TAX TIPS AND TRICKS TO UNDERSTANDING HOW TO FILE YOUR 2019 TAXES
One of the most stressful days of the year is approaching upon us, Tax Day. April 15 falls on a Wednesday this year, and for many Americans, this is more riddled with anxiety than holiday shopping (we won’t mention how many days until Christmas!). So instead of biting off all your nails and cuticles, and just prior to facing the situation head on (that is MI Tax CPA’s job), here are some tax tips to help you navigate through this otherwise exasperating time of the year. Below are 10 informational tips when approaching tax filing.
Something as Simple as your Address
This may sound silly, but one of the very first things that you need to make sure of PRIOR to receiving your forms from your employer is that they have the CORRECT address of you on file. Why? Because what you do not want to do is begin scrambling around for the forms, especially if you may have moved. The result could lead to your tax documents being delivered to the wrong address. We have all come to expect that the IRS requires that your W2s, and all other tax documents are postmarked by January 31st, so if you have yet to receive any or all of your material, the best tip is to immediately begin researching to see where the documents may be at.
Getting Ready and Organized Isn’t Just for YOU.
Piling up the paperwork at the start may be how you normally start your tax season, but gathering all the tax documents and organizing early is a less hairy situation. And by early, that means yesterday. The list of documentation you need are as follows:
- Personal information of you / dependents
- Income and Investment documents
- Business and self-employment records
- Receipts (medical / charitable contributions)
- Home ownership documentation
The best tip: Make sure you cover EVERYTHING.
Get to Know Your Bracket as if it were March Madness
Simply put, a tax bracket is a range of income that you will fall under. This actually changes so it does not fall behind inflation. To get a better insight of what tax bracket you fall under, you will need to understand what deductions are afforded to you. (more on that as you read on). You also have to comprehend that your taxable income is your adjusted gross income (aka AGI) minus your applicable tax deductions.
School yourself on The Standard Deduction
Everyone wants to pay less in taxes, and to do that, you have to educate yourself to find out how you can qualify for tax rates so you owe less to Uncle Sam. First off, the more deductions you have, the less you are taxed on your income. That in turn throws you into a lower tax bracket, and that means you qualify for lower tax rates to owe less.
A standard deduction may be a more sensible route for you to take, compared to the higher standard deduction, because that is the preset dollar amount that is subtracted from your AGI, which then determines your taxable income. Your filing status determines the amount that you can deduct. Below is the Standard Deduction chart you will fall under for 2019:
|FILING STATUS||STANDARD DEDUCTION AMOUNT|
|MARRIED FILING JOINTLY||$24,400.00|
|MARRIED FILING SEPARATELY||$12,000.00|
|HEAD OF HOUSEHOLD||$18,350.00|
|QUALIFYING WIDOW(ER) WITH DEPENDANT CHILDREN||$24,400.00|
FYI: there are restrictions on who is eligible for the standard deduction. For example, if you’re married, you file separate, and your spouse decides to go the itemized route, YOU are not eligible for the standard deduction.
The best tip: Prior to filing, Discuss and know all your options on how you can and cannot file.
Itemized Deductions are NOT What They Used to Be.
The TCJA (Tax Cuts & Jobs Act) of 2017 changed and/or eliminated several eligible deductions. That even includes the personal deduction that was just over $4000. These changes may make it more difficult to itemize your deductions to maximize on your savings. Your personal deductions should be more than your standard deductions to benefit from itemizing. To get a better scope of the situation, take a look at the column “Married but File Separately”, where your standard deduction is $24,400. Your itemized deductions need to be greater than that number of the itemizations to qualify. If the number falls below the $24,400, you would be better off taking the Standard Deduction.
If you’re paying on a mortgage / have exceedingly high medical bills / make charitable contributions, the itemized road may be the one to explore. Examples of what you can write off in 2019 are as follows.
- Medical expenses
- Mortgage interests
- Mortgage insurance premiums
- State and local taxes
- Personal property taxes
- Charitable Donations
Your best tip: (very similar to #4) You and your spouse must file the same way. If both of you choose to file separately, one cannot do the standard deduction, while the other itemizes their deductions. Discuss this with your spouse in great detail, prior to filing.
