How did the TCJA change the standard deduction and itemized deductions?

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As of 2017, that standard deduction has been raised to $12,000 for single taxpayers and $24,000 for married taxpayers filing a joint return. Prior to the new tax law, nearly one quarter of Americans itemized their tax deductions. Millions of generous individuals used were able to increase their itemized deductions by charitable giving. TCJA significantly decreased the number of taxpayers claiming itemized deductions and the average tax saving from claiming them.

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The education deductions is “above the line,” so you don’t have to itemize in order to take advantage of it, but you need to make below a certain level of income to qualify. The standard deduction amount varies depending on your income, age, whether or not you are blind, and filing status and changes each year; see How Much Is My Standard Deduction? Services offered by Covenant Wealth Advisors, a fee only financial planner and registered investment adviser with offices in Richmond, Va and Williamsburg, Va. Investments involve risk and there is no guarantee that investments will appreciate.

Many employers offer qualified retirement savings plans such as 401(K), 403(b), and 457 plans to help attract qualified employees. If your employer offers one of these plans, this is one of the easiest ways for high-income earners to reduce taxes. Reductions occur directly on your paycheck and don’t even appear on your tax return. The income stated on IRS form 1040 is net of any pre-tax retirement plan contributions. Conversely, taxable income is adjusted gross income minus allowances for personal exemptions and itemized deductions, also known as below the line deductions.

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On the other hand, if your marginal tax rate is higher than the credit percentage, a deduction would benefit you more. The higher your income and top marginal tax bracket, the greater the tax savings provided by a deduction. The tax savings from a deduction is determined by applying your top marginal tax bracket percentage to the amount of the deduction.

• If you own property in one of these states, consider establishing your primary residence there.
• Remember that your entire income is not taxed at your maximum tax rate.
• Under federal law, if a taxpayer is required to repay an amount previously included in the federal return in an earlier year, the taxpayer may be able to deduct the amount repaid or take a tax credit.
• Home mortgage interest is the interest you paid on debt taken out to buy, build, or improve your home.
• You can adjust the assets in your portfolio to change the way your income is taxed.

At the end of the period, the bond is mature, and the original investment is returned to the buyer. Congratulations, you just made it through another hectic tax season! If you dread this yearly cycle or the feeling of not being prepared for tax season, then tax planning is an easy way to set yourself up for https://turbo-tax.org/3-ways-to-maximize-itemized-tax-deductions/ success in next year’s tax season. The standard deduction has gone up significantly in recent years, so you might find that it’s the better option for you now even if you’ve itemized in the past. Your tax software or tax advisor can run your return both ways to see which method produces a lower tax bill.

Standard deduction for dependents

If you are a high-income earner aged 50 plus with over $2 million saved for retirement, talk to a financial advisor today. We can help you find the right tax-reduction strategies to conserve your wealth and the right investments to achieve your goals. In December of 2019, https://turbo-tax.org/ additional tax legislation was passed including the new SECURE Act and Taxpayer Certainty and Disaster Tax Relief Act of 2019. “It’s always exciting to reap the rewards of hard work by getting a year-end bonus,” said Lisa Greene-Lewis, a CPA and tax expert with TurboTax.

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By entering your info into our forms, you are consenting to receive our email newsletter and/or calls regarding our products and services from Covenant Wealth Advisors.. Case studies presented are purely hypothetical examples only and do not represent actual clients or results. Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. We provide investment management, financial planning, and tax planning services to individuals age 50 plus with over $1 million in investments. Investments involve risk and does with possible loss of principal and does not guarantee that investments will appreciate. Once you know your taxable income, you can use the chart below to determine your federal tax bracket.

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• You’ll need to run the numbers to find out whether the amount you can itemize exceeds the standard deduction.
• For tax purposes, the IRS defines high-income earners as anybody who earns enough income to be in the top three tax brackets, as outlined above.
• If the amount of the home mortgage interest and real estate taxes paid by both spouses exceeds $20,000, these deductions must be prorated based on the percentage paid by each spouse.
• If you contribute to a tax-advantaged traditional retirement account (IRA, 401(k), etc.), you may owe less in taxes than if you did not contribute.
• The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions.
• Millions of generous individuals used were able to increase their itemized deductions by charitable giving.