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Tax Changes for 2019
December 9, 2019
Tax Changes for 2019 (Filed in 2020)
If you experienced filing for the 2018 tax year last year, you know its been an interesting ride mapping through the Tax Reform changes. 2019 will prove to be the same, for some it will mean an increase in refund, but for the majority it may mean a decrease in refund or balance due. A list of changes has been compiled for readers to get a better understanding on the changes and how it may affect the filing of tax returns.
Tax Rates
The tax rates were increased for 2019 to include adjustments for inflation. Above is the tax bracket and income level for each filing status.
Standard Deductions
The standard deduction amounts were increased from 2018 to 2019:
Status 2018 Deduction 2019 Deduction
Single/MFS $12,000 $12,200
MFJ $24,000 $24,400
HOH $18,000 $18,350
It is estimated that 95% of individual returns will now utilize the standard deduction, while 5% will still benefit from Itemizing deductions.
It can be mistakenly believed that a higher standard deduction means a higher tax break, however this is not always the case. While the standard deduction is increased, the valuable personal exemptions have been removed which causes a difference in how taxes are calculated. Congress in its efforts to simplify the tax code, decided instead of giving taxpayers the standard deduction and a number of personal exemptions, the two should be combined into a higher standard of deduction. The personal exemptions was for a certain amount and allowed the taxpayer to exclude the total amount from their taxable income. Taxpayers could claim one exemption for themselves, their spouse and one for each dependent. In 2017 the personal exemption was $4,100, for a family of 6 that meant $24,600 could be deduction from their gross taxable income and then also apply the standard deduction/or itemize deductions. When you look at that fact, and the situation now we can see that the higher standard deduction is not equally matched.
Child Tax Credit
Child tax credit has been increased to $2,000 per qualifying child under the age of 17. The refundable amount has increased to $1,400 and the income limitations are less restrictive, allowing you to make more income and still qualify for the credit.
Education Tax Breaks
The two education credits are still available for 2019 (filed in 2020) the American Opportunity Credit and Life Time Learning Credit have the following requirements:
AOC : Deduction for qualified tuition and some expenses paid toward a degree and/or certificate for the first four years of college only.
LTC: Deduction for qualified tuition for tuition and fees not limited to the first four years of college.
Tuition and fees
The deduction for tuition and fees up to $4,000 was expired in 2017, unless Congress votes to bring it back for this tax year it will remain expired and non-deductible for taxpayers.
529 Plans
529 Plans are tax advantaged plans for parents, and other family members to save and invest money for the future educational expenses including tuition, fee, books and supplies. There is no deduction for the contributions on the federal return (some states allow for deductions), however the principal and income earned on the investments can be withdrawn for qualified expenses tax free. In prior years the qualified expenses were college related only, under the tax reform act, the qualifying expenses expand to educational expenses at any level of education, not just college. (i.e. private high schools)
Mortgage Interest
While still deductible the deduction requirements had two modifications affecting higher income level taxpayers. The first modification is the limit on the total deduction allowed has been reduced to the interest on up to $750,000 of qualified residence debt or mortgage principal on a primary or secondary home. This is a reduction from the prior years $1 million limit. This does not affect mortgages obtained before 12/15/17. These mortgages have been grandfathered at the $1 mill limit.
Also modified is the deduction for home equity debt up to $100,000. This deduction has been eliminated UNLESS the loan was substantially used to improve the qualifying home, if so the debt will qualify and count towards the $750,000 limitation.
Charitable Deductions
The deduction limit has increased from 50% to 60% of the Adjusted Gross Income of the taxpayer. One modification is the donations to colleges and universities in exchange for sports tickets are no longer deductible. The requirement to deduct the contributions is a letter from the donee stating the amount and date of contribution, and/or receipts to various charitable organizations
Medical Expenses
The medical expense threshold for deductions was reduced to 7.5% of adjusted gross income to be deductible for 2017 and 2018, however for 2019 the threshold percentage will increase back to 10% of adjusted gross income.
ACA – Individual Mandates
The penalty under the Affordable Care Act for not having health insurance coverage has been repealed for 2019 and future tax years.
What tax breaks are no longer allowed:
Moving expenses - only allowed for some military services
Casualty and Losses – only allowed for business related losses
Miscellaneous expenses – tax preparation fees, unreimbursed employee related expenses are no longer allowed
This listing is not exhaustive of all the tax form changes that may affect your 2019 tax filing, it is a listing of those that most taxpayers are affected.
