The IRS is updating its individual income tax brackets for 2019 and making a few other changes worth noting.
The Tax Cut and Jobs Act of 2017 made big changes to certain federal tax laws, tax brackets and changed deductions.
Most notably, the standard deduction nearly doubled ($12,000 single and $24,000 married filing jointly) and some tax deductions were either eliminated or reduced. Although some tax deductions, like the dependent exemption, went away with the passage of the new tax reform law, there are still tax deductions and credits you can claim to maximize your tax refund.
Here are five key changes to the federal tax code to know about:
Tax rate changes
2019 will mark the first year under the Trump-backed tax reform bill, which overhauled the tax code that resulted in lower individual income tax rates, a doubled standard deduction and elimination of person exemptions.
Child tax credits
If you took advantage of the child tax credit in 2017, you were able to claim a $1,000 credit on your income tax return for each child under 17 who qualified. For 2018, that deduction has doubled to $2,000 per qualifying child.
The child tax credit was nonrefundable before the TCJA. Now, the refundable portion is equal to 15% of your earned income over $2,500, up to $1,400.
For many passthrough businesses, the law changes created a new 20-percent qualified business income deduction. Other deductions and credits have been changed as well, including revised depreciation methods and expanded options for expensing business property. There are also new rules for like-kind exchanges and fringe benefits. In addition, small business employers who provide paid family and medical leave to their employees during tax years 2018 and 2019 may qualify for a new business credit.
Business owners can refer to the Tax Reform Provisions that Affect Businesses page for updates and resources on these topics and other business-related changes.
Charitable and medical deductions
The tax overhaul temporarily lowered the threshold for the medical expense deduction.
For the 2017 and 2018 tax years, you're able to claim an itemized deduction for out-of-pocket health-care costs to the extent they exceed 7.5 percent of your adjusted gross income.
Starting in 2019, that threshold will leap back up to 10 percent — where it had previously been for most taxpayers.
The charitable donation deduction is still on the table, even after the tax overhaul. The only difference now is how many people will be able to claim it.
If you fall just short of the new standard deduction of $12,000 (single) or $24,000 (married and filing jointly), you might be able to itemize in 2018 if you "bunch" multiple years of charitable donations and get over the hurdle.
Estate planning changes
For high-net-worth individuals looking to make estate-planning decisions, a temporary change in the tax code doubled the inheritance tax exemption to $11.18 million for 2018, up from an expected amount of $5.6 million.
Married couples can combine exemptions to have $22.36 million in exemptions. This increased exemption is scheduled to fall back to $5.6 million in 2026.
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