Understanding the New 2019 Federal Income Tax Brackets And Rates

by Mounica Kota | Mar 4, 2019 | federal income tax, Standard Deduction, Tax benefits, Tax Planning, Tax Preparation

Understanding the New 2019 Federal Income Tax Brackets And Rates

Understanding the new 2019 federal income tax brackets and rates.The income tax filing season for 2018 is just around the corner. However, the IRS has gone one step ahead and published the modifications for the year 2019. The modifications include changes to the Federal Income Tax brackets and enhancement of limits for certain tax credits. The intent of these modifications is to make them inflation proof.

There are some chances that you might get confused, but don’t be. During the tax filing season, you would be primarily focusing on income tax related activities for the year 2018. The current modifications implemented by the IRS will be applicable from the 1^st of January. Which means, that you do not immediately have to worry about them. Your first focus should be to complete the tax returns for 2018 in a smooth manner.

Once you are done with filing your taxes for 2018, you can shift your focus to 2019. Since there are some modifications, you might have to make some changes with respect to tax estimations if you are self-employed or to your withholding taxes.

What is the need for changes?

There is a term called indexing in the tax code, which calls for regular modifications to the tax brackets. Every year the IRS adjusts the tax brackets so as to account for inflation. A good example of the same would be, if the inflation for the previous year was 2%, the enhanced tax brackets would be approximately 2%.

If you were to consider numbers, the following example would be a better representation. Take for an example that the taxable income for a bracket starts at $50,000. If the country were to witness inflation of 2% in the previous year, the IRS would adjust the same tax bracket to $51,000. The IRS usually rounds off the numbers. The IRS would usually round off the numbers in increments of $25, $50 or $100 depending on the needs.

The whole intent of these modifications is to get rid of a concept called bracket creep. According to bracket creep, you will end up getting into a higher tax bracket with raises in your pay. Even though the pay would be just enough to beat the inflation, you will end up paying higher taxes. Indexing ensures that you stay in the same tax bracket after accounting for inflation.

Till the year 2017, indexing would use the data from CPI or customer price index to adjust the inflations. However, the recently passed Tax Cuts and Jobs Act of 2017ensures that the C-CPI is considered for the indexing. C-CPI stands for Chained Consumer Price Index.

The indexing is not only applicable to tax brackets but also to other tax numbers such as alternative minimum tax and standard deduction etc.

Updated Tax Bracket

Following is the detailed tax bracket for the year 2019. With the help of indexing, the brackets have approximately gone up by 2%.

10% tax bracket
- For someone who is single and earns up to $9,700.
- For someone who is married filing jointly or any qualifying widow earning up to $19,400.
- For someone who is married filing separately earning up to $9,700.
- For someone who is the head of the household and earns up to $13,850.
12% tax bracket
- For someone who is single and earns between $9,701 and $39,475.
- For someone who is married filing jointly or any qualifying widow earning between $19,401 and $78,950.
- For someone who is married filing separately earning between $9,701 and $39,475.
- For someone who is the head of the household and earns between $13,851 and $52,850.
22% tax bracket
- For someone who is single and earns between $39,476 and $84,200.
- For someone who is married filing jointly or any qualifying widow earning between $78,951 and $168,400.
- For someone who is married filing separately earning between $39,476 and $84,200.
- For someone who is the head of the household and earns between $52,851 and $84,200.
24% tax bracket
- For someone who is single and earns between $84,201 and $160,725.
- For someone who is married filing jointly or any qualifying widow earning between $168,401 and $321,450.
- For someone who is married filing separately earning between $84,201 and $160,725.
- For someone who is the head of the household and earns between $84,201 and $160,700.
32% tax bracket
- For someone who is single and earns between $160,726 and $204,100.
- For someone who is married filing jointly or any qualifying widow earning between $321,451 and $408,200.
- For someone who is married filing separately earning between $160,726 and $204,100.
- For someone who is the head of the household and earns between $160,701 and $204,100.
35% tax bracket
- For someone who is single and earns between $204,101 and $510,300.
- For someone who is married filing jointly or any qualifying widow earning between $408,201 and $612,350.
- For someone who is married filing separately earning between $204,101 and $306,175.
- For someone who is the head of the household and earns between $204,101 and $510,300.
37% tax bracket
- For someone who is single and earns above $510,301.
- For someone who is married filing jointly or any qualifying widow earning above$612,351.
- For someone who is married filing separately earning above $306,176.
- For someone who is the head of the household and earns above $510,301.

