It's a New (Tax) Year - 2019!

It’s that time of year again! As we make our way through the new year, we now turn to the joy of tax season – preparing the returns for 2018 and looking at what 2019 brings. We’ve had a full year sorting out the Tax Cuts and Jobs Act of 2017 (TCJA). With that settled, we thankfully see less drastic changes this year. 

Here’s a roundup of what to expect for 2019. There’s a lot here, so feel free to skim through to what applies to you!

Individual Taxpayers

Tax Brackets: There are still 7 tax rates, but the 2019 income tax brackets receive a bump for inflation. See below for the 2019 brackets for Married Filing Joint Taxpayers and Single Taxpayers:

Source: Forbes.com Click here for a complete version of the 2019 Tax Tables.

A thought on withholdings: In early 2018, the IRS adjusted tax withholding tables for paychecks, pension checks, etc., for the new tax law. This lowered the amount withheld from each paycheck. While it allowed us to keep more of our paychecks each month, it also caused many to have a lower refund than expected as they file taxes (or tax due). 

Now is a good time to review tax withholdings for 2019 and ensure they are appropriate for your tax situation. This may prevent an unpleasant surprise at tax time, as well as withholding too much for too large a refund.

Qualified Dividends and Capital Gain Tax Rates: These tax rates remain tied to income thresholds for preferential Qualified Dividends and Long-Term Capital Gains. Here are the brackets:

Standard Deductions and Personal Exemptions: After receiving a major face lift with the TCJA, the standard deduction amounts will increase a bit for inflation.

Source: Forbes.com Click here for a complete version of the 2019 Tax Tables.

The additional standard deduction for those over age 65 and the blind is $1,300. This increases to $1,650 for unmarried taxpayers.

There is no personal exemption amount. This was eliminated by the TCJA.

Itemized Deductions: While there were major changes to itemized deductions in the TCJA, there’s only one change in 2019 that we want to highlight. For more on the changes to itemized deductions after the TCJA, click here.

Medical and Dental Expenses: If you still itemize your deductions, you can deduct medical and dental expenses that exceed a “floor.” The floor for 2019 rose to 10% (from 7.5% in 2018) of AGI. Meaning, you can only deduct the amount of expenses above 10% of your 2019 AGI.

Child Tax Credit: No change in 2019. This credit remains at $2,000 per qualifying child and is refundable up to $1,400. Phaseouts begin with AGI over $400,000 for joint filers and $200,000 for single.

Personal Health Insurance: The individual mandate penalty for not having health insurance has been eliminated by the TCJA. This takes effect in 2019.

Roth IRA Contributions: The maximum Roth IRA contribution increased to $6,000 ($7,000 for those who attain age 50 or older during 2019). This also pertains to Traditional IRAs.

The modified Adjusted Gross Income (MAGI) limit that disallows all direct contributions to Roth IRAs increased with inflation to $203,000 for Joint filers and $137,000 for Single taxpayers. Contributions begin to phase out at MAGI of $193,000 for Joint filers and $122,000 for Single filers.

Retirement Account Contribution: The maximum 401(k), 403(b) and 457 (Deferred Compensation) contribution increased to $19,000 in 2019 ($25,000 for those who attain age 50 or older during the year).

Estate Tax Exemption: The Federal Estate Tax Exemption increased slightly to $11.4 million in 2019, making the total exemption for a married couple $22.8 million. The tax rate for amounts exceeding the exemption remains 40%.

Gift Tax Exclusion:  The annual gift tax exclusion (amount that can be gifted without requiring a gift tax filing) remains $15,000 per recipient. Married couples can “split” their gifts, making it $30,000 per recipient.

Social Security Benefits: Social Security and Supplemental Security Income (SSI) Benefits will receive a 2.8% cost-of-living-adjustment (COLA) this year.

Medicare Premiums: The standard monthly premium for Medicare Part B increased to $135.50 for those married filing jointly at $170,000 income or less ($85,000 single). The premium moves up depending on income. If you are a new enrollee in 2019 or do not have the premium deducted from your Social Security check, you will pay the full standard premium.

However, if you are already receiving Social Security benefits and had at least one premium payment deducted in the year, you’ve been “held harmless” from the full amount of past premium increases. Instead, you’ve paid an increased amount based on the Social Security COLA. 

Meaning, if the standard $135.50 is more than 2.8% higher than what you currently pay, your monthly premium only increases by 2.8%. For many, that may push them to the standard premium anyway.

Business Tax Rates:

No change here. The highest corporate tax rate has been lowered permanently (until the law is changed, that is) to a flat 21% by the TCJA. The corporate AMT has been repealed. If you’re the owner of a C-corporation, this tax break is for you.

The 20% deduction from the “Qualified Business Income” (QBI) of pass-through businesses remains. These are sole-props, partnerships, LLCs, or S-corporations. The income of these businesses “passes-through” to the tax-returns of the shareholders. If you’re an owner, you’ll find this income landing on your Schedule E (or Schedule C for a sole-proprietor).

The QBI deduction is not an “above-the-line” deduction to calculate your Adjusted Gross Income (AGI), but it also won’t be an itemized deduction. Meaning, you can claim it even if you take the standard deduction. It remains quite complicated, unfortunately. There are exceptions to the types of businesses that can claim, potential phaseouts based on your Taxable Income, and specifics on what constitutes QBI. This is one of the more complicated portions of the new TCJA tax laws.

The above explanation is summarized. It is not all inclusive. Please confirm all specifics with your tax professional. Also, keep in mind this is for 2019 tax year. This summary does not apply to your 2018 taxes that are filed by April 2019.

Follow our blog for additional tax tidbits throughout the year and happy filing!