Tax laws are one of the biggest mysteries business owners have to deal with. It’s hard to keep up with the annual changes. Unknown details fill the tax code itself and even tax lawyers have to research the facts.
If someone undertook the effort to fully comprehend it, it would take a year of straight study. By the time you’d finish, it would have changed again. So how is the average person supposed to know which 2019 tax changes have taken place?
We’ve summarized some of them here for you to make it easier. Stick to the basics and verify what applies to your situation. Then, you’ll have a good, solid start.
Removal of Tax Preparation Fee Deduction
One of the most common deductions individuals use became obsolete that was available in previous years. This is the fee you pay to have your taxes processed. This applies to you whether you use software that guides you through the process on your own or if you hire a tax professional.
For example, if you use TurboTax to prepare your taxes and use the business version, it can cost anywhere from $75-$120. In previous years, you could deduct this amount. However, this no longer applies and the cost of tax filing comes squarely out of your pocket.
Of course, that is just an example and you’re likely to pay a fee for the preparation of your business taxes no matter what. The only difference is that until 2025, these fees do not reduce your annual tax bill.
Break-Ins, Burglaries, and Losses
Over the years, you’ve been able to recover some of your losses after a burglary. However, these items and deductions are no longer allowed. If you did suffer a theft from your home, which might also happen to be your office, you’ll have to file a homeowners insurance claim.
Otherwise, your annual business taxes cannot claim this tax deduction. This, of course, does not apply to a federal disaster, where a government official has declared a state of disaster.
The average person who has suffered a regular type of burglary needs to be aware of this however before they attempt to make this type of claim anymore.
2019 Tax Changes and Moving
Unless it’s military-related, moving costs are no longer reimbursed with a partial tax deduction. They removed this expenditure from the allowable list as well. For those that are military, there may be personal expenses that you incur on your own.
However, whatever the military covers will be the only amount of reimbursement you see. This might change again in the future, but as of this moment, it’s not something you can use.
Increase in Total Family Deduction
While personal exemptions and deductions may have decreased, one very common issue increased. The deduction you receive for your family size has increased.
That means while you previously were able to claim a certain amount per child or expense, those items are no longer available. Instead, they replaced it with a higher overall deduction that you can claim for the members of your family.
It may not appear to be much without comparing the actual numbers. However, this does affect families positively and they see the difference when they add up the newer deduction compared to their tax bill. This is a benefit that’s worth keeping around!
Earned Income Tax Credit
The elusive credit you sometimes qualify for and sometimes don’t has made a positive comeback. This increased from the prior year of 2018. Depending on how many children you have, this could make quite a difference in your refund if you qualify for one.
Keep in mind that even $1,000 can buy a lot of school clothes. If you’re able to get that much more back in your refund, it’s more beneficial to your family.
Increased credits like this lower your tax bill dollar for dollar, which reduces how much you owe in the first place. Once you understand how this credit and similar ones work, you see how this puts money back into your family’s pocket.
No More Healthcare Act Penalty
Punishment be gone for not paying for private insurance! The IRS penalty related to not having healthcare no longer exists as of the end of 2018. That means that you’re not paying for something you couldn’t afford in the first place.
For single individuals and families who were already struggling, this benefits them by allowing them to keep more of their hard-earned dollars. It also removes the stress of trying to pay for a bill that you may not have incurred in the first place if not for a legal mandate.
Tax changes like these are welcome and make a difference in the everyday financial quality of life for taxpayers.
Tax Brackets and Income Rates
One more beneficial change that we love is the increase in the average tax brackets. The IRS has a process where they incrementally raise the tax bracket amounts based on several factors.
They also do this to help someone avoid pushing into a higher tax bracket simply because they received a raise at work. Even though the IRS does not always seem like a friendly institution, this is one time they got it right. As of this year, the allowed income for each tax bracket increased.
That means you get to earn more money without paying a penalty and put into a higher tax bracket. It also translates into more groceries for your household, more gasoline for your cars and more peace of mind for you.
Business owners will also appreciate this new change, especially if they are sole proprietors who work from their home. Changes like these affect everyone’s bottom line and put more money into the spending side of the economy.
Again, business owners benefit since customers have more spending money. If you own a business, you get the benefit of lower taxes and more potential customers.