Capital Gains

The taxation for capital gains works differently than income taxes. While there are about 7 tax brackets for income, there are merely 3 tax brackets when it comes to capital gains. And they range between 0 to 20%. People with considerable income from capital gains enjoy these benefits.

Since the capital gains tax is lower income tax, it is favorable for investors. The following is the updated tax brackets for capital gains.

0% tax rate
- For someone who is single, and the earning is less than $39,375.
- For someone who is married filing jointly, and the earning is less than $78,750.
- For someone who is the head of a household and the earning is less than $52,750.
15% tax rate
- For someone who is single, and the earning is between $39,376 and $434,550.
- For someone who is married filing jointly, and the earning is between $78,751 and $488,850.
- For someone who is the head of a household and the earning is less than $52,751 and $461,700.
20% tax rate
- For someone who is single, and the earning is above $434,551.
- For someone who is married filing jointly, and the earning is above $488,851.
- For someone who is the head of a household and the earning is above $461,701.

Standard Deductions

As per the new tax laws, personal exemptions have been completely eliminated. Until 2017, you could claim up to $4,050 for yourself, spouse or dependent children, it no longer is valid.

The standard deductions have replaced it and they are roughly twice the amount. The following is updated standard deduction.

Status of Filing	Fiscal Year 2018	Fiscal Year 2019
Single	$12,000	$12,200
Married filing jointly	$24,000	$24,400
Head of the household	$18,000	$18,350

Other Changes

Alternative Minimum Tax

The alternative minimum tax or AMT came into existence in the 1960s to levy taxes on individuals who took a lot of tax breaks. In the event that these individuals were to exceed a certain limit, the second set of taxes would be applicable if their income were to be calculated normally.

As per the tax code, there is an income exemption for AMT. Any amount below this would not be applicable. As is the case with all other figures, the AMT is also indexed for inflation. Following are the updated numbers.

For single taxpayers, the exemption amount stands at $71,700 and the phaseout begins at $510,300.
For taxpayers who are married and filing jointly, the exemption amount stands at $111,700 and the phaseout begins at $1,020,600.

Contributions Towards Retirement

For the year 2019, the base contribution levels are being increased by $500. Yet, the catchup contributions for individuals above 50 remains the same. This is how the retirement contributions will look like.

IRA contributions stand at $6,000 versus $5,500 for the previous year. There is also a provision of $1,000 as catch-up if you are older than 50 years.
For employer-sponsored plans, such as 401(k), 403(b), 457 etc. the amount is $19,000 which is an increase over the current $18,500. And you can opt for a $6,000 catchup if you are older than 50 years.

There are certain other modifications as well. Such as the lifetime gift and estate tax exemption will see an increase to $11.4 million from the current $11.18 million. The annual gift exclusion of $15,000 remains as it is.

Even though they might seem small, these modifications ensure that you are not impacted by the inflation. If you are currently occupied with the 2018 tax filing, it is better to return at a later date and revisit the clauses.

5 Tax Benefits that you can claim when you take care of YOUR PARENTS & RELATIVES

by Mounica Kota | Feb 28, 2019 | income tax, Tax benefits, Tax credits, Tax Planning, Tax Preparation

5 Tax Benefits that you can claim when you take care of YOUR PARENTS & RELATIVES?

Tax Benefits ,A considerable amount of your money can get into medical related expenses when it comes to taking care of parents or relatives. Here are the five Tax Benefits

According to Caring.com, a company that specialized in Bankrate, about 40% of caregivers spend about $5,000 a year on caregiving. Similarly, about 25% of people spend more than $10,000 per year on caregiving.

Though it is not the primary concern paying for caregiving expenses can help you avail some tax benefits. One of the key points that you need to be aware of is that your elderly parents are declared as dependents.

Here are some of the benefits that you can claim if you take care of your dependent parents or relatives.

Medical Expenses

Having elderly parents can result in quite a considerable sum of money being spent on medical expenses. You have the option of claiming them as Itemized Deductions in Schedule A of your income tax.

Itemized Deduction comes in handy if you have exceeded the standard deduction limit.
The total medical related expenses must be more than 7.5% of your total adjusted gross income for a fiscal year.
The expenses include hospital care, visit(s) to doctors, cost of prescription drugs and so on.
January 2019 onwards, you will be able to claim only unreimbursed medical expenses if they exceed 10% of your adjusted gross income.

