Tax season is coming. For you, that might mean scrambling to review last year’s expenses, trying to decode changes from the new tax code, and figuring out how to itemize deductions for 2019.
In any case, there’s most likely one primary question on your mind–How do I maximize my savings? I recently sat down with Tommy McWilliams, Gluch Group’s trusted Certified Public Accountant, to ask a few questions about itemizing deductions, what you might qualify for, and the best approach to take if you run your own side business. Here’s what he had to say:
THE BAD NEWS
First, for the bad news: The qualified amount of principal for mortgage interest deduction has been decreased from $1.1 million to $750,000. So, if you’ve applied for any new loans after January 2019, you’re qualified to deduct interest from no more than $750,000 of loans (Note that this is not a change from 2018, but it is still a significant change that could affect you).
Likewise, a cap has also been placed on real estate tax deductions. You can deduct no more than $10,000 involving income taxes you pay to the state, real estate taxes that you pay on your primary residence, real estate taxes on investment properties, personal property taxes on vehicles, and more. This change has hit people in high tax jurisdictions (such as California, Oregon, New York, and New Jersey) particularly hard.
TO ITEMIZE, OR NOT TO ITEMIZE?
Now, for the big question: Should you itemize your deductions?
The standard deduction for single people has been raised to $12,000 a year; for married couples, it’s $24,000. That being the case, it doesn’t make sense to itemize your taxes unless you at least reach that standard deduction limit.
For example, as a married couple, you may have paid $10,000 in taxes and $14,000 in mortgage interest. Having reached the $24,000 limit, you’ll want to itemize.
ARE YOU MISSING POTENTIAL DEDUCTIONS FOR 2019?
If you’re a new homeowner, make sure to itemize all expenses associated with closing. When you purchase your house, you’ll receive a settlement statement with these costs, including commission paid to a real estate agent, insurance, HOA fees, etc. Many of these items may be deductible–Show them to a CPA or tax professional to make sure you don’t miss anything.
HOW ABOUT YOUR SIDE HUSTLE?
Finally, if you’ve got your own business or side hustle, consider what kind of framework will work best for you when it comes to tax season. Filing as an LLC can be a great option for just about anyone, but especially if you’re making less than $30,000 per year on your business. In most states, filing and processing fees are fairly inexpensive, and an LLC will give you a great degree of flexibility.
For example, if you decide that it would be better to file your tax return as an S corporation (even if you’re an LLC), you can do so in what’s called an S Corp Election.
WHY GOING TO A CPA WILL ULTIMATELY SAVE YOU CASH
Many people think of going to a Certified Public Accountant as an additional cost. In reality, a CPA can save you a ton of money by helping you get the most out of tax deductions. If you’d like to talk to Tommy about your deductions for 2019, you can email him at firstname.lastname@example.org.