Taxes have been around for thousands of years. Kings and rulers have taken money in the form of taxes, tariffs, and fees from their citizens since the beginning of time.
In fact, the ancient Mesopotamians collected taxes before the invention of money. Depending on the size of their herd, rulers required families to deliver a certain number of cattle or sheep.
Produce, livestock, and free labor were all collected as a form of taxes before money ever existed.
In the United States, President Lincoln created the first income tax during the Civil War. And since that day, many rules and regulations have changed. Each year, there are changes that are made that could affect you if you aren’t aware of them.
So what’s different for this year? Keep reading to find out 5 of the 2019 tax law changes that could affect you.
1. Tax Bracket Changes
One of the most significant changes to tax law for 2018’s taxes are the changes that were made to the tax brackets.
The Tax Cuts and Jobs Act kept the number of income brackets at 7. They lowered every bracket for filing in 2019, except for the lowest bracket which maintained it’s minimum of 10%.
Fewer Americans are now affected by the highest tax brackets. Income thresholds increased, and in particular, at the highest levels. For example, before the Tax Cuts and Jobs Act, the highest tax rate was 39.6% and it applied to married couples who filed jointly and made more than $480,050.
The tax rate was reduced to 37% and now only applies to married couples who file jointly and make over $600,000.
2. Higher Standard Deduction
The standard tax deduction has almost doubled from last year’s standard deduction. For an individual, the standard tax deduction is now $12,000. For a head of household, it’s $18,000, and for a married couple filing jointly, it’s $24,000.
3. Alternative Minimum Tax (AMT)
The alternative minimum tax was originally implemented in order to help ensure that Americans with high incomes paid their fair share of taxes, regardless of how many deductions they could claim.
What this meant is that high-income households had to calculate their income twice. First, they had to calculate it under the standard tax system. They also had to calculate their taxes under the AMT system which was not adjusted for inflation. Because it wasn’t adjusted, over the years it has applied to more and more taxpayers.
The new tax bill has permanently adjusted the AMT for inflation and has made the AMT amount significantly higher. For the 2018 tax year, it has risen from $84,500 to $109,400 for married couples who file jointly. It has raised from $54,300 to $70,300 for individuals.
4. Increased Child Tax Credit
The Child Tax Credit is available for individuals who meet a specific set of criteria. Your child must be under 17 for the year in which you are filing. And that child must be your own child, a stepchild, or a foster child placed in your home by an agency authorized by the court.
You must claim the child on your tax return as your dependent and they cannot have earned more than half of their monetary support during the year for which you are filing.
Furthermore, the child must be a U.S. citizen, a U.S. National, or a U.S. resident alien. They also must have lived with you for more than half of the year for which you are filing.
Lastly, your Child Tax Credit will be reduced and potentially phased out if you earn more than a certain amount.
For the 2019 tax season, The Child Tax Credit is doubled from last year as it has changed from $1,000 to $2,000. In addition, the income threshold for when those benefits are phased out has been raised from $110,000 to $400,000 for a married couple. The bill also added a new credit which allows $500 for dependents other than children.
5. Local Taxes and Health Care
There is no longer a penalty for not having health insurance. This is one of the biggest tax law changes for 2019 as the bill has eliminated the penalty entirely. It also lowered the floor for which out-of-pocket medical expenses can be deducted. The current law floor of 10% has changed to 7.5% for taxes filed in 2019.
In the past, state, local property, and income taxes have been fully deductible, for the most part. Now, however, the new bill limits the deduction amount with a cap of $10,000.
Should You File for a Tax Extension?
Are you panicking that you won’t be able to file in time, especially with enough time to consider all the new changes? Well, it’s a misconception that the IRS requires special circumstances for filing an extension. Anyone can do it!
All you need is Tax Form 4868 to file for an extension. You do need to include part of your income tax but the most important thing is just to remember to submit it by April 15 (the last day to file your taxes). If you’re considering filing for an extension, check out our blogon how to do so and what the pros and cons are.
How Will 2019 Tax Law Changes Affect You?
How the 2019 tax law changes affect taxpayers differs for everyone. It may be the case that none of the changes implemented through the new bill affect you. But it’s worth checking out as you could save money by doing so.
Your best bet is to hire a tax professional who knows and understands the ins and outs of every single change and can do the work for you. Contact us for a free consultation so we can get started on figuring out how to get the most out of filing for you!
