A new year is here, and with it comes a flood of year-end tax documents like W-2s, 1099s and others. Before you know it, the April 15 tax filing deadline will be upon us, and it will be time to submit your return.
It’s always wise to meet with your financial professional at the beginning of the year. It gives you an opportunity to discuss the past year, your goals for the coming year and your tax strategy. That advice rings especially true this year, with a number of tax changes about to kick in.
The Tax Cuts and Jobs Act was signed into law in late 2017 by President Trump, and 2018 was the first full calendar year under the new law. The return you file in April will likely be the first that reflects much of the law’s changes. Below are a few of the biggest changes and how they could affect your return:
Increased Standard Deduction
The new tax law impacted a wide range of credits and deductions, from the deduction of medical expenses to credits for child care. Those who itemize deductions may have felt the brunt of these changes.
However, the tax law significantly increased the standard deduction. In 2017 the standard deduction was $6,350 for single filers and $12,700 for married couples. The new law increased those numbers to $12,000 and $24,000, respectively.1
Given the changes to itemized deductions and the increased standard deduction, you may want to consult with a financial or tax professional before you file your return. If you’ve traditionally itemized deductions in the past, that may no longer make sense.
New Tax Brackets
The new tax law also made significant changes to the tax brackets. There are still seven brackets, just as there were before the passage of the law. And the lowest rate is still 10 percent. The top income tax rate is down to 37 percent from 39.6 percent.2 There are similar cuts to other brackets as well.
Under the old tax code, for example, a married couple earning $250,000 would be in the 33 percent bracket. Under the new law, that same couple is in the 24 percent bracket. A single individual earning $80,000 was in the 28 percent bracket under the old law but is now in the 22 percent bracket.2
Itemized Deduction Changes
As mentioned, the new tax law increased the standard deduction qualification amounts. And many itemized deductions were eliminated or reduced including those for state and local taxes, real estate taxes, mortgage and home equity loan interest, and even fees to accountants and other advisers.
However, there could be other opportunities to boost your itemized deductions above the standard deduction level. Charitable donations are still deductible, as are medical expenses assuming they exceed the 7.5 percent threshold. If you’re a business owner, you can deduct many of your expenses, including up to 20 percent of your income assuming you meet earnings thresholds.3
Ready to build a sound tax strategy? Our founding partner is a chartered accountant. He can show you how taxes impact your entire retirement picture. Contact us today at Sage Financial Partners.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
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