To all of you who have filed your 2018 tax returns: Congratulations! The 2019 tax filing season was the first year to require the new forms and rules that are a result of the Tax Cuts and Jobs Act, enacted at the end of 2017. The 2019 tax filing season required more meeting time with clients to explain the new forms and tax results. There was a lot of new information to share and I’d like to take a moment to list three of the biggest changes:
1. Changes to Form 1040
Trying to compare prior tax returns next to the new 2018 tax return will be difficult. Pages 1 and 2 of Form 1040 fit on one 8 ½ x 11 page. The top section is about you, your dependents, and your tax preparer. The bottom section is a summary of the income, deductions, taxes, credits, and payments. New for 2018 tax forms are Schedules 1-6. You will find references to the applicable schedule on page 2. Refer back to these schedules to find more detail as to the page 2 line item for income, deductions, taxes, credits, and payments. Schedules A, B, C, D, E, etc, which have been a part of the 1040 for a very long time, are still used in reporting certain income and expense items. So, while pages 1and 2 may offer a half-page return, if folded in half, the return can be thicker, depending on your circumstances. Please note that any reduction in Total Income (line 6) to get to Adjusted Gross Income (line 7), is not clearly noted. You will need to refer to the bottom half of Schedule 1 for the detailed reductions to AGI.
2. Change Your Withholding Allowances
Early in 2018, the IRS changed the withholding tables to incorporate the reduced tax rates. This reduction in the federal tax withholding was either good news for those who prefer not having a significant refund or bad news for those who ended up owing or prefer a significant refund. Now is the time to make those adjustments to the number of allowances you are claiming. If you are already at 0 withholding allowances, you may need to consider adding a specific additional dollar amount to add to the withholdings or pay estimated tax payments. The IRS is working on revising the online calculator for the new W4, but doing it alone would be akin to preparing your own return. You may want to seek out assistance.
3. The Standard Deduction v. Itemized Deductions
The 2018 Standard Deduction of $24,000 for those filing as Married Filing Joint (under the age of 65) oftentimes was greater than the total of the allowable deductions that are reported on Schedule A, Itemized Deductions. A major contributor to that outcome was the $10,000 cap on the deduction for state and local taxes. State and local taxes include income taxes or sales tax, real estate taxes paid in that year and personal property tax. With a cap of $10,000 on taxes paid, a married couple filing jointly would need to have in excess of $14,000 in mortgage interest expense, charitable contributions, etc to itemize. Single taxpayers were more likely to itemize since they are held to the same $10,000 cap and then would need in excess of $2,000 in mortgage interest, charitable contributions, etc to itemize. For 2019, the Standard Deductions have been increased to $24,400 (MFJ) and $12,200 (Single).