Even if you didn’t owe money this past tax season it’s more important than ever to plan for next tax season now. The idea of tax planning isn’t anything new, but with so many changes under the new tax reform law, we wanted to break down the five reasons to start planning and the moves you can make now to help you save money on your taxes when you file next year.
Lower tax rates, more money. One of the biggest changes under the new tax law that may impact how much you need to have withheld from your paycheck is the reduced tax rates. Tax rates were reduced about 1 – 3% for the majority of taxpayers so you may be seeing more money in your paycheck. Although the IRS adjusted the withholding tables that employers use to produce the correct amount of tax withholding for people with simpler tax situations, for instance, those who only take the standard deduction, the withholding tables don’t reflect some of the other changes that impact more involved tax returns like the reduction of some itemized deductions. To make sure you give your employer the right W-4 withholding allowances to boost your tax refund — or your take-home pay you can use the TurboTax updated W-4 calculator.
Elimination of personal and dependent exemptions. Under the new tax law the personal and dependent exemptions of $4,050 were eliminated. If you are married and have a few kids, the elimination of your personal and dependent exemptions can mean a big reduction in the number of write-offs you once had.
Increase in the Child Tax Credit. Although you’re no longer able to take the dependent deduction, the new tax reform law increased the Child Tax Credit from $1,000 to $2,000 per child. The law also adds a new, non-refundable credit of $500 for dependents other than children. Finally, it raises the income threshold at which these benefits phase out from $110,000 for a married couple to $400,000, which means more people will be eligible for the credit. Because the Child Tax Credit is for kids under 17, if your not so little one celebrated their seventeenth birthday this year, you may see a change in your taxes, since you can no longer take the Child Tax Credit for your 17-year-old.
Changes if you’re a homeowner. If you are a homeowner or are considering buying your dream home, some of the changes in the new tax law are very important for you. As an existing homeowner, you may see fewer tax deductions that lower your tax liability especially if you live in a state with high property taxes since the new law limits the amount of state and local property, income, and sales taxes that can be deducted to $10,000. In the past, these taxes have generally been fully tax deductible. Due to the cap on these tax deductions, you may now also have to take the standard deduction on your taxes instead of taking itemized deductions since the standard deduction has almost doubled. Don’t worry about knowing if you should take the standard deduction or itemized deduction at tax time. TurboTax will ask you simple questions about you and give you the option(standard deduction or itemized) that’s best for you.
If you are considering purchasing a new home this year, one thing to keep in mind is the law also caps the amount of mortgage indebtedness on new home purchases on which interest can be deducted at $750,000 down from $1,000,000 in current law if you already own a home. If you are trying to make a decision between purchasing in a high property state like California or a state with lower property prices, knowing about these changes could help you with your decision.
Elimination of tax deductions. The new tax reform law eliminated several popular tax breaks starting in tax year 2018 (the one you file in 2019) like miscellaneous itemized deductions. This includes deductions such as job search expenses, unreimbursed work expenses, investment expenses and tax preparation fees, exceeding 2% of adjusted gross income as well as moving expenses.
What You Can Do to Start Planning Now?
Adjust your withholding allowances. One of the best things you can do is to use the TurboTax updated W-4 calculator to boost your tax refund — or your take-home pay.
See where you stand. You can also use TurboTax TaxCaster to see how the new tax law impacts you. TurboTax TaxCaster will give you a side by side comparison of how the new tax reform law impacts you based on your specific situation.
Reduce your taxable income. You can decrease your taxable income by making smart money moves throughout the year like investing in your 401K or IRA. Also, don’t forget expenses like paying student loan interest can be tax deductible and will decrease your taxable income at tax time.
Don’t worry about knowing the new tax laws. TurboTax has you covered and will be up to date with the latest tax laws at tax time. Check back with the TurboTax blog for Tax Reform updates and the latest tax news.