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5 Major Life Changes That Can Impact Taxes

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5 Major Life Changes That Can Impact Taxes
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Getting married, buying or selling property, having children, or retiring are big life changes and also can have a big impact on a taxpayer’s taxes. Simply put — life changes a person’s taxes. Jackson Hewitt encourages taxpayers to understand how major life changes in 2019 may bring credits and deductions that may lower a taxpayer’s tax burden or increases their refund.

“Life changes bring on more than a new baby, a new spouse, or a new house; they also bring major tax implications,” said Mark Steber, Chief Tax Officer at Jackson Hewitt. “At Jackson Hewitt, we enjoy celebrating life’s milestones with our clients, and our Tax Pros specialize in finding the extra credits and deductions associated with these changes.”

1. Having a baby

As long as a taxpayer had a baby any time in 2019 before midnight on December 31, 2019, they are eligible for the full credits and deductions available for the child, as if they’ve cared for the child since January 1, 2019. The Child Tax Credit is equal to $2,000 per dependent child under age 17, and the Child and Dependent Care credit can get you a credit on up to $3,000 of childcare costs for a child under age 13. Additional incentives like the Earned Income Tax Credit (EITC), which could result in a credit of up to $6,557, are available to those who qualify. If a taxpayer is a single parent and this is their first child, they may now be eligible for the Head of Household filing status.

To celebrate the babies who bring on these extra tax breaks, participating Jackson Hewitt locations are giving away free “Cutest Tax Break Ever” baby onesies. Taxpayers can call their local offices and see if onesies are available. To help spread the word and make sure taxpayers know how much life can change their taxes, Jackson Hewitt is encouraging clients to use the hashtag #TaxBreakBaby on social media.

2. Getting married (or divorced)

For taxpayers who are changing their filing status from single to married filing jointly or back to single, they could see a big change in their standard deduction. For the 2019 tax year, the standard deductions are:

  • Single/Married Filing Single*
    $12,200
  • Head of Household
    $18,350
  • Married Filing Jointly/Qualifying Widow(er)
    $24,400

*Married Filing Single may have to itemize and claim less than the standard deduction

3. Buying a home

With the increased standard deduction, it may not be beneficial for people who don’t own a home to itemize. But if a taxpayer bought a home in 2019 they may have more deductions making itemizing deductions greater than the standard deduction, and this could lower taxes more. The deductions for owning a home include mortgage interest and real estate property tax. Additionally, certain home improvements that make the home more energy efficient may generate tax credits now and utility savings in the future.

4. Getting an education

There are nearly a dozen tax benefits designed to help higher education students save money, from the American Opportunity Tax Credit to the Lifetime Learning Credit. Qualified expenses include tuition, books, supplies, and possibly travel costs related to college.

5. Retiring

Individuals with employment changes, including retirement, may be eligible for new deductions or filing requirements. For those that are self-employed, don’t miss out on often-overlooked deductions for qualified vehicle expenses, home office supplies, and more.

Taxpayers who experienced a major life change this year should be sure to talk to a Tax Pro to ensure they take advantage of the tax breaks associated with their life changes. Jackson Hewitt Tax Pros are ready to help hard-working taxpayers find every credit and deduction available to them. Visit jacksonhewitt.com/officelocator to find the nearest office location.

Business

Trump Lays Out 2nd Term Tax Cuts, Attacks Biden’s Tax Plan

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Trump Lays Out 2nd Term Tax Cuts, Attacks Biden’s Tax Plan

During a speech yesterday, President Trump laid waste to Joe Biden’s tax plan while also revealing new tax credits for companies that bring back jobs from China and other countries.

“This is the only election where somebody said ‘we’re going to raise your taxes,’ they’re going to raise your taxes – quadruple your taxes,” Trump said.

Biden has proposed a host of new taxes, primarily aimed at wealthy individuals and corporations. He did so at a time when the economy is struggling to recover from the coronavirus pandemic.

Shockingly, when asked why he would burden companies with more taxes while the country is struggling, Biden responded that it was “smart.”

In an interview on Sunday with ABC’s David Muir, Biden said “I will raise taxes for anybody making over $400,000. Let me tell you why I’m going to do it. It’s about time they start paying a fair share of the economic responsibility we have. The very wealthy should pay a fair share — corporations should pay a fair share.”

Biden then referred to businesses that make “close to a trillion dollars and pay no tax at all.”

Muir asked if it was a good idea to burden businesses with additional taxes while the economy is still trying to recover from the coronavirus crisis.

“It’s smart to tax businesses that in fact are making excessive amounts of money and paying no taxes,” Biden said.

Trump’s Plan

Instead of raising taxes, President Trump, an actual businessman, understands that lowering taxes will spur the economy to great heights.

President Trump wants to lower the capital gains tax rate, perhaps as low as 15%. With this, Treasury Secretary Steven Mnuchin told FOX Business he believes the change should be approved by Congress.

In comparison, Joe Biden wants to tax capital gains at the same rates as ordinary income. This means the rate could balloon to as much as 39.6% for the highest earners.

Trump is likely to reveal a second set of tax cuts prior to the election, which will likely include a “substantial” tax cut for middle-class Americans.

During an interview with CNBC, White House National Economic Director Larry Kudlow said a 15% tax rate for the middle class sounded like “a pretty good idea.”

Tens of millions of Americans are paying 22 percent or 24 percent. This means a cut to 15% would save them a lot of money.

Additionally, the Trump administration is looking into making some of the individual and corporate measures from the Tax Cuts and Jobs Act that are set to sunset in 2025 permanent.