Income Simulation

The IRS has set a few criteria that your parents must meet before you can declare them as dependents on your tax returns. Here are some of them.

Your parents should not have an income that exceeds the exemption amount for the year in question.
The IRS decides the exemption amount and the value might change year on year.
In the event, your parent(s) have income from dividends or interests, a portion of their social security might also be taxable.
The IRS publication 501 consists of the exemptions for the current year.

Providing Support

If you provide support to your parents for at least half of the fiscal year, there are a few tax benefits that you can avail. The following are some factors that you need to consider before determining the support amount.

You would need to find out a fair market value for the room. If someone were to rent the room out, how much would they pay for it?
The next step would be to include expenses related to food. One needs to be careful and not include utility bills, medical bills or other general expenses that you incur.
The amount that you want to claim as support should exceed the income of your parent(s) by a minimum of $1.
A comparison between the income that they receive, social security or other income and the support that you lend will paint a clearer picture of support requirements.

Care Credit

Dependent care is a non-refundable tax credit that you can benefit from. In the event that your parent is a qualifying individual, you can claim for it. Here is all that you need to be aware of.

Parents who are physically or mentally unable to take care of themselves are qualified individuals.
You should have an income and certain work-related expenses to show, so as to qualify for the tax credit.
You should be able to identify your care provider properly.

Supporting Siblings

In the event that you support your parents along with siblings, you can claim the amount as well. The only condition being that each sibling must contribute to at least 10% of the total support expenses.

The above tax benefits will aid you in taking care of dependent parents or relatives.

10 Things you should know about College tax Savings Plan for?

by Mounica Kota | Feb 26, 2019 | Education, tax deductions, tax filing, Tax Planning, tax return

10 Things you should know about College tax Savings Plan for?

College Tax Savings Plan Let’s face it. College and education, in general, are getting expensive. This means that saving for your children’s future can be a daunting task. It is only natural that one looks for as much help as possible.

Should you look at investing in a 529 college savings plan? American parents who have kids, save on an average $18,135 for college. And about 30% of these savings go into a college savings plan. While the average savings in the plan was $2,280 in 2016, it has nearly doubled to $5,441.

General savings account for another 22% for college-related funds. While 14% are investment related savings. More parents are opting to invest in a college savings plan and here are some important facts that you should be aware of.

Anyone can open a 529 college savings plan and invest in one of the instruments.
Though people usually associate a 529 plan with college tuition, it does much more than that.
Amendments to the tax laws recently, allow individuals to withdraw up to $10,000 from a 529 for the purpose of K-12 tuition expenses.
The plan is not limited only for kids or teenagers. You can open an account and start saving for graduation or higher studies.
A single tax filer can contribute as much as $15,000 for a year as tax-free in a 529 plan. For married couples filing jointly, the amount is $30,000.
You also have the option to contribute $75,000 into a 529 plan up front for 5 years. For married couples filing jointly, the amount is $150,000.
529 plan is similar to mutual funds in some ways, as you have the option to purchase them on your own or take the help of a financial advisor.
You can buy a 529 plan depending on the age of your kid, however, you should also look at the past returns and volatility. Some plans can be very aggressive for you, while others can be quite conservative.
Before you start saving into a 529 plan, it is essential to go through all the terms and conditions. You should be aware of the plan’s ins and outs along with any limits that the provider imposes.
Another crucial aspect that you should not miss at any cost is the enrolment fees of the plan along with any annual fees.

Since there are different 529 plans that you can choose from, it is important to delve into the details. Try to look for a plan that offers state-level tax breaks. You should also look at the expense ratio of the plan. A higher ratio would eat into your profits.

There are some cases where your kids might not need to use the 529 plan. What happens to the fund in such cases? Well, you can always transfer the fund to someone in the family. If that is also not possible, you can withdraw the fund yourself. But keep in mind, that you will have to pay a 10% penalty for not using it for educational purposes.

A fundamental of any investment is the minor fluctuation with the market. And 529 plans aren’t immune to that. Thus, it is important that you look into the assets that a fund is investing it.

If you have a short term in your hands, take four or five years for an example, and you invest it entirely in stocks, that might be a bad idea. A big swing in the market can nullify your funds. Thus, take the duration and risk appetite into consideration before investing.

