What You Need to Know Before the 2019 Tax Season
After you've celebrated and welcomed in the new year, it's time to think about the 2019 tax season and how best you can prepare. Not only do you need to file your 2018 tax return, but you also need to look at what adjustments need to be made. Between the recent tax bracket changes and new forms, filing for taxes in the new year may be more confusing than you're used to. Here are some of the changes and what you can expect in the year to come.
With the Tax Cuts and Jobs Act, the standard deduction is higher, but you'll also claim fewer itemized deductions. If you're used to deducting preparation fees or reimbursed employee expenses — as allowed by the IRS in previous tax years — you won't be able to this year. While some deductions, like the home office deduction, are still available to those who are self-employed. According to the Tax Policy Center, about 30 percent of Americans have itemized deductions. If you're one of these individuals, pay particular attention to your withholding. The General Accounting Office projects more than 30 million Americans will owe taxes due to insufficient withholding.
Other changes include personal losses due to a fire or other natural disaster. For homeowners who are used to deducting property tax, there's now a $10,000 limit on property, state, and local income taxes. Depending on what state you live in, this may impact you more than others.
For families, child tax credit increases from $1,000 to $2,000, with a new $500 credit for dependents. For those who didn't have health insurance in 2018, you'll still see a penalty for your 2018 filing. That changes in 2019 when the penalty for not having healthcare coverage is eliminated.
Owe Money? Don't Panic
While the new tax form was designed to simplify taxes, even the professionals can still find it confusing. If you didn't assess whether or not you moved tax brackets in 2018 and didn't change your withholding, you may owe money.
If you don't have the cash on hand, a personal loan is one way to pay your taxes. Personal loans often offer lower interest rates than credit cards. For homeowners, a home equity loan is another option. Compare the two loan types to determine which is better for your financial situation.
Once you pay your taxes, use the IRS withholding calculator to determine what adjustments you need to make for 2019. You can estimate how much you'll owe so that you can adjust your withholding amount to cover it.
Refund? Make the Most of it
Withholding too much may result in a tax return, but it means you'll have to do with less money throughout the year. As stated by U.S.News & World Report, "You're essentially giving an interest-free loan to the government throughout the year."
Consider bumping up your contributions to your 401(k) plan, too. Calculate how an increase, even as small as 1 percent, can improve your retirement savings. While you're at it, consider how taxes and inflation may make it worthwhile to contribute more to your various investments and savings.
Prep for 2019 Taxes
If you're a business owner, 2019 may be the year to consider tax payment services to make paying taxes easier. Individuals may want to weigh DIY options against tax preparation services like TaxAct or hiring a professional.
It's all too easy to set your withholding and forget it. But you'll want to take a close look at how you'll file (individual, joint, small business), as well as expected life events (homebuying, marriage, children) to determine your tax bracket and eligible credits, among other things. The sooner you adjust your withholdings to meet your financial goals, the better.