Before diving into this article, I must give a brief disclaimer first: This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
In other words, we do not offer tax advice and you should discuss any tax issues with a qualified tax advisor.
As April 15th is quickly approaching, so is the final day to file your taxes and to make your 2018 contributions. We would like to take a quick opportunity to discuss some of the important tax updates as they apply to filing your taxes and the new rules around how much you can invest in tax-advantaged savings vehicles.
With that said, we understand some of this material – all of which is important – may be irrelevant depending on your specific tax/income situation, therefore I have laid out the content below, so you can skip around as you please.
- 2018 Tax Deadline and Extension
- Tax Rate Deductions in 2019
- Other 2019 Tax Changes (Standard Deduction Increase, Child Tax Credit Increase, and Capped Mortgage Interest Deductions)
- Increased Investment Plan Contributions (IRA and Roth IRA, 401k, and 529 Plans)
2018 Tax Deadline and Extension
Once again, April 15th is the final day to file your taxes. If you cannot make that deadline, you can file an extension.
In order to get that tax extension, you must fill out IRS Form 4868 and mail it in, or simply fill out the form online. Below I have outlined some tips from Nerd Wallet for filing that extension:
- If you mail in your form, get proof. “Lots of times the IRS will come back and say, ‘we never got it,’” warns New Port Beach agent Lee Reams.
- Check if your tax software supports Form 4868 – most do.
- If you don’t choose to use your own software, you can use the IRS’ Free File site.
- There are more tips on Nerd Wallet for those filing from overseas or those in the military.
Something to keep in mind regarding the extension: you must still pay your taxes by the April 15th deadline. The extension only allows you time to file for your return – anything paid after the deadline is subject to interest and a late penalty (Nerd Wallet).
With that said, the best approach to making the April deadline, is by getting on your tax preparer’s calendar in late February/early March and trying to be the first one in the door.
Tax Rate Deductions in 2019
2018 (taxes filed in 2019) marks the first year in which American citizens file under the new tax reform. Below, we have outlined some of the most impactful changes for the 2019 tax season.
There are still seven tax brackets, but the top rate has decreased. If you earned a top-rate taxable income in previous years at 39.6%, you’re down to 37%. The tables below lay out all tax bracket changes for both single and joint filers respectively.
Other 2019 Tax Changes
Standard Deduction Increase
Another major change taking place in the 2018 tax year, is a higher standard deduction. For joint filers, you can claim a deduction of $24,000 – nearly doubled from 2017. For single filers, standard deductions also nearly doubled, increasing to $12,000.
Child Tax Credit Increase
Among the changes is an increased child tax credit. This means, if you have a child under the age of 17, you may be eligible for a $2,000 tax credit. With that said, the government also increased the limits for those whom may be eligible for that credit. For joint filers, if you make less than $400,000 per year, you may be eligible for the $2,000 credit per child. As your income increases above that threshold, the tax credit decreases.
For more on child tax credit and other changes mentioned in this article, you can check out the IRS’ website directly.
Capped Mortgage Interest Deductions
OK, this change isn’t as beneficial as the others: mortgage interest deductions were capped. In other words, if you buy a $1 million house, you don’t get to write off all of the tax. Part of the reason they’ve increased the standard deduction to $24,000 is because they want people to stop itemizing as much as possible. Check with your tax professional about the portion of your mortgage that is still deductible.
Increased Investment Plan Contributions
Now, as far as increased investment plan contribution limits go, you have until April 15th to make your 2018 contributions. The reason for setting that date parallel to the tax deadline is some people may not be eligible for a Roth IRA and they won’t know until they file their taxes. Therefore, if you file your taxes and are eligible for the Roth, you can go back and make those contributions. This is something Denver Wealth Management can help you with if you need to make a 2018 contribution.
IRA and Roth IRA Plans
For 2019, the contribution limits for IRAs and Roth IRAs has increased. If you are under the age of 50, the limit increased from $5,500 to $6,000 – 50 or older, the limit increased from $6,500 to $7,000. In other words, the age 50 catch-up was and remains $1,000.
If you are making contributions to max out your IRAs, give us a call and stay on par with your retirement goals.
At a certain dollar amount of income, the government does not allow to contribute to Roth IRAs; for people filing jointly, that limit increased to $203,000 in 2019. For those making less than that, you can contribute to a Roth. There are a lot more details regarding this limit – if you have questions, again, give us a call and we’d be happy to help.
For your 401k plan at work, you can now contribute up to $19,000 per year, which is up from the $18,500 in 2018.
As mentioned by Zak in our last podcast episode, one thing that’s interesting to him is how people refer to student loans as good debt because you can deduct the interest. These people may not realize the maximum deduction for student loan interest is only $2,500.
For example, if you have $100,000 in student loan debt, and you’re paying 7% interest – or $7,000 – you can’t deduct that full 7%. On top of that, the deduction phases out for earners of more than $85,000. In other words, if you make more than $85,000 annually, you’re not eligible for the full deduction.
In 2019, you can contribute up to $15,000 per year into 529 plans before hitting the gift tax credit. If you really want to accelerate a 529 contribution, there are ways to do so for a child. Let’s say, you want to invest $50,000 in one year, you can talk to your tax preparer about ways to accelerate gift tax exclusions for up to $75,000 per individual.
Once again, we don’t do taxes nor give tax advice, but we do investments. Therefore, ff you have the chance to reduce your tax bill by contributing to a traditional IRA or if you’d like to receive tax-deferred growth by contributing to a Roth IRA, give us a call or explore our website – we would be happy to help.
I know this was a lot of information with some potentially confusing jargon throughout; if you have questions, please do not hesitate to reach out. Send us an email, give us a call at (303) 261-8015, or find us on Facebook or Twitter.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
No strategy assures success or protects against loss.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
The Roth IRA offers tax deferral on any earnings in the accounts. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may results in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in additional to current income tax.
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