It’s tax season

Gary E. Croxall, CFP® Registered Principal of LPL Soren E. Croxall, CFP® Registered Representative of LPL Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA & SIPC. LPL Financial and Croxall Capital Planning do not provide tax or legal advice. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

As you check your mailbox, you’re probably starting to receive the first of several waves of tax forms. We figured it would be a good time to review some of the changes that occurred in the tax code starting in 2018 as well as a few “to do’s” so that you are prepared not only for tax season, but also for the 2019 tax year.

A Review of the Tax Cuts and Jobs Act of 2017 — At the end of 2017, Congress passed the Tax Cuts and Jobs Act. Under that piece of legislation, Congress slashed the top corporate tax rate for businesses from 35 percent down to 21 percent. They also made several changes that affect individual tax filers like you and me. On the broadest level, the individual tax brackets were changed. The top marginal tax bracket dropped from 39.6 percent to 37 percent. However, it’s important to point out while the cuts to corporate tax rates were made permanent under the Tax Cuts and Jobs Act, the changes to the individual tax rates will revert back to pre-2018 levels after 2025 if Congress does nothing between now and then.

The area where individual tax filers are most likely to see changes are with the elimination of the personal exemption and changes to itemized deductions. Before the Tax Cuts and Jobs Act, individual tax filers could claim all eligible family members depending on their tax filing status and multiply by the current personal exemption amount (which was $4,050 per qualifying family member in 2017). The personal exemption was eliminated in 2018 in favor of a higher standard deduction. Families who previously had multiple personal exemptions due to dependent children, may be able to offset some of the loss of the personal exemption with changes made to the Child Tax Credit.

If you previously itemized in the past, you could find that it may no longer make sense to continue itemizing based on the changes that were done to itemized deductions and the increase in the standard deduction amount. High state tax states like California were acutely affected by the changes to itemized deductions. The Tax Cuts and Jobs Act puts a cap on state and local tax deduction (including property taxes) at $10,000. Previously, you could deduct your state and local taxes without a cap. Also, the maximum size of the mortgage that you can deduct interest on dropped from $1,000,000 down to $750,000 (or $375,000 if you file as married filing separately). Charitable deductions still remain, but you must itemize to take advantage of this, which is why we had written previously about a Qualified Charitable Distribution as a possible alternative for taxpayers older than 70 1/2 with qualifying IRA accounts. Some other miscellaneous deductions that have been eliminated include deductions for unreimbursed employee expenses and also qualified moving expenses (except for members of the armed forces).

What Can You Do — The changes to the tax code under the Tax Cuts and Jobs Act mentioned in this article are a very broad overview. It’s important that you work with a qualified professional to assess how the tax law changes may affect you personally. Many tax filers may be surprised to learn when they go to file their 2018 tax return that they owe taxes because they under-withheld throughout last year. Do yourself a favor and double check your withholding for 2019 now and make adjustments accordingly. Again, a qualified professional can help you with a tax projection for 2019 if you need it. Also, don’t forget about IRA contributions before you file your 2018 tax return. You have until April 15 to make “prior year” contributions. For tax year 2018, the maximum contribution limit to an IRA is $5,500 if you are under 50 years old or $6,500 if you are over 50 years old. In 2019, the maximum contribution limit will increase to $6,000 for people under age 50 and $7,000 for people older than age 50.

Tax season can be stressful. Be proactive about gathering all of your documents and try not to wait until the last minute. Work with a qualified professional to better understand how recent tax law changes may have affected you.

Gary E. Croxall, CFP®

Registered Principal of LPL

Soren E. Croxall, CFP®

Registered Representative of LPL

Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA & SIPC. LPL Financial and Croxall Capital Planning do not provide tax or legal advice. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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