Important Tax Changes for
Individuals and Businesses
year, it's a sure bet that there will be changes to current
tax law and this year is no different, now that the tax
provisions under the Tax Cuts and Jobs Act of 2017 (TCJA) are
in full effect.
From standard deductions to health savings accounts and tax
rate schedules, here's a checklist of tax changes to help you
plan the year ahead.
In 2019, a number of tax provisions are affected by inflation
adjustments, including Health Savings Accounts, retirement
contribution limits, and the foreign earned income exclusion.
The tax rate structure, which ranges from 10 to 37 percent,
remains similar to 2018; however, the tax-bracket thresholds
increase for each filing status. Standard deductions also
rise. As a reminder, personal exemptions have been eliminated
through tax year 2025.
In 2019, the standard deduction increases to $12,200 for
individuals (up from $12,000 in 2018) and to $24,400 for
married couples (up from $24,000 in 2018).
Alternative Minimum Tax (AMT)
In 2019, AMT exemption amounts increase to $71,700 for
individuals (up from $70,300 in 2018) and $111,700 for married
couples filing jointly (up from $109,400 in 2018). Also, the
phaseout threshold increases to $510,300 ($1,020,600 for
married filing jointly). Both the exemption and threshold
amounts are indexed annually for inflation.
For taxable years beginning in 2019, the amount that can be
used to reduce the net unearned income reported on the child's
return that is subject to the "kiddie tax," is $1,100. The
same $1,100 amount is used to determine whether a parent may
elect to include a child's gross income in the parent's gross
income and to calculate the "kiddie tax." For example, one of
the requirements for the parental election is that a child's
gross income for 2019 must be more than $1,100 but less than
Savings Accounts (HSAs)
Contributions to a Health Savings Account (HSA) are used to
pay current or future medical expenses of the account owner,
his or her spouse, and any qualified dependent. Medical
expenses must not be reimbursable by insurance or other
sources and do not qualify for the medical expense deduction
on a federal income tax return.
A qualified individual must be covered by a High Deductible
Health Plan (HDHP) and not be covered by other health
insurance with the exception of insurance for accidents,
disability, dental care, vision care, or long-term care.
For calendar year 2019, a qualifying HDHP must have a
deductible of at least $1,350 for self-only coverage (same as
2018) or $2,700 for family coverage (same as 2018) and must
limit annual out-of-pocket expenses of the beneficiary to
$6,750 for self-only coverage and $13,500 for family coverage.
Medical Savings Accounts (MSAs)
There are two types of Medical Savings Accounts (MSAs): the
Archer MSA created to help self-employed individuals and
employees of certain small employers, and the Medicare
Advantage MSA, which is also an Archer MSA, and is designated
by Medicare to be used solely to pay the qualified medical
expenses of the account holder. To be eligible for a Medicare
Advantage MSA, you must be enrolled in Medicare. Both MSAs
require that you are enrolled in a high-deductible health plan
Self-only coverage. For taxable years beginning
in 2019, the term "high deductible health plan" means, for
self-only coverage, a health plan that has an annual
deductible that is not less than $2,350 and not more than
$3,500, and under which the annual out-of-pocket expenses
required to be paid (other than for premiums) for covered
benefits do not exceed $4,650.
Family coverage. For taxable years beginning in
2019, the term "high deductible health plan" means, for family
coverage, a health plan that has an annual deductible that is
not less than $4,650 and not more than $7,000, and under which
the annual out-of-pocket expenses required to be paid (other
than for premiums) for covered benefits do not exceed $8,550.
No Penalty for not
Maintaining Minimum Essential Health Coverage
Starting in 2019, there is no penalty for not maintaining
minimum essential health coverage.
AGI Limit for Deductible
In 2019, the deduction threshold for deductible medical
expenses is 10 percent of adjusted gross income (AGI).
Eligible Long-Term Care
Premiums for long-term care are treated the same as health
care premiums and are deductible on your taxes subject to
certain limitations. For individuals age 40 or younger at the
end of 2019, the limitation is $420. Persons more than 40 but
not more than 50 can deduct $790. Those more than 50 but not
more than 60 can deduct $1,580 while individuals more than 60
but not more than 70 can deduct $4,220. The maximum deduction
is $5,270 and applies to anyone more than 70 years of age.
