- The Tax Cuts and Jobs Act (TCJA) upended tax rules to a significant extent when it went into effect in 2018. The Internal Revenue Code used to provide for personal exemptions that could further decrease your taxable income, but the TCJA eliminated these exemptions from the tax code. The rules for deductions, adjustments to income, and tax credits cited here are applicable beginning in the tax year 2018 and going forward.
- Are you paying too much in estimated tax? Adjust your W-4. Don’t give the government an interest-free loan!
- Get organized – make a checklist and collect all the required documents. Don’t file before you have all the information or you’ll need to file an amended return
- Taxes are based on AGI
- Earned income (W-2, 1099, self-employment, K-1)
- Unearned income like dividends and interest
- Alimony
- Capital Gains
- Retirement distributions
- Rental Income
- Gambling
- Bonus
- All other income
- Reduce your AGI
- Fund your FSA (medical and dental) up to $2700 in 2019, $2750 in 2020
- Dependent Care FSA
- HSA – must have a qualifying high deductible health plan
- Contributions to HSAs are tax-deductible, and the withdrawals are tax-free, too, so long as you use them for qualified medical expenses.
- For 2019, if you have self-only high-deductible health coverage, you can contribute up to $3,500. In 2020, that number rises to $3,550.
- If you have family high-deductible coverage, you can contribute up to $7,000 in 2019. In 2020, that number rises to $7,100.
- Your employer may offer an HSA, but you can also start your own account at a bank or other financial institution.
- Avoid premature (before 59 ½) withdrawals from retirement plans to avoid 10% tax penalty
- Deductions (lowers taxable income) vs Credits (dollar for dollar deduction from tax bill)
- Standard deduction increased significantly in 2018, so even if you itemized in the past, it may not be worth itemizing anymore ($24,400 for 2019 for married filing jointly)
- Common deductions
- Student loan interest
- Charitable donations
- Medical expenses in excess of 7.5% of income
- Property tax
- State/local sales tax (actual or calculated) OR income tax
- Mortgage interest
- Gambling losses up to the amount of gambling winnings
- Self-employment expenses
- Home office (100% used for business)
- Educator expenses – up to $250
- Residential energy – Up to 30% installation costs for solar energy, solar water heater, solar panels (NOT pool heaters)
- Common credits
- American Opportunity – specifically for undergraduates & parents for eligible education expenses; max of 4 years; income limits – refundable
- Lifetime learning – Can’t claim both; good for graduate students, 5+ years of undergrad; other learning opportunities; eligible expenses; income limits – not refundable
- Child tax credit – refundable up to $1400
- Child and dependent care tax credit (child 12 and younger so the caregiver can work) – not refundable
- Must provide TIN for the caregiver – cannot be a spouse or another child/dependent on your return
- Earned income tax credit – designed for low-income earners
- Depends on the number of children and your income – refundable
- Must file a return even if no tax is owed and not legally obligated to file
- Adoption credit – for costs of adoption up to a limit
- Savers credit – income limits, must make a retirement plan or IRA contribution
- Make a last-minute estimated tax payment to avoid penalties
- Getting a big refund? Adjust this year’s W-4. And don’t fall for the “immediate refund” programs with big fees.
- Did you learn that you missed out on something in the previous year? You can file an amended return (1040x – cannot be filed electronically)
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