirm this detail from the IRA to determine if you really qualify for this benefit.
- AMT Adjustments
If you are not familiar with the alternative minimum tax (AMT), you should know that it’s meant to ensure that all high-income individuals get to pay their own fair share of their tax obligations despite being entitled to several deductions. The latest changes to the AMT law include inflation indexing for exemptions and AMT improvement. So, expect to enjoy high AMT exemptions in 2019. For singles, the amount rises from $70,300 in 2018 to $71,700 in 2019.
- Abolition of the Obamacare Penalty
We all know what the Obamacare initiative has done for America. The problem was that Americans with no health cover were subjected to heavy tax penalties. Following the enactment of the 2018 TCJA, the penalty has been abolished. So, there will not be such penalties in 2019 and beyond. The caveat though is that you may still pay the penalty if you were not covered in 2018. The abolition only applies to 2019 and beyond.
- Flexibility on the 529 Savings Plan
Paying for your kids’ education is never an easy thing, whether it’s kindergarten or college. That’s why a scheme like the 529 Savings Plan is important. Initially, this plan would only cater for higher education. Now, it has been expanded to allow parents the flexibility to choose the level of education and grade that they want to pay for. They can get up to $10,000 per year. The extra advantage is that it applies to both private and public schools.
- Home Deductions Cap
The new tax rules will be highly felt by homeowners. Now, there are restrictions on home deductions and so homeowners don’t have the flexibility that they used to enjoy. For one, the new tax rules place a deduction cap of $10,000. Additionally, there are also restrictions on home equities and mortgages.
Federal tax laws are subject to change each time a new act is enforced. Since the 2018 JCJA Act was passed, there have been so many changes. So, the above new laws are not the only ones. They are what you need to prepare for your tax filing. Nonetheless, it’s important to first talk to a tax expert, such as those at Tax Crisis Institute, so you can clarify everything depending on your tax situation.