Are you ready for the 2019 tax changes?
There are many reasons why the U.S. tax system is so complicated and ever-changing. Congress often uses taxes to influence policy, attract benefits, and more. This leads to a complex and confusing world of taxation for the average citizen. However, staying abreast of tax changes can help you save money and avoid unpleasant experiences, like an audit.
Wondering how to avoid getting a tax surprise in 2019? Keep reading so you can get prepared for tax season!
1. Don't Forget The SALT
SALT, or state and local income tax deductions, is one of the biggest things slated to change in 2019. The recent tax changes have placed a cap on these deductions, meaning you can no longer deduct as much as you used to. This will largely affect people in states with both high taxes and high incomes, who will have bigger tax bills in 2019.
While states are working to find solutions so that people won't get hit with huge, unmanageable tax bills, it's not yet clear what those solutions might look like. Of course, moving to a different state can protect you from the worst of it, but that's a pretty drastic change. If you had relied on high SALT deductions in the past, prepare to pay more next year.
2. Check Your Withholdings
New tax laws also mean that the IRS has changed tax withholding tables. This can change the amount of income tax that gets withheld from your paycheck next year. The tables that have been released so far aren't comprehensive: there might still be other things that will affect your withholdings. However, chances are high that you'll need to withhold more from your paychecks now.
If you don't withhold enough, you may end up needing to pay penalties, or getting a smaller refund than you're used to.
3. Use College Savings In New Ways
There are now more permitted ways to use a 529 college savings plan, thanks to the new tax laws. This includes new ways to use these funds for pre-college education costs. However, not all states have followed the new federal tax guidelines regarding 529 plans. To stay safe, you should check whether your state opted in or out of these new rules.
Otherwise, your attempts to use this money might be counted as a non-qualified distribution, resulting in tax penalties that you don't want to pay.
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4. Check Your Deductions
Although the standard deduction has gone up for next year, itemized deductions have been reduced. In addition to the SALT cap, a lot of miscellaneous itemized deductions you might once have used have been done away with altogether. For example, you can no longer deduct investment fees. Itemizing may not make as much sense for you as it once did. Instead, you'll need to look for other tax savings strategies.
5. Do A Tax Mock-Up
Ask your accountant (you can also hire one for this specific purpose) to run mock returns for 2019. This will let you see how the new tax laws will affect you before the bill is actually due. Although it won't be a perfect picture, at least it will be close.
Other Ways To Take The Pain Out of Taxes
The newest tax changes add a new layer of complication to navigate. However, there are also a few basic ways to make preparing your taxes go smoothly every year. Here are some additional steps you should take when prepping for your 2019 taxes.
1. Consider An Accountant
Unless you yourself are an accountant, you wouldn't want to do your taxes without any help. Whether that help comes in the form of software or an accountant is up to you. Software can get you far, but there are some things an accountant is better suited for. If you do go with software, you'll need to decide whether a basic or premium version will best meet your needs.
Either way, buying early is smart. You might get a discount on your software if you buy it at the start of the year. Accountants get booked for tax season fast, so schedule yours early.
2. Use Apps To Your Advantage
There are countless financial and tax apps that will make your life easier. Research some highly-rated apps and download the ones that sound like they'll suit your needs best. Make sure you download them early. Don't wait till the last minute. You'll want the chance to get familiar with the software before you really need it. Plus, some of them offer helpful ways to track your expenses through the year.
3. Set Aside Time
Taking a day or two to focus just on your taxes is a good idea if you're not sending them off to an accountant. Make sure you'll have time to do this. You might need to schedule a vacation day. This is especially important for freelancers, business owners, and self-employed workers.
4. Organize Tax Documents
Your tax documents will start arriving at the beginning of the year. You might not be ready to start your taxes right away. You should have a folder set aside to keep all those documents ready for when you do need them. You should also keep relevant receipts, and any other documents you'll need when tax time arrives, in a folder. Save it even after your taxes are done, it will be helpful in case of an audit.
Don't Be Scared Of 2019 Tax Changes
Doing your taxes is never fun but if you prepare adequately, it doesn't need to be intimidating: it's just one more routine chore to check off your list. While the 2019 tax changes might slightly affect things, the basics of doing your taxes remain the same. Be prepared, start early, stay organized, and know when to hire an accountant.
Tax season can be stressful especially if you do not have your documents in order. Let us help you create your pay stub today!