The Trump Tax Cuts went into effect in 2018, and the world did not end. The Tax Cuts and Jobs Act Bill, as it is formally known, is the most significant change to our tax code in the last few decades. It put more money in the pockets of everyday people, and also in the bank accounts of large corporations.
Some of the most significant changes in 2018 include:
- Increase in paycheck take-home
- Doubling the Child Tax Credit, therefore increasing the amounts of some refunds.
- Increase in the standard deduction, benefiting those with a lower income by reducing most, or all, of their tax bill
- Small businesses paid less in taxes and received an additional net income deduction.
More changes will take effect in 2020. We’ve summarized the changes below to ensure you don’t leave money on the table or get surprised by a higher tax bill.
- The ObamaCare penalty for not having health insurance is GONE. That does not mean that ObamaCare is GONE. The Affordable Care Act is still the law of the land, but you can’t be penalized for not having health insurance. It’s kind of like making speed limits optional, but they are there if you like to follow them. So don’t go dropping your insurance coverage.
- The medical expense deduction threshold is increasing to 10%. This means that medical expenses must be above 10% of your adjusted gross income to claim it. For example, if your adjusted gross income is $50,000, you must have more than $5,000 in qualified medical expenses to claim the deduction. If you have $5,100 in qualified medical expenses, then you can claim $100 as a medical expense deduction. In this case, you would be better off claiming the standard deduction.
- The IRA limits have increased by $500 for all contributors. That means that if you are older than 50, you can contribute up to $7,000, and if you are younger than 50, you can contribute up to $6,500. Tax-free income baby! Consult with your retirement plan professional for details.
- The HSA (Health Savings Account) limits are also increasing, but not by much. Single taxpayers can contribute up to $3,500, and families can contribute up to $7,000. Consult with your benefits provider for details.
- The alimony deduction is being eliminated. Alimony payments can no longer be deducted for divorce and separation agreements made or modified in 2019 or later. This means that if you get divorced in 2019 and pay alimony, you cannot write off the alimony payments on your 2019 tax return.
If you need help with your taxes, books or want to create a plan to save on taxes, schedule a free consultation with one of our experts today.