As we enter the latter part of January many consumers in the U.S. and other parts of the world are gearing up for the filing of their 2018 income tax returns…
Learn about the latest tax news so that you can avoid the financial blues…
In this discussion TheWealthIncreaser.com will look at and discuss a number of critical areas of taxes that could help you maximize your tax position in 2019 and beyond.
In order to achieve more and maximize your personal income tax return it is important that you have knowledge of—and a practical understanding of how you can do the following more effectively:
Use the New Tax Rates to Your Advantage
If you are an individual and do not have majority ownership in a C corporation or S Corporation–your maximum tax rate is 35% versus the maximum for a corporation of 21% due to the job and tax act of 2017.
That means if you have high income that puts you in the upper income tax brackets you could possibly reduce the taxation of your income by establishing a corporation or keeping your income in the corporation as opposed to receiving a salary if you now have a corporation.
There are a number of ways that you can strategize to lower your taxes by using the new tax rates to your advantage and it is up to you and your professional team to find ways to do just that.
If You are a Business Owner or Desire to be One You Must Understand the Forms of Ownership
Limited Liability Company (LLC)
Limited Liability Partnership (LLP)
You must know and understand fully that certain types of ownership allows you to shield your personal assets against the liabilities of your business.
If you are operating as a sole proprietor where you are using your social security number as your Federal ID you are putting yourself and your family in position to be personally liable for actions that may arise out of liabilities of your business.
Whether a pass through entity or a corporation will be of greatest benefit to you will depend on your unique tax and financial position, the type of business you operate, the state that you are in, your liability (risk) exposure and the path that you desire to take to reach your goals once you lay out all of your intentions–whether you decide yourself or you decide to use financial professionals.
IRA’s and other tax favored retirement plans retain those tax advantages in spite of the tax cut and jobs act of 2017. That means the “saver’s credit” and deductibility for a traditional IRA are still available.
In addition ROTH conversions can be done regardless of your income level and ROTH IRA’s still enjoy the tax free benefit upon withdrawal if done so according to IRS guidelines. Contributions remain tax free upon withdrawal.
A Health Savings Account may allow you to save more and meet your health care expenses in a tax efficient manner by allowing you to deduct the amount you contribute, allow your contributions to grow tax free and allow you to withdraw your earnings tax free when used for medical related expenses.
Be sure to give the “triple tax benefit” of HSA’s real consideration. In addition, be aware of the expenses that you will pay as that can eat away at your earnings. Be sure to shop for the best plan available based on your financial position and health saving goals.
The standard deduction has been increased for the 2018 tax year and many of those who once itemized will find that it is no longer to their advantage to do so.
Single is now at $12,000
Head of Household is now at $18,000
Married Filing Jointly is now at $24,000
Personal exemption eliminated for most—some dependents on your tax return may allow you to claim a $500 personal exemption.
Be sure to consider the effect on your state tax refund in determining whether to itemize or claim the standard deduction–as you may be surprised to find that a reduced itemized deduction at the federal level could still be to your benefit if you would get a higher overall refund or pay less in taxes when the federal and state amounts have been combined!
Long-Term Care (LTC) insurance that you pay, Medical Insurance that you pay, Health Care Insurance Premiums that you pay, Eye Care that you received during the year, Out of Pocket medical expenses that you pay for the year, Dental Expenses that you pay for the year, Prescription drugs that you purchase for the year, Mileage to and from your medical care destination and many other medical related expenses may all be deductible in 2018 if they exceed 7.5% of your AGI (Adjusted Gross Income–line 7 on page 2 of form 1040) and you itemize your deductions.
The AGI limit increases to 10% in 2019 and beyond unless Congress acts.
State income taxes and sales taxes, ad valorem taxes, property taxes and possibly other taxes may be deductible by you if you itemize and otherwise qualify.
Keep in mind that there are limitations on taxes in some instances—so keep that in mind—particularly if you are in a high tax state such as California, New York, New Jersey, Connecticut and several others.
Mortgage interest deduction is now limited to $750,000 down from 1 million.
New rules apply to deducting charitable contributions that are non-cash as you must provide additional documentation for donations valued over $250.
As for church donations and others that are in the form of cash the maximum percentage that you can deduct has changed, however the required documentation is basically the same.
2% AGI Deductions Eliminated
Tax related fees, investment fees, unreimbursed employee expenses (including automobile expenses) and other 2% of AGI deductions have been eliminated for the 2018 through 2025 tax years.
Social Security Income Threshold Increases
In tax year 2018 the maximum social security wage base is $128,500—however for the 2019 tax year that wage base will increase to $132,900 which means if you earned over $128,500 in 2018 you may see a tax increase in the amount of social security tax that you will pay (6.2% of the amount that is between $128,500 and $132,900 will now be taxed) when you file your 2019 taxes.
The Medicare portion limit did not change as a result of the tax cut and jobs act of 2017.
It is important that you realize that many changes have occurred over the past few years as it relates to your taxes and the filing of your tax return.
You will now sign on page one as opposed to page two. 1040EZ and 1040A no longer exist and you must use form 1040 to file your 2018 through 2026 tax returns.
In most instances you won’t claim exemptions, however the child tax credit has gone up to $2,000 per child with up to $1,400 of the credit refundable. Student loan interest deduction and other educational credits remain.
Whether it is the “Affordable Health Care Act” (penalty will be eliminated after the 2018 tax filing year) the “Tax Cut and Jobs Act of 2017” or any other incidental changes in the tax code—it is important that you put yourself and your family in position to take advantage of the changes and not let the changes take advantage of you.
Be sure to choose highly competent professionals and be sure to gain the knowledge that you need so that you can succeed.
Be sure to engage with professionals who have a track record of success, someone who encourages you to ask questions and are willing to spend the time that is necessary so that you can fully understand the questions you ask–and someone who adds value to your financial and overall life from this day forward!
By landing on this page alone—you are showing a real commitment toward success in you future and you are on a path to maximizing your tax knowledge in a way that will put you and your family in position to achieve more throughout your lifetime.
You will put yourself in position to know how the recent tax changes over the past few years will affect you and your family—thus giving you the opportunity to plan proactively and improve the likelihood that you will achieve your goals.
You no longer have to let your ignorance of the tax laws, immaturity in approaching your finances, insecurity in approaching your finances or the inability to approach your finances due to fear–lead to idleness and not moving forward in the financial realm of your life!
Today is the day that the Five “I’s” die—and you more than just try!
Today is the day that you pursue a new road to success that has fewer turns and less stress—and allows you to give it your best!
All the best to your new tax knowledge and new road to success…
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