Tax Bill 2018 Effects on 2019 Season

4 minutes

So as of 2018, President Donald Trump orchestrated a large tax bill reform that would simplify bureaucratic rules and helping families save thousands more on standard deductions. The effects of this transformation have left consumers wondering what to expect in the 2019 and beyond tax season.

The process was a well needed, and overdue adjustment to the tax situation and meant to be straightforward enough for your accountants to easily assimilate the information and create a system that works. In this article below we are going to be discussing the major changes that have occurred to the way you and/or your family file taxes.

Standard and Itemized deductions transformations.

Standard deductions are usually what most people are concerned about. A 2019 estimation conducted by the IRS concluded that 2/3rds of United States citizens choose to file for standard deductions. The tax code allows us to put some of our income aside tax-free to meet the living expenses for day to day life, and while standard deductions are the most common, the second way to file is by itemized deductions, more on that later.

Taxpayers can choose to deduct the amount of this year’s standard deduction on their tax returns or they can add up everything spent on tax-deductible expenses in the year such as charitable giving, work-related expenses, medical expense, and subtract that total from their income instead.

Regardless, under the new tax law, the standard deduction rate has increased from $6,350 to $12,000 for single filers and nearly doubled for married couples filing jointly, from $12,700 to $24,000.

The brass tacks of what you should know are that those who typically take the standard deduction will see a decrease in their tax bill for 2019. While those who take itemized deductions should also see a smaller tax bill this year’s season.

Those whose itemized deductions exceed the new standard deduction are still free to itemize through far fewer are expected to moving ahead.

Income tax rates and brackets updates.

Tax rates and brackets have shifted for 5 of the 7 brackets. For example, those earning more than $200,001 per year that were once in the 33% bracket are now paying 2% more up to $500,001. All together the shifts in the bracket haven’t made any dramatic changes, but for lower income earners they will see marginal relief and take home an additional 2-4% more, and that’s the most you’d really need to know about the bracket update in and of itself since it largely has been a neutral change.

Child Tax Credit

The new tax law has done an impressive job at doubling the child tax credit to $2,000 per child, while additionally helping more taxpayers become eligible for qualification.

Not only has the new law doubled the child tax credit to $2000 per child but also more taxpayers will qualify for it, because the level of income at which the benefit phases out has been increased from $75,000 to $200,000 for single filers and from $110,000 to $400,000 for married couples filing jointly.

Alternative Minimum Tax (AMT)

Originally the AMT was put in place to prevent the high-income earners from taking advantage of tax deductions. The set amount of income to be exempted from AMT calculations for single filers rose from $54,300 and $84,500 for married couples filing jointly to $70,300 and $109,400 respectively.

Furthermore, the limits at which the exemptions phase out were increased respectively. $500,000 for single filers and $1 million for married couples filing jointly. This is a huge step seeing that in 2017 single filers phased out at $120,700, and married couples filing jointly were $160,900. In short, fewer taxpayers are not subject to AMT.

The tax system the AMT has implemented has also changed rates. In 2018 the 26% rate was applied to the first $95,750 in taxable income for single filers, compared to the first $93,900 in 2017, the first $191,500 in taxable income for married couples filing jointly is the new rate under the new tax law opposed to the 2017 limit of $187,800. Anything above the limits still bears a 28% rate.

529 Savings Plan Changes

The new changes to the 529 Savings Plan have been seen positively as well. Your 529 saving plans are no longer exclusive to college anymore. Under the new law, parents/ legal guardians can now access up to $10,000 per student given they follow provided regulations.

The funds taken from the savings have to be allocated to tuition, which means that you can use the savings to place your child in K-12 at private schools. So if plans change for you and you think that an opportunity at a private high school would be a good idea, then the savings plan changes may be the perfect fit for you.

Charitable Giving

A lot of concern was stirred of the effects the new tax reform bill would have on charitable giving. The good news is that charitable donations are still deductible as long as you itemize your deductions, but fewer people may opt into this route since the increase to standard deductions.

Estate Taxes

Estate tax exemptions have now also doubled which is good news for a small group of people since most filers won’t hit the threshold anyway. Estate tax under the new law has raised to $11.18 million for single filers and $22.36 million for married couples.

Like the standard deduction, the estate tax exemption was also doubled under the new law to $11.18 million for single filers and $22.36 million for married couples. While that may be the case that most people won’t reach the threshold, should an event of future exemption reductions occur, its advisable to talk to a tax advisor or an attorney to discuss your options on establishing a trust which can allow a surviving spouse to renounce ownership of all or a portion of the estate to decedents in order to avoid a tax.

Final Thoughts

It is advisable to discuss with your tax advisor all the in’s and outs of your current tax situations seeing that there are changes to what you can claim on your property taxes. However, your advisors should be well prepared to help you through every step of the way of coming up with an effective strategy that benefits you the most during 2019 tax season and beyond.

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