The additional 0.9 percent Medicare tax on wages above
$200,000 for individuals ($250,000 married filing jointly)
remains in effect for 2019, as does the Medicare tax of 3.8
percent on investment (unearned) income for single taxpayers
with modified adjusted gross income (AGI) more than $200,000
($250,000 joint filers). Investment income includes dividends,
interest, rents, royalties, gains from the disposition of
property, and certain passive activity income. Estates,
trusts, and self-employed individuals are all liable for the
Foreign Earned Income
For 2019, the foreign earned income exclusion amount is
$105,900, up from $103,900 in 2018.
Long-Term Capital Gains and
In 2019 tax rates on capital gains and dividends remain the
same as 2018 rates (0%, 15%, and a top rate of 20%); however
threshold amounts have increased: the maximum zero percent
rate amounts are $39,375 for individuals and $78,750 for
married filing jointly. For an individual taxpayer whose
income is at or above $434,550 ($488,850 married filing
jointly), the rate for both capital gains and dividends is
capped at 20 percent. All other taxpayers fall into the 15
percent rate amount (i.e., above $39,375 and below $434,550
for single filers).
Estate and Gift Taxes
For an estate of any decedent during calendar year 2019, the
basic exclusion amount is $11.4 million, indexed for inflation
(up from $11.18 million in 2018). The maximum tax rate remains
at 40 percent. The annual exclusion for gifts remains at
In 2019, a non-refundable (only those individuals with tax
liability will benefit) credit of up to $14,080 is available
for qualified adoption expenses for each eligible child.
Earned Income Tax Credit
For tax year 2019, the maximum Earned Income Tax Credit (EITC)
for low and moderate income workers and working families rises
to $6,557, up from $6,431 in 2018. The credit varies by family
size, filing status, and other factors, with the maximum
credit going to joint filers with three or more qualifying
Child Tax Credit
For tax years 2018 through 2025, the child tax credit is
$2,000 per child. The refundable portion of the credit is
$1,400 so that even if taxpayers do not owe any tax, they can
still claim the credit. A $500 nonrefundable credit is also
available for dependents who do not qualify for the Child Tax
Credit (e.g., dependents age 17 and older).
Child and Dependent Care Tax Credit
The Child and Dependent Care Tax Credit also remained under
tax reform. If you pay someone to take care of your dependent
(defined as being under the age of 13 at the end of the tax
year or incapable of self-care) in order to work or look for
work, you may qualify for a credit of up to $1,050 or 35
percent of $3,000 of eligible expenses in 2019. For two or
more qualifying dependents, you can claim up to 35 percent of
$6,000 (or $2,100) of eligible expenses. For higher income
earners the credit percentage is reduced, but not below 20
percent, regardless of the amount of adjusted gross income.
This tax credit is nonrefundable.
Individuals - Education
American Opportunity Tax Credit and Lifetime Learning Credits
The maximum credit is $2,500 per student for the American
Opportunity Tax Credit. The Lifetime Learning Credit remains
at $2,000 per return; however, the adjusted gross income
amount used by joint filers to determine the reduction in the
Lifetime Learning Credit is $116,000 ($58,000 single filers).
Interest on Educational Loans
In 2019, the maximum deduction for interest paid on student
loans is $2,500. The deduction begins to be phased out for
higher-income taxpayers with modified adjusted gross income of
more than $70,000 ($140,000 for joint filers) and is
completely eliminated for taxpayers with modified adjusted
gross income of $85,000 ($170,000 joint filers).
The elective deferral (contribution) limit for employees who
participate in 401(k), 403(b), most 457 plans, and the federal
government's Thrift Savings Plan increases to $19,000.
Contribution limits for SIMPLE plans increase to $13,000 (up
from $12,500 in 2018). The maximum compensation used to
determine contributions increases to $280,000 (up from
$275,000 in 2018).
Income Phase-out Ranges
The deduction for taxpayers making contributions to a
traditional IRA is phased out for singles and heads of
household who are covered by an employer-sponsored retirement
plan and have modified AGI between $64,000 and $74,000.
