What Do the New Tax Laws Mean for You?

With tax season in full swing, Americans across the country are hunkering down among piles of records and receipts to settle the score with Uncle Sam. While most of us dread the inevitable paper pushing, it’s crucial that we all take the time to understand the complex tax law and approach tax planning as a year-round activity to maximize money saving options.

With April 15 quickly approaching and this year being the first filing season under the new tax law, here are noteworthy modifications to be aware of to optimize your 2018 tax return and manage your 2019 taxable income.

New Withholding Rules: The new law made changes to the tax withholding rules that together served to reduce overpayment to the federal government by taxpayers. As a result, some taxpayers are finding they didn’t have enough taken out during the year to cover their tax obligation. Check your withholding to make sure you’re having the right amount of money withheld in 2019. 

Reduce your taxes for 2018: If you didn’t have enough taken out in 2018 or simply need to reduce your taxable income, consider one of two long-term investment and tax savings strategies: funding a health savings account (HSA) and/or an individual retirement account (IRA) by tax day. HSA contributions are deductible, investment gains are tax-deferred and distributions used for qualified medical expenses are not counted as part of your gross income. You can also fund an IRA with up to $5,500, plus people over age 50 can add an additional contribution of $1,000 depending on income limits. Before setting up an HSA or IRA, speak with a knowledgeable tax professional who can review your tax situation and retirement needs.

The New Standard Deduction: The standard deduction is a dollar amount that you’re able to deduct from your taxable income. The new tax law has nearly doubled the standard deduction – from $6,350 to $12,000 for an individual and from $12,700 to $24,000 for married couples – but it also removed personal exemptions and limited or discontinued certain deductions. If you’re single and itemizing your deductions, unless the total exceeds $12,000, consider the standard deduction instead. TurboTax estimates that nearly 90 percent of taxpayers will now take a standard deduction, up from approximately 70 percent in previous years. 

New limits on State and Local Tax (SALT) Deductions: Per the new law, deductions are limited to just $10,000 of your combined property and state income taxes. Colorado has a flat income tax rate of 4.63 percent and some of the lowest residential property taxes in the country, with an average effective rate of just .57 percent. A study by WalletHub indicates the annual property taxes in Colorado on the median value home are $1,575. 

New Cap on Mortgage Interest Deduction: The new tax law limits mortgage interest rate deductions to interest up to $750,000 of acquisition indebtedness and repeals the deduction for HELOC, except on expenses directly tied to home improvement.

Revised Tax Bracket for Married Couples: Married couples will appreciate the removal of the marriage penalty this tax season. Before the tax reform, some married taxpayers were bumped into a higher tax bracket when they combined their incomes. The new tax brackets have doubled for people filing jointly.

Increased Child Tax Credit: Prior to the new tax law, parents who made less than $110,000 jointly and $75,000 individually received a $1,000 tax credit for qualified children under age 17. Now, that credit has increased to $2,000 and the income limits were raised to $400,000 jointly and $200,000 individually.

Another Reason to Give: If there wasn’t enough incentive for charitable giving before, there is now. Before the reform, taxpayers were able to deduct up to half of their income in qualified charitable donations. The new limit has been increased to 60 percent of your income.

Given the sweeping changes of the new tax law, it’s important to stay up-to-date and informed on tax implications. The more you’re able to understand how the law impacts you personally, the better equipped you’ll be to manage your financial decisions year-round. If you need guidance on how to navigate the new tax law and customize the best plan for yourself, consult a financial or tax advisor for help – having an unbiased third-party to offer advice and expertise can be invaluable in aligning and prioritizing your financial goals.

Mike Jones is a Northwestern Mutual Wealth Management Advisor and the founder of Jones Financial. Mike began his career at Northwestern Mutual as a college intern in 1997 and transitioned to a full time Financial Representative in January of 2000. Together with his team, Mike helps business owners, families and individuals discover and implement strategies designed to secure their future with personalized, comprehensive financial planning. His unique approach of combining insurance and investment solutions has helped many of his clients accumulate wealth, prepare for retirement and address other financial goals while protecting their families in the process. Mike can be reached at 720-963-6896 or [email protected].

Disclosure:This publication is not intended as legal or tax advice. Northwestern Mutual Advisors do not give legal or tax advice. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor.

G Michael Jones uses Jones Financial as a marketing name for doing business as a representative of Northwestern Mutual. Jones Financial is not a registered investment advisor, broker-dealer, insurance agency or federal savings bank. Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities, and life insurance with long-term care benefits) and its subsidiaries. G Michael Jones is a Representative of Northwestern Mutual Wealth Management Company^® (NMWMC), Milwaukee, WI (fiduciary and fee-based financial planning services), a subsidiary of NM and federal savings bank. All NMWMC products and services are offered only by properly credentialed Representatives who operate from agency offices of NMWMC. Representative is a District Agent of NM and Northwestern Long Term Care Insurance Company, Milwaukee, WI, (long-term care insurance) a subsidiary of NM, and a Registered Representative of Northwestern Mutual Investment Services, LLC (NMIS) (securities), a subsidiary of NM, registered investment advisor, broker-dealer and member of FINRA and SIPC.