Tax laws aren’t what they used to be thanks to the Tax Cuts and Jobs Act (TCJA) passed in December 2017. You don’t need to sweat the new laws though. Most happen automatically. You’re biggest worry is to ensure you don’t try and take the same deductions you took last year—if you itemize—and to understand how you might be impacted. To that end, we offer 15 tax tips to help you navigate the new tax laws and make filing on April 15, 2019, as painless as possible.
The new tax bill polarized Americans, but it’s done now. What’s next is to understand what’s changed, what you need to know about how those changes affect you and file your taxes. Here are 15 tax tips to get you through that hurdle.
Tip 1. Find out if your tax bracket changed.
Under the new tax laws, income tax brackets have changed. A tax bracket is the range of adjusted gross income (AGI) you fall into. AGI is the money you actually take home and have available to use—your income minus health insurance premiums, retirement account contributions, and so on. The tax bracket you fall into determines the percentage of your AGI that you pay in taxes. Our article on tax brackets outlines brackets and what they are.
If you find yourself in a different tax bracket because of the new laws, there’s nothing you can do about it for the taxes you’ll pay for 2018. However, if you find your bracket has changed so you’ll end up paying more taxes in 2020, consider changing your withholding. That way, Uncle Sam will keep more of your money during the year, so your tax bill, come 2020, won’t be as high.
Tip 2. The new bigger standard deduction might lower your tax bill
The standard deduction is a dollar amount determined by your filing status— married, single, married but filing individually, head of household or widower with a child. The amount gets subtracted from your AGI to decide your actual taxable income. For everyone, the standard deduction pretty much doubled for the 2018 tax year over the previous year.
|Filing Status||2017 Standard Deduction||2018 Standard Deduction|
|Married Filing Jointly||$12,700||$24,000|
|Married Filing Separately||$6,350||$12,000|
|Head of Household||$9,350||$18,000|
|Qualifying Widow(er) with a Dependent Child||$12,700||$24,000|
If you usually claim the standard deduction and don’t itemize, this change should help reduce your tax bill.
- This change makes it more important to weigh whether itemizing is more advantageous. With the higher standard deduction, more of us may come out ahead by simply taking the standard deduction.
- If you’re married filing separately and your spouse itemizes deductions, you have to too.
Tip 3. Don’t plan on the normal personal exemption on top of your bigger standard exemption
The personal exemption, which was $4,050, in the past has been eliminated. So you won’t get it in addition to your larger standard exemption. Even so, the larger standard exemption still exceeds the previous standard and personal exemptions combined—so you come out ahead.
Tip 4. To itemize, your itemized deductions have to exceed your standard deduction
Youch. If you’re used to itemizing, this one might bite. What it means is that if you file under the single filing status, you have to have itemized deductions that exceed $12,000 before you can itemize and save any money.
Tip 5. If you do itemize, your medical deductions may add up to more
If you had high medical costs last year, it may make itemizing more beneficial—assuming you have enough to deduct. Taxpayers used to have to spend 10% of their adjusted gross incomes on qualifying medical expenses to take a deduction. The new tax law lowers that percentage to 7.5%. That means you can deduct more of your medical bills if you decide to—and can—itemize your deductions when you file your 2018 taxes.
Tip 6. Don’t worry if you didn’t have health insurance in 2018.
Under the Affordable Care Act, if you didn’t have consistent medical-insurance in 2017, you had to pay a penalty at tax time. The new tax law did away with that penalty.
Tip 7. Your kids get twice the credit.
The Child Tax Credit increased and more of the credit is refundable. This credit lets you reduce your federal income tax up to $2,000 per qualifying child. The credit was previously up to $1,000. A tax credit reduces your tax bill directly as opposed to a deduction that reduces your AGI. So a $2,000 credit, reduces the amount of tax you owe by $2,000. You can qualify for the credit if you’ve earned just $2,500 in income for the year. Learn more about the changes to this credit.
Tip 8. If you itemize, charitable contributions amount to more.
In years past, the maximum donation deduction for charitable donations was 50% of your AGI. Under the new tax law, you can now deduct up to 60% of your AGI for charitable donations. The key here is that you can benefit if you can itemize.
Tip 9. Deduct your mortgage interest if you are buying a home and can itemize.
If you are buying a home and took out your loan before December 15, 2017, you can deduct the interest you pay on that loan from your taxes—if you can itemize. Deductible interest is capped for loans up to $750,000.
Tip 10. If you moved, you can’t deduct your costs anymore.
Under previous tax law, if you had to relocate for a new job, you could deduct any related expenses, such as movers, gas, and more. This deduction is no longer be available now though. So, even if you itemized in the past and took a deduction for moving, you can’t this time around.
Tip 11. You may save if you’re married filing jointly.
The marriage penalty no longer exists for couples who make less than $60,000. What that means is that if you both have the same income and file jointly, you can now file with your combined total income and you won’t likely end up in a higher tax bracket which will lower the total taxes you owe. With the 2017 tax brackets, that were smaller than the new brackets, the marriage penalty drove many couples filing jointly into higher tax brackets and therefore a higher tax bill.
And the marriage bonus still exists. With the wider brackets for 2018, if you and your space make different incomes, filing jointly with both your incomes won’t likely push you into a higher tax bracket or a higher tax bill either.
Tip 12. Don’t try and deduct alimony this year.
The TCJA eliminates the alimony deduction. With the deduction, ex-spouses paying alimony could deduct that payment from their taxes and lower their taxable. Ex-spouses receiving alimony were taxed on alimony received as income, but at their own tax bracket and not the ex-spouses. Both of these provisions have been eliminated. Ex-spouses can no longer deduct alimony payments. But, ex-spouses receiving alimony, don’t have to claim them as income either.
Tip 13. If you’re not so wealthy, taxes won’t hurt any less or more.
While most peoples’ tax brackets have changed, those in the lowest income bracket aren’t affected much at all. So, if you fall into this group, your taxes will be about the same.
If you are wealthy, accept that taxes won’t hurt as much. We know this one will be a tough tip to take, but you’ll make due. The skinny, because the tax brackets are now different, for those in the top tax brackets taxes are now lower.
Tip 14. If you invest, you may get to keep more for yourself.
The new tax law decreases capital gains taxes for all but those in the highest income brackets. The decrease is a result of a shift in how the capital gains income thresholds line up to the new tax brackets. They actually don’t line up and instead line up with the previous brackets, which means you can make more income and pay less in capital gains than you would previously. So, if you’re someone who benefits from capital gains—and many Americans do—then you’ll keep more of your investment for yourself.
Tip 15. Consider a tax preparation service to help ensure you get it right this year.
With all the new changes in effect this filing season, as a taxpayer, you may find it more complicated than ever to traverse the tricky world of tax policy. That is when the services of a professional tax preparation service can come in handy. If you find yourself facing a complex tax return or you are unsure of your tax situation, a professional can better outline what can happen if there are mistakes. They can also go through your tax documents to make sure you are taking full advantage of every credit and deduction available so you get the maximum tax refund.
Need money fast and can’t wait for your refund? Some services offer 0% interest tax refund advance loans. Learn more about What Is a Tax Refund Advance Loan?
Tax time is a great time to check your three credit reports, which you do free one a year. It’s also a good time to start tracking your credit more regularly, with Credit.com’s free Credit Report Card and Experian credit score, which is updated every 14 days.
This article was last published March 20, 2018, and has since been updated.