The Tax Cuts and Jobs Act, passed in 2017, is going to affect the 2018 taxes you’re filing (in 2019). If that sounds complicated, don’t worry — we’re here to help.
Essentially, the new bill lowers individual tax brackets (for most income levels), increases standard deduction and child tax credit, eliminates some itemized deductions, and caps state tax deductions.
If you expect your filing status to change (whether it’s income, mortgage, marital status, or children), you’ll want to update your W-4 to reflect changes that can affect your filing.
While the new bill still hosts seven tax brackets, it lowers the tax rates and the income thresholds of each bracket are different. Your marginal tax rate will depend on your taxable income within the brackets.
Tax deductions lower your amount of taxable income. You can either opt for a standard deduction or an itemized one. Standard deduction is basically a set amount of automatic deductions (based on age, filing status, and income). Itemized deductions are specific expenses that the IRS determines will decrease your taxable income. It’s more tedious, you need proof, and the list of possible deductions is pretty lengthy — but for some it can add up to a larger deduction. Most people opt for a standard deduction, and with the new law offering a higher amount there will be even less people itemizing.
New standard deduction for tax year 2018:
- Single: $12,000
- Head of household: $18,000
- Married, filing jointly: $24,000
Other deduction changes
Casualty and theft deduction: Now limited to federally-recognized national disasters.
Moving expense deduction: Eliminated. Previously allowed for write-offs for job-related moves of more than 50 miles.
Home equity interest deduction: Limited to major home improvements within debt limit. Previously limited to interest on $100,000 of debt.
SALT deduction: The state and local tax (SALT) deduction is now capped at $10,000.
Medical expenses: Still deductible if more than 7.5% of adjusted gross income for tax year 2018 (the taxes you’re filing in early 2019). And for tax years 2019-2025, medical expenses will be deductible if more than 10% of adjusted gross income.
Pease itemized deduction phase-out: Eliminated.
Personal exemption amounts: Eliminated.
Alimony deductions: Alimony payments no longer deductible for separation or divorce agreements that were reached after December 31st, 2018.
Mortgage interest deduction: For mortgages that were taken out after December 15, 2017, limited to interest on up to $750,00 of debt on a primary or secondary home. For married people filing separately, it’s $375,000 each.
Additional eliminations previously deductible in excess of 2% adjusted gross income: tax preparation fees, investment advisory fees, unreimbursed work expenses (travel, parking, meals), depreciation on phone or computer required for work, investment expenses, job search expenses.
Tax credits are another way to reduce the amount of income tax you owe. They’ll typically save you more than deductions and can act as incentives.
Tax credit changes:
Child/dependent tax credit: Increasing from $1,000 to $2,000 per qualifying child under 17. Amount refundable is increasing from $1,100 to $1,400. And there’s a new non-refundable credit for dependents other than children of $500.
Student loan interest deduction: Maximum amount for deducting interest paid on student loans remains $2,500. Phaseouts apply for taxpayers with modified adjusted gross income (MAGI) in excess of $65,000 and MAGI of $80,000 or more are completely phased out.
Foreign earned income exclusion: Exclusions is $103,900 (up from $102,100).
Adoption credit: Credit for the adoption of a child with special needs is $13,810. For other adoptions, the maximum credit allowed is the amount on qualified adoption expenses up to $13,810.
Earned income tax credit (EITC): Maximum EITC amount is $6,421 for joint filers who have three or more children. Income phaseouts apply.
2019 Tax Law Resources
As of now, most of the new tax law’s provisions won’t expire until 2025 (the rest phase out in 2027). You’ll want to understand how the new policies affect you, and we’ve got a lineup of resources to help.
A calculator from CNN that will estimate how your taxes may change over the next nine years.
Smart Asset has a calculator to help you get a more detailed idea of your tax results and what you may owe.
The US TaxCenter (a privately owned site) has a detailed calendar of all 2019 tax due dates for every kind of filer.
How Stuff Works offers a thorough (seven-page) guide on how taxes work — for newbies or anyone who needs a refresher on the many factors that play into taxes.
Finally, there’s our online tax software review, where we’ve vetted tax software for cost, ease of use, customer service, and support for different filers.
2019 Tax Law FAQ
When can I file my taxes for 2019?
Tax season officially opens Monday, January 28th. The IRS will begin accepting electronic and paper tax returns that day. Despite the government shutdown, there is no anticipated delay in the filing of taxes or payment of refunds. The due date for filing will remain April 15.
When can I expect my 2018 tax return?
There are no exact return schedules and each person’s filing process could be different. That said, IRS issues about 9/10 refunds within 21 days of filing. The Motley Fool has an estimated schedule based on when you submit your return. Once you’ve filed, you can check your refund status with the IRS’s ‘Where’s My Refund?’ tool.
Do you need to file?
Because there are no personal exemption amounts, here are a few rules for knowing whether you need to file a return:
Individual taxpayers: required to file a tax return if your gross income for the taxable year is more than the standard deduction ($12,000 for single filers, $18,000 for heads of households).
Married taxpayers: required to file a tax return if your gross income (combined with spouse’s gross income) is more than the standard deduction for a joint return ($24,000).
How can I reduce my taxable income?
Decreasing your taxable income (legally) is most easily done by qualifying for more deductions and tax credits. Things like charitable donations, unreimbursed commuting expenses, attending college, having a child, and contributing to your retirement account or health savings account are all ways to lower your taxable income.