The start of a new year is a great time to start fresh with your finances, especially when it comes to financial decisions that could have serious tax consequences. As 2019 begins, here are seven tax tips from a Boca Raton CPA that could save you money in the new year.
Make Changes to Your 2019 Withholding
The new tax law which took effect last year will affect individual taxpayers with the elimination of personal exemptions, increasing the standard deduction and a reduction in tax rates. As a result of these modifications you should review and if necessary adjust your withholding to take these changes into account. Starting in the 2018 tax year, the 15% bracket has been lowered to 12%, the 25% bracket to 22%, the 28% bracket to 24%, the 33% bracket to 32%, and the 39.6% bracket to 37%. The standard deduction has also been almost doubled for both singles and married couples filing jointly.
Maximize Your 401(k) Contribution
In 2019, the maximum an employee could contribute to his or her 401(k) plan is $19,000, a $500 increase from the 2018 amount. Thus, if you want to contribute the maximum amount you should plan to adjust your contribution accordingly. The catch up contribution of $6,000 for taxpayers 50 years of age or older is unchanged.
Maximize Your IRA Contribution
Similar to a 401(k), contributions to an IRA have increased by $500 to a maximum of $6,000. For taxpayers age 50 and over the catch up contribution of $1,000 remains unchanged.
Be Careful With the Price of a New Home Purchase
New homebuyers in 2019 should be aware that the deduction for home mortgage interest is now limited to interest paid on mortgages up to $750,000. This is down from $1,000,000 in previous years. Under a grandfather rule, the new tax law does not affect mortgages of up to $1,000,000 taken out prior to December 16, 2017 or under a binding contract in effect before that date.
Be Selective When Choosing a Business Entity Type
If you’re starting a new business this year, choose your business entity type carefully so as to receive the maximum tax benefit under the new law. C corporations are now taxed at 21% (down from 35% in previous years), while pass-through entities such as LLCs, partnerships, and S corporations as well as sole proprietors will now be able to deduct up to 20% of their qualified business income.
Use a Reimbursed Employee Business Expense Plan
A major drawback to the new tax law is that employees are no longer able to deduct unreimbursed business expenses that they incur on behalf of their employers. Instead, you should ask your employer to set up a reimbursed employee business expense plan, wherein your employer reimburses you for out-of-pocket expenses you incur. Any money that you receive under a plan of this nature is not counted as income, and your employer can then deduct the business expenses.
Getting Divorced? Get Ready for Changes in Alimony Taxation
Under the new tax law alimony payments will no longer be deductible for the payer, nor will they be taxable income for the recipient. This applies to divorce decrees issued and modifications made after December 31, 2018. It’s important to remember that the new rules do not apply to decrees issued before 2019.
Contact a Boca Raton CPA
For even more tips and strategies to save money on taxes in 2019, or to discuss your situation with a Boca Raton CPA, contact East Coast Tax Consulting Group by filling out our online form or calling us at 866-550-7655.