Donate to Your Retirement
Anyone who invests in their future retirement makes a smart decision. Now, you can invest even more into those accounts without additional tax fees. The average amount of this increase is $500 and that allows you to invest in your IRA, 401K or 457 more liberally.
Take advantage of this and put money away for later on. When this type of gift comes down from the tax experts, you want to cash in.
Find out how this type of deduction will change your net income if you’re having your employer take out deductions pre-tax. It’s a great question that will help you plan for both right now and in the future.
Give to Charity
Charitable deductions are still a great way to help out your community and now you can claim even more of them. In some cases, you can claim up to 60% of these expenditures.
Whether you choose to help children, the homeless, veterans or just a local agency trying to do some general good, keep track of how much you give. Add up these numbers when you’re doing annual taxes and deduct whatever you’re allowed.
Since this increased, you’re likely not the only one increasing their donations. What a great way to encourage people to help those who can’t help themselves. It’s nice to see some tax benefits increase and create positive change with good community support.
Homeowners Deductions Reduced
Unfortunately, the deductions that a homeowner can claim reduced. This falls under a similar category as falling prey to a burglar and losing valuables. However, investing in homeowners insurance will help you avoid some of the cost of unexpected repairs.
Make sure you track whatever repairs or maintenance you do to your home. Have your tax professional look it over and help you determine what qualifies at the end of the year. Even if it doesn’t look like it might have the expert look it over.
To make the most of this decreasing deduction, save your receipts and work orders to prove whatever is necessary.
Kiddie Tax Revision
Previously, any child could earn an income up to $2,100 without paying taxes on it. This amount has now increased by $500 up to $2,600. Whether your child has an investment account or a side job, they can now earn up to $500 more per year without paying any taxes on it.
Once they go over $2,600, there is a 15% tax that applies. If you teach your child how to save up for taxes along the way, it will be less traumatic for them to pay at the end of the year. Besides, sharing financial information and advice with the next generation only helps them live a higher quality of life.
Teach them how taxes work so they can make the most of their efforts. Then, when they invest or simply spend their money, they’ll be doing so with a higher level of knowledge. It will help them plan for their entire lives, let alone their summer fun days.
Deducting Your Medical Bills
This year, your threshold for medical bills decreased to 7.5 of your adjusted gross income. Last year, this threshold was 10%. That means that you can claim more of your medical bills and costs instead of less.
For families and individuals who have doctor bills stacking up, this is a welcome sigh of relief. Make sure you keep track of which medical bills you’ve paid, add them up and use these numbers when you’re deducting the allowable tax portion.
If you’re going to pay for lifesaving medical treatment, then you should receive some of that money back at the end of the year. This positive change is helpful for both adults and children and makes a difference in how much money they have to spend each day.
Individuals and families who have a 529 plan understand that this money could only be used to pay tuition at institutions who qualified. However, this plan’s funding can now cover any educational expense.
Do you need to send your child to a specific kindergarten school? You can claim the portion of the 529 plan you use to pay for their tuition. Previously, you could only spend this money at universities or colleges who the tax law recognized.
This year, all of that changed. Now, you can use that same money to pay for tuition up to $10,000 at any school you deem appropriate.
Change in Alimony Processing
Individuals can no longer claim alimony payments if they are the people paying them. On the flip side, the person receiving them no longer has to claim them as income. This change does not take effect for divorces that are prior to the end of the year in 2018.
However, those individuals who divorced in 2019 can benefit from this change. The person paying the alimony does not benefit simply because they don’t get to claim the deduction.
The person receiving the alimony does, however, since they don’t have to claim it as part of their earned income anymore. Make sure you check with your tax professional to see how this works with other agencies, even if the IRS doesn’t claim to have need of the information.
Tax Benefits, Charges, and Changes
In summary, it’s difficult to keep track of a moving target like the tax laws. There are reliable groups of experts and tax professionals though where you can obtain information.
Many of these are available any time online so you can reference material and be a smarter business owner. Find out how many of these 2019 tax changes affect you, if any. The more you know, the smarter decisions you make throughout the year. Run a successful business by learning how taxes change each year.
Ask for help on how to make the best choices with your money so you can enjoy a more secure future. While tracking the changes in business tax deductions can be difficult, you don’t have to do it own. Contact us and let us answer whatever questions you have. We look forward to hearing from you!