2019 Tax Year – The last tax act made significant changes to tax law. Please call if you have specific questions on 2019 taxes. Here are some highlights of the changes:
1. AMT (Alternative Minimum Tax = 27%): A Taxpayer’s regular tax would have to be less than about $110,000 + 20% of capital gains and dividends. It is unlikely most taxpayers will pay AMT tax.
2. Auto mile expense for 2019 is: Business = 58¢, Medical & Moving = 20¢, Charitable work = 14¢.
3. Annual Gift Tax Exclusion is $15,000. There is a five year provision which includes $75,000 contributions to a 529 plan for the educational benefit of a single child / grandchild. Additional amounts above these ceilings are applied (but not taxed) against your $1 million lifetime gift exclusion.
4. Social Security tax of 2.8% of wage & self-employment applies to earned income below $132,900 for 2019 ($137,700 for 2020). No SS tax above this ceiling, Medi tax at 1.45% has no ceiling.
5. Filing dates: 2019 tax returns are due by Wednesday April 15th.. Tax extensions are available to October 15th provided tax extensions are filed timely and the liability has been paid.
6. Sale of your residence will not result in a Capital Gain Tax so long as you have lived in the residence for 2 of the past 5 years and the gain for a married couple is under $500,000.
7. Retirement distributions from your RMD IRA / 401(k) are included as income. It is best to just take the minimum you need because if you take a large amount in a single year, your income may jump you into a higher tax bracket. Please call us for rules on retirement distributions.
8. Audit: The chance of an Audit is based upon the IRS matching records, accuracy of preparation and increases with income. Audit rates range between .5% and 24% based upon income and IRS document matching. Most Audits are bills mailed to the taxpayer citing differences.
9. The 2019 401(k) contribution limit is $19,000 + $6,000 for those 50 + years old.
10. Passive (Rental Real Estate) losses can reduce your other W2 income up to $25,000 when adjusted income is > $100,000. The complete phase out is $150,000.
11. Itemized Standard Deduction MFJ is $24,400, taxes (SALT) limited to $10,000, Medical (over 10% of AGI) & Donations up to any amount. Donations can be made out of your retirement account directly to the charity and will count as your RMD.
12. Little things: MA Commuter Pass (if > $150 up to $750), charitable portion of your auto license plates, non-deductible retirement distributions (prorated), margin interest expense and allocations of professional fees to business and rental expense are deductible items.
Many tax deductions and exemptions are “phased-out” at higher income levels. Tax planning may save on taxes to shift income, deductions or dependent items. We are here to help so you can take your entitled tax deductions for 2019. Please call our office for specific tax questions and guidance going forward.
For 2018, The Tax Cuts and Jobs Act (TCJA) changes many items from prior years tax reporting.
A few of the significant changes are:
1. New tax forms and schedules: Page 1 and 2 of Form 1040 has been consolidated down to postage card size (on standard size paper). This savings in number of line items resulted in an increase in the number of supporting schedules. For 2018, the taxpayer may be required to use several forms, each feeding into the next, which was previously recorded on a single line.
2. Standard Deduction: it has been increased to $24,000 + $1,300 each if over 65 years old. Personal exemptions have been eliminated for 2018 and are now included as part of the Standard Deduction.
3. Itemized Deductions: Itemized includes: Medical in excess of 7.5% of AGI + State and Local taxes (limited to $10,000) + Mortgage Interest + Gifts to Charity. If this exceeds the Standard Deduction of $24,000, the overage will be tax deductible. For those who rent or have State taxes below the $10,000 limit, please know that charitable deductions may not be deductible as the $24,000 limit (which includes Charity) has not been reached.
4. Medical: Obamacare – there is still a penalty for not having health insurance for 2018 (repealed for 2019). The Health Premium Credit is still available for those who are not on Medicare. These credits phase out starting with married incomes of $25,000. Long-term-care premiums are considered a medical expense. Taxpayers who are age 71 can write off premiums up to $5,110. Self-employed can deduct up to the dollar limit without regard to the 7.5% AGI limit on their Schedule C.
5. Miscellaneous itemized deductions have been repealed for 2018. They included employee business expenses, investment management fees, tax preparation, job search, tuition, travel expense and safe deposit fees.
6. 20% deduction for QBI (Qualified Business Income): for 2018, 20% of business income is now deductible for all pass-through businesses up to QBI of $315,000. Above this level various restrictions and computations apply, such as W2 wages, type of business (service) and qualified property.
7. Capital Gains tax rate of 15% for incomes up to $479,000 and 20% thereafter.
8. AMT (Alternative Minimum Tax): The AMT exemption for married couples increased from $84,500 to $109,400. This 26% / 28% AMT tax generally starts for incomes above $250,000 depending upon the circumstances.
9. IRA Contribution limits stayed at $5,500 + $1,000 for those 50 and over.
10. Payroll: the 2018 wage base is $128,400 for Social Security tax (up to $132,900 in 2019). In addition, there is a .9% Medicare surtax on wages that exceed $250,000.
11. Auto mile deduction for 2018: $.545 for business miles (Schedules C & E), $.18 for medical and $.14 for Charity.
Many tax deductions and exemptions are “phased-out” at higher income levels. Tax planning may save on taxes to shift income, deductions or dependencies. Please call our office as to specific phase-outs or any general questions you may have.
Office of David J. Felsing, CPA
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