3 things to do if you did not file your FBAR/FATCA

by Mounica Kota | Feb 23, 2019 | FATCA, FBAR, Tax Payers, Tax Planning, Tax Preparation

3 things to do if you did not file your FBAR/FATCA

The major requirement under The FBAR/FATCA is to find out the financial assets of the U.S. citizens outside the country. All financial institutions outside the U.S. need to find out the records of customers with the U.S as their place of the birth & report about their assets to the U.S. Department of the treasury.

FBAR stands for Foreign Bank Account Report which must be filed with the Financial Crimes Enforcement Network (FinCEN) by U.S. citizens who are authorized signatories or financial interest holders in any foreign financial account, where the account can be either a bank account or a mutual fund.

Filing for FBAR is different from general filing for tax returns with IRS and is generally done electronically by E-Filing system.

Unfortunately, there are cases of U.S. citizens being unaware of the filing for FBAR and being penalized by the Government. So, if you have missed out filing for FBAR by any chance you can follow the below-mentioned procedures.

Streamlined Filing Compliance Procedures–

This method is applicable:

If you have unknowingly missed foreign assets declaration
Made any mistakes while filing FBAR forms
If you are non-tax compliant for all foreign accounts which will be mentioned in your FBAR declaration.

In this method, the taxpayer is allowed to amend or make changes in the last 3 years of tax returns & the last 6 years of not reported FBAR declarations.

Offshore Voluntary Disclosure Program–

In this method, the IRS provides another opportunity to the non-tax compliant citizens to disclose their foreign financial assets voluntarily before the IRS finds out and implements criminal prosecution.

However, there are penalties associated with this method but can be reduced to a certain extent.

Delinquent International Information Return Submission Procedures-

The taxpayers who opt for this method need to file the International Information Return by providing a statement of all facts which justify the reason for the failure of non-compliance.
Usually, those citizens who have reasonable causes for non-compliance & have not been contacted by IRS yet for any penalties can use this method.

The FATCA also instructs citizens to self- report about their non-U.S. assets to the IRS (Internal Revenue Service). The entire motive behind this law is to prevent tax evasion. Several methods are used by the citizens to avoid paying taxes like making a tax-advantaged investment, plans or opening tax-advantaged accounts.

The Health Savings Account (HSA) is one of the best examples of tax-advantaged accounts in which the contributed funds are tax-exempted. Since these accounts are not liable to taxation citizens contribute more & more to these accounts.

As per current statistics reports, there are approximately 22 million HSA accounts holding over $45 billion in assets. The HSA accounts have grown by 8.3 billion dollars which results in a year over year increase of 22% in assets.

Another such tax-advantaged plan is the Child Tax Credit. This credit amount is given to the taxpayer at the end of the tax year for every dependent child below the age of 17 and satisfying other mandatory criteria like citizenship test, family income test, relationship test etc.

The new Child tax credit for tax years after 2017 is up to $ 2000 per qualifying child with a refundable amount up to $1400. As per recent reports, around 60 million children from 35 million families are saving taxes using the Child tax credit. In the U.S, the state and local tax deduction is one of the major tax expenditures.

However, all these procedures & methods enlisted are not simple and will need professional guidance as well. Hence, to have a hassle –free financial life it is always advisable to be compliant with the tax payments.

3 Tax Investments that I can make AFTER 12/31?

by Mounica Kota | Feb 18, 2019 | Investment & Income, Tax Planning

3 Tax Investments that I can make AFTER 12/31?

Tax Investements,Let us consider that you have some idle cash lying in your bank account. Where would you invest them, so as to get tax benefits and make the most of the money? With so many options out there, it can be a bit overwhelming.

Of course, you can go on a trip or buy something new for the house. But would it be the ideal way to utilize your funds? Certainly not. To make matters easier for you, we have come up with a list of smart tax investments that you can make post 31^st of December.

HSA

The HSA or Health Savings Account is a good way to park any additional cash that you might have in your possession. Here are some of the crucial details.

The IRA allows you to park about $10,000 per year in HSA.
The HSA account is available for families that have health plans with high deductibles.
Your investment amount sits in the HSA account and grows until you decide to withdraw the money.
You can withdraw the HSA found once you reach the age of 65 without any penalties, thus allowing you to even use the funds for retirement.
The contributions that you make towards HSA can be deducted for taxes.
The money in the account grows tax-free and so is the withdrawal.

Roth IRA

A lot of individuals qualify for Roth IRA but do not utilize the available option. Roth IRA is a great investment option for the following reasons.

