Now that lots of Americans are in the process of filing their taxes and getting refund checks back from the IRS, there has been a lot of talk about the refund size. Some taxpayers are angry and surprised at their smaller refunds for 2018, and some people are shocked that they owe for the first time. The reality is that 2018 is a year of transition for taxes. The tax cuts may benefit you once all of the regulations take effect next year. Here are six reasons you shouldn’t panic.
1. Lower Taxes in 2019
Something that many people don’t realize is that most Americans will be paying lower taxes on their income. Unfortunately, the lower tax rates don’t start until January 1, 2019, and won’t be in effect on the 2018 tax returns. When you file your taxes next year, that’s when you should start to see the benefits of the new tax laws, which means more money in your pocket.
2. More Money Back for Dependents
While some people are getting smaller refunds this year, parents may actually come out on top and get larger checks. Now, parents can claim $2,000 per child on their tax returns. This is a 100 percent increase over the old tax credit rate of $1,000 per child. This tax change could help lessen the impact of the increasing costs of raising kids. It’s estimated that raising one child costs approximately $233,610.
3. Higher Standard Deductions
Another reason to breathe easier if you are worried about your taxes is related to the new standard deduction rules. Standard deductions have been raised, making the process of filing your taxes much simpler. Instead of taking the time to itemize each deduction, collect receipts, and figure out calculations line by line, you can simply take the standard deduction of $12,000 if you are single or $24,000 if you’re married.
4. Easier Deductions for Medical Expenses
Medical expenses are one of the biggest sources of debt for Americans, and lawmakers recognize this. Now, it’s much easier to claim medical expenses on your taxes and get some relief. Previously medical expenses were only allowed to be claimed if they exceeded 10 percent of your income. The change lowered the cutoff to 7.5 percent of your yearly income, allowing more costs to be claimed.
5. Abolishment of Healthcare Tax
People who don’t have health insurance usually aren’t in the best financial health. That’s why so many taxpayers hated the healthcare penalty tax that added an additional $695 fee to their tight finances. The Tax Cuts and Jobs Act helped abolish this cost and give those who can’t afford health insurance a little more leeway.
6. Lowered Taxes for Businesses
Lastly, if you own a business, you’re probably aware of the new tax regulations that benefit your corporate accounting. The corporate tax rate has been significantly lowered from 35 percent to 20 percent, making larger profits a possibility.
The tax cuts and restructuring of the tax code may be confusing at first, but if you analyze the situation, you may see some long-term benefits. In 2019, many Americans will see more money in their pocket because of the new laws.