Taking advantage of tax savings can significantly decrease your taxable income and benefit you in the long term.
Do you have any significant life-changing events- marriage, you have a new baby or you just bought a home? New tax savings might be available for you.
Tax Brackets and Rate Update
The Internal Revenue Service publishes annual changes that are adjusted for inflation.
When you reach a certain income level, your tax might increase. The table below can show you where you fall.
Use this to gauge the tax bracket you belong to.
| Marginal Tax Brackets 2017 | Marginal Tax bracket 2019-2025 | Unmarried individuals | Married Filing Jointly | Head of household |
| 10% | 10% | $0 | $0 | $0 |
| 15% | 12% | $9,700 | $19,400 | $13,850 |
| 25% | 22% | $39,475 | $78,950 | $52,850 |
| 28% | 24% | $84,200 | $168,400 | $84,200 |
| 33% | 32% | $160,725 | $321,450 | $160,700 |
| 35% | 35% | $204,100 | $408,200 | $204,100 |
| 39.6% | 37% | $510,300 | $612,350 | $510,300 |
Due to inflation, the IRS adjusts tax brackets. These adjustments are used on tax returns filled in spring 2020.
Standard Deductions are Higher
Taxpayers can choose between using itemized and standard deductions.
Itemizing your deductions means individually adding tax deductions that you are entitled to and then subtracting them from your adjusted gross income. For example, traditional IRA and student loan interest.
Another option, the standard deduction is a set amount that Americans can choose as a deduction. You can consult your tax preparer for the best method beneficial for you.
See the different deductions from 2017
| Status | 2017 Standard Deduction | 2019 Standard Deduction |
| Head of Household | $9,350 | $18,350 |
| Single or Married filing jointly | $6,350 | $12,200 |
| Married Filing Jointly | $12,700 | $24,400 |
The Child Tax Credit Has Increased
Personal exemptions are phased out. A personal exemption is a certain amount of income that could be excluded from their taxable income each year.
For a big family, couples with 5 dependent children could claim seven personal exemptions. As you can see the higher standard deduction might wash away with the personal exemption gone. There’s some good news though. Child Tax Credit has doubled, which is $2000 per qualifying child under 17 years old. In 2017, it was $1000 per qualifying child.
The Tax reform aimed to simplify the tax code. In prior years, a tax credit reduces the amount of tax you owe. If you owe $1500 and you have a credit of $1000, your $1000 can be deducted to the tax amount that you owe, thus, reducing what you owe to $500.
In contrast, the $2000 Child Tax Credit, a portion of that amount is refundable. Even if you have zero tax liability, $1400 of the amount is refundable. The remainder, $600, will be applied if you have any tax you owe.
College 529 California Savings Plans
It earns tax-free; you can start with just $25 and withdrawals are free of tax and pay for tuition, books, and supplies. As any family starting with young kids. Education is one of the primary priorities that we think about and for them to effortlessly get higher education in the future.
Residents of California can start while their children are young. Also, grandparents can designate an account for their grandchildren. One great advantage of the College savings plan is parents may use the leftover funds and use them to pay for their higher education. This is done by designating themselves as the beneficiary of the plan.
If you planning to go back to college this is a great way to minimize your expenses and not solely rely on student loans.
Which Tax Deductions Got Tossed?
- The miscellaneous deduction: This was usually used by teachers and other self-employed individuals. These are supplies you’d buy that are job-related. If you use these out-of-pocket expenses try to request it at work so you don’t have to be burdened with the expense.
- If you move, expenses are not deducted anymore: This was designed to offset the costs of job-related moving expenses. Active-duty military family moving expenses are still intact.
Obamacare Penalties Are Gone Too
It’s been years that the Republican House has been trying to repeal Obamacare, aka The Affordable Care Act. With the current Tax Reform under the Trump administration, they were able to remove the individual mandate, which requires all Americans to buy healthcare or pay a penalty in return.
Reminder: The rule will only start for tax years 2019 onwards. So, for 2018 you should have healthcare coverage or may face penalties for it.
Charitable Contributions Are Staying
This deduction was not on the chopping block but it’s worthy to say that charitable taxpayers can deduct as much as 60% of their AGI. Boosting your tax savings by 10%. It was 50% from prior years.
Do You Have Questions About Tax Savings? We Got Your Back
If you are affected by these changes and would like to know proactively how to save in taxes. Give us a call, email, or text us through our web listing and we’ll get back to you ASAP.
Our office is close to the freeways, therefore, you can reach us using 91, 605, 105, and 710.
You can schedule an appointment below too.