A new year heralds change. It’s even true in the world of taxes. With this new year comes some federal tax changes that some people might not expect. They may confuse and frustrate many taxpayers.

Around 142 million people pay taxes in the US. There’s bound to be some people affected by changing tax law. And there’s nothing they can do about it. And there’s nothing they can do about it.

Except for prepare.

Don’t assume your taxes will stay the same. Learn about the coming changes. Then, prepare for them to avoid owing taxes at the end of the year.

Here’s what you need to know to be ahead of the game.

The Most Important Federal Tax Changes for 2019

Will they affect you? That’s what most people want to know. It all depends on your individual tax situation.

Here’s a list of the important changes that might affect you.

Child Tax Credit

Here’s some good news for taxpayers with children in 2019. The Child Tax Credit has doubled, increasing from $1,000 to $2,000 per child.

Even more beneficial is the increase in the income threshold. More families can qualify for the credit than before. Families that make up to $200,000 can claim the full credit.

There are benefits for low-income families, too. Up to $1,400 of it is refundable, now.

That means taxpayers with large families and low income can have zero taxable income. But, they still get a refund from this credit.

You must have a qualifying child that is under 17 years old to claim this credit. There is a smaller, $500 credit for any dependants that don’t qualify.

Standard Deduction

Taxpayers can choose between itemizing their expenses or taking a standard deduction. With these standard deduction increases, itemizing may be less necessary these days.

Last year, we saw a massive increase in the standard deduction. It almost doubled. This year, those changes stay in effect and get a little better.

The standard deduction increases across the board by a small margin in 2019. Here’s the breakdown:

• Single or Married Filing Separate – From $12,000 to $12,200
• Married Filing Joint – From $24,000 to $24,400
• Head of Household – From $18,000 to $18,350

The change takes inflation into account. It’s good news for a simpler tax filing process. But, it doesn’t mean you’re getting an improved tax break.

Why? Because the personal exemption is now gone. The idea is that the higher standard deduction replaces the need for it. And, it simplifies the tax filing process even further.

Whether that is a benefit or not is still unclear.

Evaluate your tax situation

By evaluating your tax situation, you can identify areas where you may be able to reduce your tax burden and make informed decisions about your financial future.

How much do you owe in Federal Taxes?

I don’t know

$0

$125,000 $250,000

How much do you owe in State Taxes?

I don’t know

$0

$125,000 $250,000

Evaluate

Small Business Income

If you own a small business, the 2019 tax changes look good. This information applies to sole proprietors, LLCs, partnerships, and S-Corps.

You can reduce your tax rate on business profit by 20%. But, your personal taxes must fall into these income guidelines.

• Single or Married Filing Separate – Taxable Income of $157,000 or less
• Married Filing Joint – Taxable Income of $315,000 or less

It may be a good time to buy assets, too. Depreciation on new equipment, like computers and printers, is 100% deductible.

Alimony

Getting a divorce in the coming year? This tax change won’t be a benefit.

Alimony payments will no longer be deductible after the 2018 filing. Any divorce that happens on or after January 1, 2019, falls under this tax change.

It’s a good idea to read up on filing taxes after a divorce.

There will be changes in how to file your taxes. Especially with dependents and qualifying children. Prepare now to avoid problems in the long run.

Medical Expense Deductions

With the standard deduction so high, typical medical expenses won’t break the threshold. But, for people with a lot of medical expenses, there’s some good news.

The threshold for deducting medical expenses lowered from 10% to 7.5%. This means there’s a greater opportunity for medical expenses to deduct.

Suffered from an expensive medical condition or emergency? You’re closer to breaking that threshold, now.

Estate Planning

A temporary increase in the estate tax exemption can benefit people who have a high net worth. This means a larger sum of money from inheritance is exempt for taxes.

Here are the numbers:

• Single Filers – Increase from $5.6 million to $11.18 million
• Married Filers – Combined exemption of $22.36 million

The difference is an extraordinary $5.58 million in exemptions!

This is a large tax break for taxpayers with wealthy estates. Be aware that these exemption numbers are only temporary. They fall back to the original $5.6 million in 2026.

Education Credits

Tuition and Fees are no longer an education deduction. But, taxpayers who pay for college tuition can still expect credits in 2019.

You can claim education credits from two programs. The Lifetime Learning Credit and the American Opportunity Credit.

The American Opportunity Credit is up to $2,500 per student. You can have 40% of it refunded if your adjusted income is at zero.

The student works towards a degree or certificate program for this credit. You’ll also need to go to school at least half time. You can only claim the first 4 years of college for this credit.

The Lifetime Learning Credit is 20% of your first $10,000 in education expenses, but caps at $2,000 per return. It’s claimed for almost any type of tuition and fees related to education. The qualifying student must enroll in an eligible education institution.

Smaller Changes Worth Mentioning

While small, consider any tax change in your financial plans. Here are a few you may need to know about.

• Earned Income Credit increases by $126 for married filers with 3 children or more
• The Obama-era health insurance coverage rule is gone
• Adjusted Gross Income amounts for Lifetime Learning Credit increase by $2,000
• Adoption Credits increase from $13,810 to $14,080

What’s the best way to make sure you’re receiving every tax break and credit? Speak with an accountant or CPA. They understand tax codes for this year and all prior years, too!

Prepare Now for 2019 Tax Changes!

Don’t wait for April 15, 2020, to find out what’s happening with your taxes. It’s better to plan ahead.

Check your withholdings and expected income for the year. Then, plan ahead for tax changes that might affect you. You’ll be glad you did!

Looking for information about personal tax relief? Check out these articles for more details.