What You Need to Know for 2019 Tax Planning

There were significant changes to the US taxation system beginning in 2018. Besides the Tax Cuts and Jobs Act, there were also notable changes to deductions and credits. It Is likely that you had to do a fair amount of planning when filing 2018 taxes. Fortunately, there are not a lot of changes that apply to the 2019 tax year. If you made the adjustment to the tax regulations while filing for tax year 2018, then tax filing for 2019 should be a much smoother event.

While there is no major upending to the tax code for 2019, you should not allow yourself get complacent. Sure, 2019 shouldn’t be that difficult if you got through 2018, but even during quiet tax years, there are always at least minor changes and tweaks to the United States taxation system. Below is a summary of what you should be aware of for 2019.

The Tax Brackets for 2019 are virtually the same as 2018

The changes to the income tax brackets in 2019 are limited only the annual inflation adjustments. These are also referred to the as the cost-of-living adjustments or COLAs. This is a very minute increase, so you can expect your rate to be nearly the same as 2018.

What is the Standard Deduction for 2019?

Again, not a significant change in 2019 from 2018. There is a slight increase for tax year 2019 based on inflation adjustments for that year. Although the increases are minimal, even a small amount can’t hurt when trying to avoid having to pay extra taxes. See the table below:

Data source: IRS.

What are the most popular itemized tax deductions for 2019?

We are always looking for ways to maximize tax savings through deductions. In case you were wondering, for every $1 you’re allowed to deduct from taxable income, you will save a percentage equal to your marginal tax rate. So if you are a high earner in the 35% tax bracket, then a $1 deduction will save you $0.35 in tax. *The below mentioned deductions are only available if you choose to take ‘itemized deductions’ rather than the often larger standard deduction. Since the significant increase to the standard deduction in 2018 coupled with rising inflation, most taxpayers are likely to opt for the standard deduction rather than itemized deductions. With that being said, below are the most popular itemized deductions for 2019.

• You are allowed to deduct interest on up to $750,000 of mortgage debt. Additionally, higher grandfathererd deductions up to $1 million in debt for those who had such mortgages before the start of 2018.

• The state and local tax (SALT) deduction still exist, but in limited form. In 2019, you will be able to deduct up to $10,000 of taxes paid to state and local governments. This includes property tax paid and you can also elect between the higher of tax paid for either income or sales tax.

• In 2019, you are allowed to deduct donations to qualified charities. Gifts are deductible according to their fair market value and cash and check donations are fully deductible. However,in case you are audited, make sure that the chartiy in which you are giving to is able to provide documentation of your donation.

What about retirement tax planning for 2019?

The contribution amounts and income limitatons change each year for 401(k)s, IRAs and other retirement contribution plans. It may be worthwhile to pay attention to even minor changes, so that you can maximize your retirement contributions as well as tax deductions. In 2019, IRA contributions for those under 50 increase to $6,000 ($5,500 in 2018) and $7,000 ($6,500 in 2018) for those 50 and older. For 2019, there is also a slight increase to 401(k) contributions. Those 50 and younger can now contribute up $19,000 and those 50 and over can contribute up to $25,000. In addition to traditional retirement plans, you should also consider other tax-favored accounts, such as 529 plans, Coverdell ESAs and Health savings accounts.

There are some minor changes to Estate and Gift taxes for 2019

Although the current tax laws impose an estate tax on your total assets when you die, there is an amount called the federal gift and estate tax lifetime exclusion that’s exempt from estate tax. This amount increases for 2019 to $11.4 million, which is a slight increase from the 2018 amount of $11.18 million.

For 2019, you are allowed to give $15,000 to anyone you want without any gift tax implications, which is the same amount as 2018. However, you are allowed to give unlimited gifts to spouses and charities in addition to tax-free gifts to healthcare facilities and educational institutions. Doing so could ensure that never have to pay estate taxes.

It’s not to late to plan for 2019

Although the end of the year is rapidly approcahing, if you haven’t done so already, now is the time to start preparing your 2019 taxes. Get in touch today with tax and financial expert.