A Biden presidency, as President Trump continues to point out, would bring about the “biggest tax increase in history.”

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Economy

Joe Biden’s Tax Plan Takes Aim At High Earners And Corporations

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Joe Biden’s Tax Plan Takes Aim At High Earners And Corporations

With Joe Biden officially becoming the Democratic nominee for president, it’s time to look at his tax policy and how it could affect the country. As expected, high-income earners and corporations are in the cross-hairs.

Higher Taxes on Wealthier Americans

Thus far, Biden has not pushed for a “wealth tax.” But he has expressed the desire to raise taxes on the wealthy. For instance, he wants to raise the highest personal income rate back to 39.6% after it was lowered to 37% by President Trump’s 2017 tax reform law. Biden also wants to cap itemized deductions for wealthier Americans, place stricter limits on “like-kind exchanges” by real estate investors, and phase-out the 20% deduction for qualified business income for high-income individuals.

He’s also expressed an interest in eliminating the step-up in basis for inherited capital assets, which will result in higher taxes on wealth passed to heirs, and raising the capital gains tax for individuals making over $1 million.

As we covered here, Biden would also increase Social Security payroll tax. Currently the limit is $137,700 in wages and salary. Any income above that amount isn’t subject to the payroll tax. Biden wants to add the tax to those who make more than $400,000.

Tax Breaks for Ordinary Americans

Biden has said he would expand the child and dependent care credit to $8,000 per child (up to $16,000) while also making it refundable and payable in advance. He would also forgive student loan debt and make that exclude the forgiven debt from taxes.

Other proposals include expanding the work opportunity tax credit to include military spouses,

increase worker’s access to 401(k) plans and offer tax credits to small businesses that offer retirement plans for their workers.

Health Care

Biden has said he would eliminate the income-based cap on the premium tax credit so the credit is available to all families who purchase insurance through an exchange. He would also base the credit on the cost of a gold-level health plan instead of the cheaper silver-level plan.

He would also impose a tax penalty on pharmaceutical companies that increase drug costs by more than the rate of inflation and take away their deduction for advertising expenses.

Senior Citizens

Low-wage workers over 65 years of age would be eligible to claim the earned income tax credit (currently, you can’t claim the credit if you’re over 65).

Corporate Taxes

Biden has said he wants to raise the corporate income tax rate from the current 21% up to 28%. He also wants a minimum tax rate of 15% on large corporations.

He also supports a “claw-back” provision that would force companies to return public investments and tax benefits if they eliminate jobs in the U.S. and send them overseas.

As National Economic Council Director Larry Kudlow stated, Democrats can talk all they want about the wealthy paying higher taxes. In the end, it’s always the middle class that gets stuck paying higher taxes, and Biden’s promises are no different.

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Business

President Trump Vows To Lower Capital Gains Taxes During Second Term

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President Trump Vows To Lower Capital Gains Taxes During Second Term

If he’s victorious in November, President Trump has vowed to lower capital gains taxes. He sees it as another way to help the country recover from the coronavirus pandemic.

During an appearance yesterday on Fox Business with host Maria Bartiromo, Trump said “I’m going to do a capital gains tax cut to 15% in the second term. We’re going to get it down to 15%. It’s at 21%. We’ll get that down to 15%. I’ll get that done easily.”

Taxes on long-term capital gains – when an asset is held for more than one year and then sold – range from 0-20%. The exact number depends on the individual’s income bracket. Wealthier investors also pay an additional 3.8%. Short-term capital gains – when an asset is held for less than one year and then sold – are taxed as ordinary income.

President Trump can’t slash the capital gains tax rate on his own as he would need the Congress. However, he can try to sidestep Congress by indexing any long-term capital gain to inflation.

Trump had floated the idea of indexing capital gains to inflation last year before ultimately pulling the plug. At the time he told reporters that the idea was “perceived as somewhat elitist” and “better support for upper-income groups.”

Lower Taxes and Capital Gains

By indexing capital gains to inflation, Trump is trying to lower taxes. In particular, he tries by making a portion of gains exempt by adjusting the original purchase price to match inflation.

The Tax Foundation has a relatively straight-forward example:

“Proposals to index capital gains can vary, but generally they allow individuals to gross up the basis of their assets when calculating their capital gains to account for changes in the price level over time. For example, if an individual purchased an asset for $100 on January 1, 2000 and sold that asset for $200 on July 1, 2018, the nominal capital gain would be $100. However, inflation over that period increased the price level by 49 percent. Under an indexing proposal, the individual would be able to gross up the basis of $100 by the total inflation during that period to $149. As a result, the individual would only be taxed on $51 instead of the full $100.”

Naturally, by lowering taxes the government would see a drop in revenue from collecting less taxes. Interestingly, the Tax Foundation says that the revenue drop will be somewhat muted. This may likely happen because individuals will be losing less of every dollar on taxes. Therefore, people will have more to spend.

“The increase in output due to the lower cost of capital would boost incomes, which would boost payroll revenue and slightly offset individual income tax revenue losses.” notes the Tax Foundation.

What to Expect From Opposition

And while Trump is doing everything he can to lower taxes, he warns that his opposition is going to raise taxes.

“They want to tax $4 trillion, it’s going to be the biggest tax increase in history by far,” Trump told Bartiromo. “They’re big taxers. It’s just something that won’t work. We’ll have – you will see a depression the likes of which you have never seen. You’ll have to go back to 1929, I guess it doesn’t get too much worse than that.”

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