B&M Financial Management Services, LLC: It’s Official: The 2019 Standard Deduction Is Getting Even Larger

The standard deduction nearly doubled in 2018 as part of the Tax Cuts and Jobs Act. For example, the standard deduction for married couples filing a joint return jumped from $12,700 in 2017 to $24,000 in 2018. Although the personal exemption was eliminated, the combination of the higher standard deduction and the increased Child Tax Credit resulted in significant tax savings for many American families.

Well, the IRS just announced its inflation-related adjustments for the 2019 tax year, and the standard deduction is going up a bit more. Here's a rundown of the new 2019 standard deduction and what it could mean for you.

IMAGE SOURCE: GETTY IMAGES.

The 2019 standard deduction

I won't keep you in suspense. For 2019, the standard deduction is increasing as follows:

DATA SOURCE: IRS

To be clear, the 2019 standard deduction applies to the income you earn in 2019 and the tax return you'll file in 2020. The column with the 2018 standard deductions is what you'll use when you file your next tax return in 2019.

Will you use the standard deduction in 2019 and beyond?
The short answer is "probably." Since the standard deduction that you'll use in 2019 when filing your taxes has roughly doubled, and the new increases are based on this higher amount, itemizing deductions will no longer be worthwhile for many households.

Simply put, it was far easier for many married couples to come up with $12,700 in itemized deductions on their 2017 tax returns than it will be for them to come up with $24,000 in itemized items when they file their 2018 tax return next year. This is especially true since the Tax Cuts and Jobs Act eliminated or reduced several popular deductions that people could itemize. Just to name a few:

Mortgage interest is still deductible, but to a maximum of $750,000 in principal balances as opposed to the former $1 million limit.
The deduction for state and local taxes (the SALT deduction) has been the most valuable tax break for Americans in prior years. Beginning with your 2018 taxes, it's limited to $10,000.
Many miscellaneous tax deductions have been eliminated. This includes the deductions for most casualty and theft losses, unreimbursed employee expenses, tax preparation expenses, and more.

In recent years, about 70% of American households used the standard deduction, while the other 30% or so found itemizing worthwhile. However, after the passage of the Tax Cuts and Jobs Act, the Joint Committee on Taxation estimated that the proportion using the standard deduction will climb to 94%. In other words, just because you're used to itemizing deductions doesn't mean that you'll still be able to do so going forward.

Could the higher standard deduction save you money?
The 2019 increase in the standard deduction translates to an increase of just under 2% for each filing status. Since the reason for the increase is to keep up with inflation, it theoretically shouldn't have much of an effect on the average American's financial situation.

Think of it this way: If your income increases by 2%, your cost of living increases by 2%, and the amount of your income that's excluded from taxation also increases by 2%. So nothing really has changed in terms of your purchasing power or overall financial condition.

If you expect your earnings to remain flat in 2019, the increased standard deduction could allow you to keep a little more of your hard-earned money in your pocket and out of the hands of the IRS.

Source: https://www.fool.com

Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa works with small business owners and entrepreneurs to assist them with financial management and creating organized systems and procedures. She specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.

Join BMFMS on Social Media