Tax Law Rundown

(What to Know)

One of the biggest changes from the 2019 Tax Cuts and Jobs Act (TCJA) was to increase the standard deduction from $6,350 for individuals to $12,000. This makes a difference in whether it makes sense to file a simpler tax return using the standard deduction or to go through the effort of itemizing deductions. You now need to come up with more than $12,000 in itemized deductions as a single person (or married person filing separately) to make it worthwhile to fill out the extra paperwork involved in itemizing.

CHECK YOUR W-4

Due to changes in how taxable income is calculated and the tax rates, the IRS strongly recommends everyone look closely at how much tax is being withheld on their W-4. This is the paperwork you fill out with your employer when you are hired that tells them how much tax to take out of your paycheck. You are able to change your W-4 at any time. You can print it out yourself at IRS.gov or you can ask your employer’s human resources department for a blank one.

To use the IRS Withholding Calculator, you will need:

Single people with one job who choose to enter “1” on their W-4 will have less taxes taken out of their paychecks, which means more money each month. If they enter “0” on their W-4, they will have more taxes taken out, which gives them a larger tax refund. You get more allowances for dependent children and other circumstances.

  • Last year’s tax return
  • Recent paystubs
  • Estimates of how much you expect to earn this year, including bonuses

It takes time to input this information, but crunching the numbers pays off. You could discover that your current withholding will lead to owing taxes. Or you could be getting a big refund when what you really need is more money in your pocket each month.

TAX LAW CHANGES

Changes to tax deductions under the new tax law might affect you if ...

  • You have a lot of medical and dental expenses. For the 2018 tax year, you can deduct any unreimbursed expenses over 7.5% of your adjusted income. (However, for 2019 and beyond, this raises to 10%.)
  • You paid someone else to do your taxes. You can no longer deduct the cost of hiring an accountant or tax service for preparing your taxes.
  • You make alimony payments. These can’t be deducted anymore.
  • You buy your own uniforms and work-related meals. You used to be able to deduct work-related costs that weren’t paid for by your employer, but not anymore.
  • You moved. Unless you’re in the Armed Forces, you can’t deduct the costs associated with moving for work anymore.

You can learn more about these changes in IRS publication 5307 “Tax Reform Basics for Individuals and Families.”

One other significant change in 2019 is the elimination of the penalty for not having health insurance under the Affordable Care Act. However, you’re still liable for the penalty if you didn’t have insurance in 2018.

Taxes can be confusing, but they will affect you whether you pay attention to them or not. The more you know, the easier next year’s taxes will be. And understanding how to update your W-4 will come in handy as your life circumstances change over the years. You’ll be ahead of the game by learning how withholding works now.

As always, we’ve got your back. — The On Your Own Team End of article insignia



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