2019 | Tax Changes for 2018 Tax Preparation

The IRS has announced that they will begin accepting and processing all individual returns on Monday, January 28, 2019. When the IRS starts processing returns, acknowledgments may be unpredictable due to the high volume of returns being processed.

During the shutdown, the IRS is still offering the following services:

  • Processing electronic and paper filed returns

  • Processing disaster relief transcripts

  • Design and printing of tax forms

  • Accepting payments

  • Issuing refunds

During the shutdown, the IRS will not be offering the following services:

  • Answering phone calls

  • Processing 1040X amended returns

  • Conducting audits or examinations of returns

Let’s start with individual taxes:

Standard deductions nearly doubled to the following;

$24,000 for married filing joint

$12,000 for single

$18,000 for head of household

Ages 65 and up and blind people get $1,300 more per person ($1,600 unmarried)

Note: far fewer people will itemize due to these raised standard deductions. Those are your home medical, interest deductions, real estate taxes and charitable giving.

If you take the itemized deduction instead here are some changes to those (Schedule A):

  • Medical expenses have a lower AGI threshold of 7.5%

  • Residential property taxes and income or sales taxes are capped at $10,000

  • Cash donations AGI limitation is from 50% to 60%

  • Items removed are:

  • Job-related moves (excluding military)

  • Employee business expenses

  • Brokerage and IRA fees

  • Hobby expenses

  • Tax return preparation costs

  • Theft losses

  • Alimony payments for post-2018 divorce decrees (in addition to alimony not being taxable)

  • Personal casualty losses (unless presidentially declared disaster areas)

The seven tax brackets have rates that kick in at higher income levels so more of your taxable income will be hit with lower rates than before. The top individual rate lowered from 39.6% to 37%.

Tax rates on long-term capital gains and qualified dividends did not change, but with the new bracket changes Congress decided to set income thresholds instead:(married filing joint thresholds below):

  • 0% rate will continue to apply for taxpayers with taxable income under $77,200

  • 15% rate for filers with incomes between $77,200 and $479,000

  • 20% above those break points

  • The 3.8% surtax on net investment income remains, kicking in for marrieds with modified AGI over $250,000

The law keeps the individual alternative minimum tax with higher exemptions: $109,400 for marrieds and $70,300 for singles. Phaseout zones start much higher income levels $1 million for couples and $500,000 for singles.

The child tax credit is doubled to $2,000 for each child under age 17 AND the income phaseout thresholds are much higher; $400,000 for couples and $200,000 for all other filers.

There is a new $500 credit for each dependent who is not a qualifying child (ex: elderly parent or a disabled adult child).

The lifetime estate and gift tax exemption has doubled to $11,800,000 with the rate remaining at 40%.

The annual gift tax exclusion for 2018 is $15,000 per donee. If you are considering gifts please ask about the total amount you can give if you have a spouse and/or your child has a spouse.

Benefit Plans:

  • The maximum 401k contribution rises to $19,000. People born before 1970 can contribute an extra $6,000.

  • The cap on SIMPLEs climbs to $13,000; People age 50 and up can put in $3,000 more

  • The 2019 paying limits for traditional IRAs and Roth IRAs jump to $6,000 (50 and up additional $1,000)

  • Income ceilings on Roth IRA payins go up and deduction phaseouts for traditional IRAs start at higher levels in 2019.

  • Pay attention to the required distribution rules for traditional IRAs. People age 70 1/2 and older must take withdrawals by year-end or pay a fine equal to 50% of the shortfall. If you’ve turned 70 1/2 this year, you can delay 2018s payout till April 1, 2019.

Inquire if you win the lottery, as Uncle Sam is to withhold a sizable amount of tax from your jackpot as your state will take a nice chunk of your winnings too.

**Scammers are spreading a computer virus with e-mails about tax transcripts. The message may look like it’s from the IRS, but it isn’t. Don’t open the e-mail or any attachments. The virus will spread throughout your computer network, and it could take months to clean it out. If you get one of these messages, delete it or forward it to the IRS at phishing@irs.gov (workers should tell their IT department also).

**Obamacare’s individual mandate is on the way out. The requirement that folks have health insurance, qualify for an exemption or pay a fine is repealed for post-2018 years (therefore applies for 2018).

To my business clients:

Many individual owners of pass-throughs will get a new 20% deduction. The rules cover sole proprietors and owners of S corporations, partnerships and LLCs.

The write-off for business losses on individual returns is capped. The amount of trade or business losses that exceed a $500,000 threshold for couples and $250.000 for other filers is nondeductible, but any excess can be carried forward. (Note: this limitation applies after application of the current passive-activity loss rules).

Enhanced write-offs for business asset purchases:

  • 100% bonus depreciation for may assets put into use during the year (assets in service after 9-27-17 until 2022)

  • Higher cap on expensing business assets doubling to $1 million.

  • More property is eligible for first-year bonus depreciation or expensing

  • Depreciation limitations on passenger automobiles are increased

Here are business breaks that were eliminated or pared back:

  • Business entertainment

  • Country club dues

  • 9% domestic production deduction

  • Net operating losses can offset only 80% of taxable income

  • NOL Carrybacks are generally prohibited

  • Meals in on-premises dining facilities are subject to the 50% deduction through 2025, fully taken away after.

  • Cost of transportation-related fringe benefits for their workers, such as on-site parking and mass transit passes are disallowed

**firms that provide paid family or medical leave to workers get a new credit generally equal to 12.5% of the amount of wages paid during the period of leave (temporary only for 2018 and 2019)

These are items I thought would have an impact on my clients, there are many changes and new looks to the tax return this year, please don’t hesitate to ask. Some of these individual changes are so drastic it will take receiving your information and calculating with the new standard deductions versus itemized and tax brackets before I know the full outcome to you.

I look forward to hearing from you. I am accepting new clients and any new referrals will get a 10% discount on your current tax preparation fees.

Erica A. Miller, CPA