FIREd: The Must Know Info for 2019

FIREd: The Must Know Info for 2019

2018-2025 will go down as a unique set of years in our fiscal lives. I feel safe saying that economically these will be the best financial years of our lives because the tax breaks you are now seeing in your 2018 tax filings have an expiration date!

There is so much to look at but I want to highlight a few key things that EVERYONE SHOULD KNOW:

First, the difference between Tax Credit and Tax Deduction:
Tax credits – dollar-for dollar reduction. A $1,000 tax credit saves $1,000 in taxes.
Tax deductions – lower your taxable income based on your marginal tax bracket. If you are in the 25% tax bracket, a $1,000 deduction saves you $250 in tax

Obviously credits are better. Don’t miss any when you file your taxes

What is your marginal tax rate? What is your effective tax rate?

If you make an ADJUSTED GROSS INCOME (All earnings minus traditional 401k/403b/457b and IRA, HSA/FSA, childcare FSA, investment losses) highlighted above, try to use these deductions to fall below the highlighted line.

What does that look like?

This means that if you are married in 2019, you don’t have to pay taxes on an extra $400 of income

Got kids? You are eligible for the Child Tax Credit, which was doubled to $2,000 per qualifying child under age 17. As much as $1,400 of this amount is refundable, even if you don’t pay taxes.

Certain tax deductions were deleted:
The goal of the tax reform was to cut taxes and to simplify the U.S. tax code. These are just a few side effects…

Moving expenses – gone, except for moves for active-duty military service.
Casualty and theft losses – Now, the deduction only applies to federally declared disaster.
Unreimbursed employee expenses (except for schoolteachers),
Tax prep
Wealth management and fund fees
Parking/Transit fees
Lastly, my favorite: Donations to colleges to get athletic game tickets! WHY WAS THIS EVER A THING!?!?!?

Certain tax deductions were kept (kept for the middle class, that is):

Capital gains and qualified dividend taxes
The Child and Dependent Care Credit
The American Opportunity Credit
The Lifetime Learning Credit
The Student Loan Interest deduction
Tax deductions for retirement savings

Sources IRS and The Motley Fool

That’s a wrap for now! Have a healthy, wealthy 2019

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