Tax law can seem like a moving target, with administrations making changes to meet campaign promises or to try to regulate the economy. The year 2019 is no different. While not a wholesale change of practice, the Tax Cuts and Jobs Act passed in 2017 created more than 600 rule changes.
From the merging of the various 1040 forms to the elimination of exemptions, here are just a few of the ways taxes are expected to change this year.
The new rules standardize Form 1040, the primary tax form everyone uses to file their returns. It replaces the old Form 1040, Form 1040A, and Form 1040EZ. You may still be required to file supplemental schedules depending on whether you itemize your deductions or claim tax credits outside of the basic child tax credit.
For once, the new tax laws simplify something.
To itemize or not to itemize: Is that your question?
The standard deduction has been increased with the new tax laws. But should you take it, or should you seek a larger refund (or smaller tax bill) through itemizing?
The answer can be found by running the numbers both ways to compare the outcome. About 10% of tax filers will itemize their deductions such as mortgage interest and property taxes, which is a reduction from 30% of filers doing so in previous years.
Part of the reason many tax preparers cannot answer one way or the other is that there are new limits relating to deductions on property and income taxes. You also need substantially more itemized deductions to exceed the new standard deduction.
- Married filing jointly may have a standard deduction of up to $26,600 if they meet the age requirements or both are legally blind.
- Single filers now see a standard deduction of $12,000, nearly double the old deduction.
- By filing under single or head of household if you are 65 or over, you may increase your standard deduction by $1,600 from before.
You would be smart to read the new rules and amounts for the standard deduction to ensure you are filing correctly.
Child tax credits
Unlike the other tax credits, child tax credits are accounted for on Form 1040 without the need for a supplemental form. However, the credits have been expanded. If your child is 16 years old or younger as of December 31 of the tax year, and he or she has a valid social security number, the maximum credit has been doubled to $2,000.
In addition, up to $1,400 per child is available as a refundable credit.
The income threshold has been increased as well. For married filing jointly to take advantage of the child tax credit, the maximum income is $400,000. All other filers can make up to $200,000 before the credits phase out.
To show you the improvement, the old adjusted income limit was $75,000 for singles and $110,000 for married filing jointly. However, there is some sad news: the $4,050 dependent exemption went away.
The news isn’t all bad, though. A new credit, the Credit for Other Dependents, provides for $500 for each qualifying child or dependent relative, if they do not qualify for the child tax credit. So if you have older dependent adults living with you, you can take advantage of this credit. The dependent does not require a valid social security number. You can substitute an Individual Taxpayer Identification Number or an Adoption Taxpayer Identification Number instead.
Say goodbye to personal exemptions (and more)
You used to be able to claim an exemption for yourself, your spouse, and dependents. Not anymore. This means you can’t have $4,050 each subtracted from your taxable income. Before the new tax law, the exemption was set to increase, but then it was eliminated entirely.
What this means is that if you have a family of six, the increased standard deduction won’t offset the lack of exemptions. On the other hand, married filing jointly plus one child, which would have been three exemptions totaling $12,450, will come out better with the new standard exemption or $24,000.
Other items eliminated with the new tax law:
- The health care mandate. If you are not covered by health insurance, you no longer need to pay a penalty.
- Moving expense deductions are gone. Employers have to include moving expense reimbursements in employee wages now. There is no longer an exclusion for qualified moving expense reimbursements, unless you are active duty members of the U.S. Armed Forces.
- You can no longer deduct expenses related to a job search or tax preparation fees.
As you can see, whether the new laws are a net positive for you depends greatly on your family size and your former itemizing habits.
They tamed the Alternative Minimum Tax
Remember when everyone got so worked up last year over the Alternative Minimum Tax, or AMT? Because of the way it was written into the tax code, people who are now considered middle class were beginning to approach or exceed the earnings limit where the AMT kicked in.
Fortunately, one of the changes to the tax law was an increase to the income cap.
- Taxable income exempted from the AMT is now $109,400 for married filing jointly.
- Taxable income exempted from the AMT for singles is now $70,300.
- The exemption begins to phase out at $1 million of AMT taxable income instead of $160,900.
- Phase out for single filers is now $500,000.
The changes to the AMT means it only impacts about 0.4 percent of households with incomes between $200,000 and $500,000. The year before the change, 27.2 percent were impacted. For single filers, the difference is even greater. Now only 2.2 percent will owe AMT, down from 62 percent from 2017.
Taxes never seem to get simpler. These are just a few of the 600 rule changes made with the Tax Cuts and Jobs Act. Business taxes are also affected. Your best bet is to retain an experienced tax preparer to help you with your tax return if you have any questions.
Want to learn more about how tax law changed under the Tax Cuts and Jobs Act? Check out The Tax Cuts and Jobs Act Year in Review.
More about the author
Jayson Mullin is a partner at Top Tax Defenders, a tax resolution company with over 30 years of experience working with the IRS to aggressively help clients with any type of tax relief problems.