IT’S TAX SEASON
WHAT TAX INFO YOU NEED TO KNOW FOR 2019
Tax season is here. Hopefully, you have been keeping track of all of your mileage and receipts. You won’t receive your W2 or 1099 until early 2020, but you can prepare for the onslaught of tax documents by preparing throughout 2019.
Tax season can be very stressful, but if properly prepared and knowledgeable, filing your 2019 income tax return for the federal and state could be a breeze.
The IRS highly recommends all taxpayers have an organized recordkeeping system—electronic or paper. It is very efficient to keep all important tax documents in one place. The IRS also recommends to keep filed tax returns and all supporting documents for at least three years (in case of an audit).
If you moved during 2019, be sure to confirm and update with each employer or bank your current address so that important documents are not delayed.
Keep in mind that if your tax return has errors, it can take the IRS longer to process it. Nowadays, e-filing is the best way to go as the tax software will walk taxpayers through the steps of filling out the return and does all of the calculations for you.
If you don’t want the hassle of trying to figure out how to use e-filing software, it helps to have a good accountant working for you. Good accountants are hard to come by, so make sure that when you select your accountant to prepare your taxes for 2019, he or she is knowledgeable with all of the tax laws. It is highly recommended that you do not wait until the last minute (mid-April) to hire an accountant. Their fees can be pretty hefty during crunch time, so the earlier you find an accountant the cheaper they will be.
On the other hand, if you cannot afford an accountant or a commercial tax company, there are alternatives. Free File Alliance is a group of tax software companies that partner with the IRS to help taxpayers e-file their returns. You are capped at a certain income as your income cannot exceed $66,000 per year. There is also the Volunteer Income Tax Assistance program or VITA which uses IRS-certified volunteers to offer free basic tax preparation and e-filing for those that earn less than $56,000 a year, are disabled and whose English is limited.
The following provides you with some information that you need to know for this upcoming tax season.
Personal Exemptions. A personal exemption is an amount of money that you could deduct for yourself and each dependent on your tax return. Personal exemptions have been eliminated for tax years 2018 through 2025.
Standard deductions. For married couples filing jointly in 2019, the deduction is $24,400. For singles and married individuals filing separately, that amount is $12,200. The head of household deduction is $18,350. For 2020 taxes, single and married filing separately, the deduction is $12,400. For married couples filing jointly, the deduction is $24,800, and the deduction for head of household in 2020 will be $18,650.
Income Tax Rates. The top tax rate of 37% affects individuals whose income exceeds $510,300. The income for married taxpayers filing a joint return is $612,350. Marginal tax rates for 2019 are as follows: 10 percent, 12 percent, 24 percent, 32 percent, 35 percent, and 37 percent.
Estate and Gift Taxes. For estate, gift, and generation-skipping taxes, there is an exemption of $11.40 million. The annual exclusion for gifts is $15,000.
Flexible Spending Account (FSA). FSA increased its limit to $2,700 in 2019 ($2,650 in 2018) and strictly applies only to salary reduction contributions under a health FSA. The FSA website uses the term “taxable year,” and that refers to the period during which salary reduction elections are made.
Long-Term Capital Gains. Taxpayers whose income is below $39,375 (single) and $78,750 (married filing jointly) pay 0% capital gains tax. For individuals who make $434,550 or more ($488,850 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.
Miscellaneous Deductions. Those that exceed 2 percent of the adjusted gross income are eliminated for tax years 2018 through 2025. You will no longer be able to deduct on Schedule A expenses related to tax preparation, moving (except active-duty military on orders), looking for a job, or unreimbursed employee expenses such as tools, supplies, required uniforms, travel, and mileage. Miscellaneous deductions do not affect business owners as they can deduct business-related expenses on Schedule C.
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