When it comes to taxes, there are only a few moments of calm for taxpayers, as taking a breath of relief after filing their taxes is only the sign of the work that needs to be done to start preparing for next year’s return. Because of the tax code changes that resulted from the Tax Cuts and Jobs Act, we need to be aware of how they will affect our income tax return when the time to file next year arrives. This way, we will be able to make the most out of our 2019 tax practices, maximizing our credits, deductions, and refunds.
One of the biggest changes that took effect this year is the shared responsibility payment, also known as the individual mandate penalty. This payment applied to those who were required to have health insurance under the Affordable Care Act but were not able to get coverage nor qualify for an exemption, either. Because of the Tax Cuts and Jobs Act, the penalty will no longer be charged, so if you don’t have health insurance this year, you won’t have to worry about covering this payment along with your taxes.
Another relevant change that we will notice next tax season that is also a result of the Tax Cuts and Jobs Act is the rise in the medical expense deduction threshold. In order to obtain this deduction, the total of medical and dental expenses must be 10% of our adjusted gross income, when it used to be 7.5%. As a result, it will be harder to qualify for this deduction. Thus, if we were thinking about applying for it, we need to plan it a bit better this year.
The Tax Cuts and Jobs Act also caused the elimination of a quite useful deduction, which was the alimony deduction, taking effect in 2019. This means that alimony payments will no longer be deductible for any divorce or separation agreement being made or modified this year or in the future. As a result, spouses that pay alimony will not be able to write off these expenses, and spouses that receive alimony will not have to count such payments as part of their income next year.
To end things on a better note, there is a change to the tax code that might be helpful for those with a retirement account. This year, the contribution that you make to those accounts, including 401(k)s and IRAs could be deductible on your income tax return for next year. These are the 2019 contribution limits:
- 401(k) base contribution: $19,000 (up from $18,500 last year)
- 401(k) catch-up contribution (for taxpayers age 50 and older): additional $6,000 (unchanged)
- IRA base contribution: $6,000 (up from $5,500)
- IRA catch-up contribution (for taxpayers age 50 and older): additional $1,000 (unchanged)
If you want to stay up to date with all the changes and updates to the tax code, don’t forget to get in touch with your tax advisor. They are the experts and can help you take advantage of all these changes and modifications.