For more information, please contact us at nkirkland@bythenumberzcpa.com or 586. 296.0771.
Are you a business owner missing out of qualifying deductions because you are not aware of what can be deducted? I have compiled a listing of business deductions, a few that go overlooked year after year to assist business owners in maximizing the taxes, and reducing tax liabilities. Many of the deductions apply to independent contractors, freelancers, limited liability companies, corporations, and partnerships. Click here for you free download of business deductions. For more information contact me nkirkland@bythenumberzcpa.com
Beginning January 1, 2020, the IRS has issued a new W-4 form. This is significant as the recent Tax Reform eliminated personal exemptions and doubled the standard deduction when filing your personal taxes. It is recommended that a new W4 be filed with your employer to ensure the proper withholding is deducted under the new code. It is highly recommended the new form be filed with your employer if you: Work for more than one job If you spouse also works and you file jointly If you claim the child tax credit or other tax credit If you have high income and a more complex return Completing the Form I have received a lot of calls asking “what to do with this new form”, so I have included some instructions to assist people. You must complete steps 1 and 5. Steps 2, 3, and 4 are optional but can be helpful in ensuring your tax withholding more closely matches your tax obligation. When you fill out Step 1 only, your withholding will be computed based on your filing status’s standard deduction and tax rates, with no other adjustments There are certain situations that increasing the withholding should be considered: You hold more than one job at a time or you and your spouse both have jobs (Step 2) You have income from sources other than jobs or self- employment There are certain situations that decreasing the withholding should be considered: You are eligible for income tax credits, child tax credit or credit for dependents (Step 3) You are eligible for deductions, such as itemized deductions, IRA contributions or student loan interest deductions It is also a great idea to use the Tax Withholding Estimator to help ensure maximum accuracy. The link is below. Note you will need your latest paystub (to enter the federal tax withheld from last check, and the YTD federal tax withheld). For more information contact me at nkirkland@bythenumberz.com.
There are tons of how to’s lists out there on the world wide web.. but really it takes more than a list to grasp the understanding of setting up a business and the start of the business ownership journey! It can be overwhelming looking at the lists and the questions that rattle our brains can cause a lot of discouragement. I work with entrepreneurs and business owners on a weekly basis in tackling this hurdle and getting their businesses going and operating successfully. The first step is “creating what you want the business to do” are you providing a product and/or service and what will set you apart from the other 20 businesses doing the same thing?
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Are you a business owner missing out of qualifying deductions because you are not aware of what can be deducted? I have compiled a listing of business deductions, a few that go overlooked year after year to assist business owners in maximizing the taxes, and reducing tax liabilities. Many of the deductions apply to independent contractors, freelancers, limited liability companies, corporations, and partnerships. Click here for you free download of business deductions. For more information contact me nkirkland@bythenumberzcpa.com
Beginning January 1, 2020, the IRS has issued a new W-4 form. This is significant as the recent Tax Reform eliminated personal exemptions and doubled the standard deduction when filing your personal taxes. It is recommended that a new W4 be filed with your employer to ensure the proper withholding is deducted under the new code. It is highly recommended the new form be filed with your employer if you: Work for more than one job If you spouse also works and you file jointly If you claim the child tax credit or other tax credit If you have high income and a more complex return Completing the Form I have received a lot of calls asking “what to do with this new form”, so I have included some instructions to assist people. You must complete steps 1 and 5. Steps 2, 3, and 4 are optional but can be helpful in ensuring your tax withholding more closely matches your tax obligation. When you fill out Step 1 only, your withholding will be computed based on your filing status’s standard deduction and tax rates, with no other adjustments There are certain situations that increasing the withholding should be considered: You hold more than one job at a time or you and your spouse both have jobs (Step 2) You have income from sources other than jobs or self- employment There are certain situations that decreasing the withholding should be considered: You are eligible for income tax credits, child tax credit or credit for dependents (Step 3) You are eligible for deductions, such as itemized deductions, IRA contributions or student loan interest deductions It is also a great idea to use the Tax Withholding Estimator to help ensure maximum accuracy. The link is below. Note you will need your latest paystub (to enter the federal tax withheld from last check, and the YTD federal tax withheld). For more information contact me at nkirkland@bythenumberz.com.