You can contribute as much as $6,000 per year or $7,000 if you are above 50 years old.
The investments in Roth IRA are post-tax dollars.
The money grows tax-free in Roth IRA.
When you withdraw the money in retirement, it is tax-free since you would have already paid taxes on the contributions made.
There are certain earning thresholds which bar individuals to invest in Roth IRA directly. For example, the phaseout for Roth IRA for 2019 begins at $122,000 for single taxpayers and $193,000 for married filing jointly.
Importantly, you can continue investing in both Roth IRA and 401(k).

Traditional IRA

Investments in traditional IRA is similar to that of Roth IRA baring some differences. In the end, it is your personal preference when it comes to choosing which IRA is better. The following details should help you choose better.

You can contribute $5,000 per year into the traditional IRA.
Claiming traditional IRA will bring down your adjusted gross income and thus your tax liability.
The contributions can grow tax-deferred and you can even withdraw the funds without paying any taxes if they are done a bit late.
You can set up a traditional IRA, even if you have another retirement plan in place.
You have the option to pass on the assets to beneficiaries after death.
The age limit for contributing to the traditional IRA is 70 1/2 years.
While everyone can open a traditional IRA, the tax deductions vary. Single taxpayers who already have an employer-based retirement plan and earn $56,000 or less are eligible for a full deduction. Married filing jointly status individuals have a similar threshold of $89,000.

These investment options let you save money in the form of taxes and yet allow your assets to grow over time. In the year 2017, HSA grew by $8.3 Billion. In numbers perspective that is about 22% year on year growth. You can also invest and let your corpus grow.

4 Tax Benefits that you should not miss if YOU ARE PARENT

by Mounica Kota | Feb 11, 2019 | Investment & Income, Tax Planning, Tax Refund

4 Tax Benefits that you should not miss if YOU ARE PARENT?

4 Tax Benefits ,Being a parent is not easy and not is it cost-effective. Tax creditRight from the moment of birth, you must endure expenses such as diapers, baby food, toys and other essentials. It is possible that one might get a bit exhausted and hope for a quick break.

Well, the quick break is there for your taking in the form of tax benefits.You can claim your parenting related expenses, which will in turn lower your liable taxes via deductions and tax credits. Here is a list of few tax benefits that you as a Parent should not miss or ignore.

Child Tax Credit

Tax credits essentially lower your taxes dollar for every dollar spent. If you have a few kids, you can use these tax credits to lower your taxes by a considerable margin. However, you can claim the credits for only qualifying children. Here are a few conditions.

You children must be below 18 years of age.
Your children must be a citizen of the USA, or a resident alien or a national.
You must declare your children as dependent on your tax claims.
Your children must be living with you for at least half of a financial year.
You can declare your own children, step children, foster children, half brother or sister, or a dependent such as grandchildren as your dependents.

You can claim the credits for several children, as long as you declare them as dependent and they are not listed as dependenton anyone else’s tax filing.

Adoption Tax Credit

With the help of adoption tax credit, you can easily offset some of the expenses related to adopting a child. Of course, there are few limitations when it comes to income and amount that you can claim per child. Here are a few expenses that you can claim under this clause.

Travel expenses related to court.
Food expenses related to court.
Attorney and court related fees.

In the event that you adopt a child with special needs, you can claim the entire Adoption tax credit. Irrespective of whether or not it surpasses your actual expenses. Since it is non-refundable, you must ensure that it doesn’t exceed your actual tax liability.

Higher Education Credits

Sending your kid for higher education is not cheap these days. Here are two credits that you can avail.

Lifetime Learning Credit (LLC)
American Opportunity Tax Credit (AOTC)

You can use the AOTC for up to four years, whereas the LLC can be carried forward as long as your kid pursues education.

The following expenses qualify for the above credits.

Tuition fees
Enrollment related fees
Expenses related to school materials

There are certain clauses in AOTC, which allows you for tax credit even if that results in zero tax liabilities.

Student Loan Deduction

You can avail deductions in your tax filing based on the payments that you have made for student loans. Since it is a deduction, you can reduce your net taxable income and thus lower the taxes.Here are a couple of conditions that are applicable.

A student loan should come from a qualified institution.
The loan should not be from any relative.
There are certain income limits that apply to deductions.
Your child’s enrollment for the degree should be more than half of the duration.

For the fiscal year 2016, as many as 19,273,883 taxpayers had opted for child tax credit. You can be one of them and save your hard earned money.

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