Tax Credits and Deductions are NOT One in the Same
Tax credits are actually different than the deductions that were previously mentioned. Tax credits directly impact the tax amount that you owe. Plus, a tax credit reduces the dollar amount – dollar for dollar.
There are such things as refundable and nonrefundable tax credits. Nonrefundable only reduces your tax liability to zero. For refundable tax credits, you can get a refund for the excessive amount.
Let’s paint a hypothetical to get an idea on how this turns out: You file Head of Household. Your AGI is $55,000.00. You take The Standard Deduction
($18,350.00). This now gets you taxed at $36,650.00. This puts you in the 10% and 12% brackets.
- 1st bracket of $13,850 is taxed at 10% tax > $1,385.
- The remaining is taxed at the 2nd bracket of 12% tax ($22,800) > $2,736.
- You have yet to apply any credits, and now you owe just over $4K in Federal Income Tax.
- You can then apply a child credit of $500.
- You now owe the IRS $3,621.00.
Other popular tax credits to look into to see if you qualify are as follows:
- Adoption credit
- American Opportunity Credit and Lifetime Learning Credit
- Child Tax Credit
- Child and Dependent Credit
- Earned Income Tax Credit
- Residential Energy Efficient Property Tax Credit
- Saver’s Credit
Tax Cuts and Jobs Act Changes is Essential to Remember
This is the second year where the TCJA of 2017 is impacting tax filing, so all the changes are still fresh, that you do not necessarily memorize all of it. Once again, here is a quick breakdown of just a few for you to remember for you:
- The Standard Deduction: nearly DOUBLED.
- There are no longer any personal exemptions.
- When it comes to itemizing your medical expenses, the 5% of your AGI on it has expired.
- If you decide to itemize, the maximum deduction on charitable cash donations to qualified organizations is 60% of your AGI.
- There is no penalty for not having health insurance as is previous years.
- Maximum child tax credit: $2000 per qualifying child.
- CAPTIAL GAINS TAX are lower for the majority, EXCEPT those in the highest Brackets.
And the Scammers Just Keep on Coming
As if regular robocalls were not enough to irritate you throughout your workday, during tax time, you have to be aware that there are robocalls that are tax scams. A frightening example is when the scammers claim to suspend your social security number. It is important that you understand to ignore and report these phone calls, as well as the scams that come across via email. If you actually have a concern about your taxes being at risk, that is when you view your tax information on your IRS form for the actual number.
Your best tip: Remember that the government does not operate that way.
Hire a Tax Professional
It cannot be stressed enough that hiring a tax professional is your best investment when it comes to understanding and filing your taxes. Numbers are complicated, and if you are not well versed in it, those forms that you have to fill out can look foreign to you. Couple that with all the 2019 tax rules and regulations, and a tax preparation service is looking like the best path for you.
Delaying Could be More Detrimental Than You Imagined.
While we want to put off on filing our taxes because we have a hunch we may owe money, what you need to avoid is being a victim of tax identity theft. Victims are actually not privy to this until it is too late, and that happens when they attempt to file and they cannot, because someone else already beat them to their identity and claimed their tax return!
If you know that you will owe taxes, filing at a later date won’t make the amount go away. The IRS will find you and collect, so you might as well bite the bullet and explore your options on how you can pay back. Remember, you can file an extension, apply for an installment agreement, or use alternate payment methods.
Your best tip: File your taxes early to avoid worst case scenario.
ABOUT MI TAX CPA
We are full-service CPA firm focused on people in Michigan and local businesses. We combine the convenience of an online tax service with the expertise of a personal CPA, so our clients know someone is looking out for their best interests come tax season. Unlike many tax shops and automated service, we take the time to explain the nuances of your financials, because everyone should know exactly what they paying and why. From a simple W-2, to a complicated tax return, everyone benefits from a trained eye of a certified public accountant. Our client-first approach is at the core of who are and what we do. Contact us today to tailor a plan that best suits your needs.