For married couples filing jointly, in which the spouse who
makes the IRA contribution is covered by an employer-sponsored
retirement plan, the phase-out range increases to $103,000 to
$123,000. For an IRA contributor who is not covered by an
employer-sponsored retirement plan and is married to someone
who is covered, the deduction is phased out if the couple's
modified AGI is between $193,000 and $203,000.
The modified AGI phase-out range for taxpayers making
contributions to a Roth IRA is $122,000 to $137,000 for
singles and heads of household, up from $120,000 to $135,000.
For married couples filing jointly, the income phase-out range
is $193,000 to $203,000, up from $189,000 to $199,000. The
phase-out range for a married individual filing a separate
return who makes contributions to a Roth IRA is not subject to
an annual cost-of-living adjustment and remains $0 to $10,000.
In 2019, the AGI limit for the Saver's Credit (also known as
the Retirement Savings Contribution Credit) for low and
moderate income workers is $64,000 for married couples filing
jointly, up from $63,000 in 2018; $48,000 for heads of
household, up from $47,250; and $32,000 for singles and
married individuals filing separately, up from $31,500 in
Standard Mileage Rates
In 2019, the rate for business miles driven is 58 cents per
mile, up from 54.5 cents per mile in 2018.
Section 179 Expensing
In 2019, the Section 179 expense deduction increases to a
maximum deduction of $1,020,000 of the first $2,550,000 of
qualifying equipment placed in service during the current tax
year. This amount is indexed to inflation for tax years after
2018. The deduction was enhanced under the TCJA to include
improvements to nonresidential qualified real property such as
roofs, fire protection, and alarm systems and security
systems, and heating, ventilation, and air-conditioning
systems. Also of note is that costs associated with the
purchase of any sport utility vehicle, treated as a Section
179 expense, cannot exceed $25,500.
Businesses are allowed to immediately deduct 100% of the cost
of eligible property placed in service after September 27,
2017, and before January 1, 2023, after which it will be
phased downward over a four-year period: 80% in 2023, 60% in
2024, 40% in 2025, 20% in 2026, and 0% in 2027 and years
Work Opportunity Tax Credit (WOTC)
Extended through 2019, the Work Opportunity Tax Credit has
been modified and enhanced for employers who hire long-term
unemployed individuals (unemployed for 27 weeks or more) and
is generally equal to 40 percent of the first $6,000 of wages
paid to a new hire.
Qualified Business Income Deduction
Eligible taxpayers are able to deduct up to 20 percent of
certain business income from qualified domestic businesses, as
well as certain dividends. To qualify for the deduction
business income must not exceed a certain dollar amount. In
2019, these threshold amounts are $160,700 for single and head
of household filers and $321,400 for married taxpayers filing
Research & Development Tax Credit
Starting in 2018, businesses with less than $50 million in
gross receipts are able to use this credit to offset
alternative minimum tax. Certain start-up businesses that
might not have any income tax liability will be able to offset
payroll taxes with the credit as well.
Employee Health Insurance Expenses
For taxable years beginning in 2019, the dollar amount of
average wages is $27,100 ($26,600 in 2018). This amount is
used for limiting the small employer health insurance credit
and for determining who is an eligible small employer for
purposes of the credit.
Business Meals and Entertainment
The deduction remains at 50% for taxpayers who incur food and
beverage expenses associated with operating a trade or
business. For tax years 2018 through 2025, however, the 50%
deduction expands to include expenses incurred for meals
furnished to employees for the convenience of the employer.
Amounts after 2025, however, will not be deductible. Office
holiday parties remain 100% deductible and employee meals
while on business travel also remain deductible at 50%. Also
eliminated is the deduction for business entertainment
expenses (only meals are deductible at 50%; receipts must
identify and separate out meal costs from entertainment
If you provide transportation fringe benefits to your
employees in 2019, the maximum monthly limitation for
transportation in a commuter highway vehicle as well as any
transit pass is $265. The monthly limitation for qualified
parking is $265.
While this checklist outlines important tax changes for 2019,
additional changes in tax law are likely to arise during
the year ahead. Don't hesitate to call if you have any
questions or want to get a head start on tax planning for the
QUESTIONS About Tax Changes?
If you have any questions about
these individual and business tax changes, don't hesitate to
contact the office and speak to a tax professional you can
trust. Call the office at
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