April 15 is going to be here before you know it, and unless you’re among the few that have already filed their 2019 income taxes, it’s time to start thinking about them now.
So, gather up your tax documents and statements, confirm the appointment with your accountant (or set aside a few hours to do them yourself), and read these tax prep tips so that you’re not totally blindsided or in a mad scramble come April. Here’s a look:
Tax Credits vs. Tax Deductions
Let’s start with the basics — the different between tax credits and tax deductions. These two terms often get thrown around interchangeably, but they’re not at all the same. Tax deductions reduce the amount of income that you owe taxes on. And while deductions might be a little bit less valuable following the Tax Cuts and Jobs Act of 2017 that about doubled the standard deduction for both single and joint filers, it’s still important to know the difference between deductions and credits.
Credits, conversely, are more valuable and either work to reduce your final tax bill or increase the refund you’re owed. For example, if you owe the IRS $1,000, but have $1,500 in tax credits, you’ll be owed a refund of $500 in the end. You can receive tax credits for claiming children as dependents or qualifying for the Earned Income Tax Credit, among others.
Two Types of Deductions
There are two types of deductions — above the line ones and below the line ones. Here’s a closer look at each of them:
- Below the line: Like we noted earlier, below the line deductions aren’t as commonly utilized any longer, as it comes down to either itemizing your deductions or taking the standard deduction. And being that the standard deduction is about double what it once was and there are caps on certain itemizations, most filers just take the standard deduction. Mortgage interest, charitable donations and medical expenses are examples of below the line deductions.
- Above the line: These are deductions that you can claim even after you’ve either itemized your below the line deductions or taken the standard deduction. These include things like student loan interest, moving expenses and IRA contributions.
Tax Brackets and Standard Deductions
Now that we’ve gone over deductions vs. credits and the types of deductions, let’s take a look at 2019 tax rates. These are based on annual income and range anywhere from 10 percent to 37 percent. Here’s a look at how much in taxes you’ll be required to pay based on what you earned in 2019. If you fall in the range between the previous tax bracket, you’ll be taxed the higher amount:
- 10 percent: Up to $9,700 (single) or $19,400 (joint)
- 12 percent: Up to $39,475 (single) or $78,950 (joint)
- 22 percent: Up to $84,200 (single) or $168,400 (joint)
- 24 percent: Up to $160,725 (single) or $321,450 (joint)
- 32 percent: Up to $204,100 (single) or $408,200 (joint)
- 35 percent: Up to $510,300 (single) or $612,350 (joint)
- 37 percent: $501,301 or more (single) or $612,315 or more (joint)
Now, on to standard deductions. You can either claim the standard deduction or itemize below the line deductions if your total is greater than the standard deduction:
- Single filers: $12,200
- Married filers (joint): $24,400
After filing your taxes, it’s always a good idea to perform a paycheck checkup so that you’re not caught off guard next year. Visit the IRS’ tax withholding estimator and enter your salary and income information, dependents and other prompted information to see if you’re withholding enough taxes from your paychecks. If you’re not, be sure to change your filing on your W-4 Form, which you can do by contacting someone in Human Resources at your company. Generally, the lower number of dependents you claim, the more taxes will be withheld from your paycheck.
While we get that this may not be much more than a simple review for some of you, it’s always a helpful one this time of year so you can enter tax season prepared and knowing what to expect. So, gather your W-2s and other important tax documents and get ready to file for 2019.