Even if you didn’t owe money this past tax season, it’s more important than ever to get ready for the upcoming tax season now. With so many changes under the new tax reform law, we wanted to break down five big changes and the moves you can make now to help you save money when you file your 2019 taxes (the ones you file in 2020).
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 – 4% 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 updated TurboTax W-4 calculator.
Elimination of personal and dependent exemptions. Under tax reform, the personal and dependent exemption was eliminated. If you are married and have a few kids, the elimination of your personal and dependent exemptions can mean a 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, under tax reform, the Child Tax Credit increased from $1,000 to $2,000 per child. The law also adds a new, non-refundable credit of $500 called the Other Dependent Credit (OCD) 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 tax 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. You can, however, take advantage of the new Other Dependent Credit of $500 if your child is 17 or older.
Changes if you’re a homeowner. If you are a homeowner or are considering buying your dream home, some of the changes in the tax law are very important for you. As an existing homeowner, you may see fewer tax deductions that lower the taxes you owe especially if you live in a state with high property taxes — since the law limits the amount of state and local property and state income or 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 itemize your tax deductions at tax time. TurboTax will ask you simple questions about you and give you the option (standard deduction or itemized) that you’re eligible for based on your entries.
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 for homes purchased prior to December 15, 2017. 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. Tax reform eliminated several popular tax breaks 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 the elimination of moving expenses unless you are active-duty military.
What Can You Do 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 tax reform 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 tax laws. TurboTax will ask you simple questions about you and give you the tax deductions and credits you’re eligible for based on your answers. If you have tax questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent with an average 15 years experience to get your tax questions answered at tax-time. TurboTax Live CPAs and Enrolled Agents are available in English and Spanish and can also review, sign, and file your tax return.