2018 was the first year that people filed under the new tax law (Tax Cut and Jobs Act).
Here are some interesting facts from McKay Tax client tax filing last year:
- Over 50% of you that itemized in 2017 used the standard deduction in 2018.
- Over 95% of you paid fewer taxes for 2018 than you did in 2017.
Briefly, here is what you can expect for 2019 deductions
- Standard deductions are $12,200 single, $18,350 for the head of household, and $24,400 for married jointly.
- The Dependent & Child Tax Credit remains the same at $2,000 for dependents 16 and under, and $500 for dependents 17 and over.
Here are a few things to think about for year-end tax planning:
If you think that you will itemize and you need to make a trip to the DI or Salvation Army do so before December 31st. Be sure to get a receipt and write the items and value of each of the receipts. Some taxpayers strategize by bunching charitable deduction into one year. This allows them to itemize one year and take the standard the next year. For example, donate 2019 charity in January 2020 rather than now, in December. Make your final 2020 charity donations later in 2020 which will give you twice the deduction in one year – allowing you to itemize a greater value in 2020 and use a standardized deduction in 2021. You could also do this with other itemized deductions.
If you are over 50 years old and wait until tax filing day in 2020, you may be able to get a deduction for an IRA for 2019 of up to $6,000 or $7,000. If you are over 70 ½ years old and are required to take a 2019 minimum distribution from your IRA account then you can make the distribution payable to your favorite charity and have it not be taxable.
If you have a few underperforming stocks that you wouldn’t mind unloading, now is the time! By selling an underperforming stock, you may be able to wipe out any capital gains from the year for any positive stock sales, plus another $3,000 in income.
Flex Spending Accounts
This time of the year is when employees must specify how much salary they will set aside in flex spending accounts (section 125) for medical and child care expenses. Using flex funds to pay for medical and child care expenses save on Federal and State Taxes. You can also save an additional 7.65% in FICA and Medicare taxes. Be sure to estimate medical and child care expenses low since extra money left in the accounts at year-end is usually lost.
Please call me for the answers to your questions about early distributions from a retirement fund or planning your retirement. A simple phone call may save thousands of dollars in additional taxes and penalties.
As always feel free to call me anytime for answers to your tax questions (including major events) at no additional cost.
Look for your appointment confirmation and questionnaire to come in the mail by January 5th or sooner.
Have a Merry Christmas and Happy New Year!