As the end of the year approaches, so to does tax time and preparation for filing one’s tax return. Here, Julie Brufke Wenger, owner of Phoenix Tax Consultants (AKA “the tax tacklers”), shares thoughts on the seismic changes in tax law from the new Tax Cuts and Jobs Act and how it will directly affect your 2019 tax return. In this video, she advises on the importance of taking “a look at how you can reduce your taxable income so you can realize some great benefits now available to tax payers [because] both on the personal side and the business side, it’s a whole new world.”
Key changes in tax law that will affect 2019 tax returns
Doubling of the standard deduction
The standard deduction reduces your taxable income and can be taken by you if you do not itemize. With the new tax laws though, the standard deduction is nearly doubling, making it harder for taxpayers to be able to itemize. A tax advisor can help figure out which one is best for you.
No more personal exemptions
Taxpayers will no longer be able to claim themselves, their spouses or their children. There are, however, new family tax credits that can help offset this and still get you deductions. It will take careful planning along with a tax advisor to figure out how to do this, such as whether or not to file jointly with a spouse. Also, state and local taxes will be limited to $10,000. It’s very crucial to plan in advance and look at ways to reduce your taxable income to fully realize the benefits now available for taxpayers. Working with a qualified tax advisor is the best way to develop a strategy for these new tax laws.
Mortgage interest deductions are decreasing
Mortgage interest deductions are decreasing from $1,000,000 to $750,000. Home equity loan interest is only available now when it’s used for certain purposes. A tax advisor can help you figure out how to do this. As Julie explains, “We don’t want to see any of our clients trip up and anticipate that deduction because they weren’t smart about it.”
Alimony and children’s account earnings are changing
Alimony payers will no longer be able to deduct alimony payments from their return and recipients will lose the ability to contribute alimony funds to an IRA because it is no longer considered earnings for them. Children’s account earnings will now be taxed at trust tax rates, which are very aggressive, especially once you reach over $12,500. A tax advisor can help you decide whether a penalty may actually work in your favor.
Introduction of the qualified business income deduction
The qualified business income deduction is newly available for business owners and is dependent on type of business and amount of taxable income shown on their return. In the Journal of Financial Planning, Julie advised, “this credit is subject to phaseouts based on taxable income. Any client with a business may be impacted, from the sole proprietor selling at home parties to the client who is a professional or owner of a startup.”
Taking the time to learn about these seismic changes in tax law with your tax advisor will help ensure you develop a solid strategy moving forward for your taxes in 2019. There are sunset provisions imbedded in these new laws so it’s very important to think ahead now to plan for your best future. For more information about Julie and her company, Phoenix Tax Consultants, visit https://taxtacklers.wpengine.com/ today!