2019 Tax Notes

Published: 1/17/2019 3:28:02 PM


This year promises to bring continued change and confusion.The Tax Cuts and Jobs Act created a number of significant changes impacting taxes for 2018 through 2025.Changes will impact most individuals including a shift of the income ranges within each tax bracket, elimination of exemptions and standard deduction changes.Congress currently has a bill proposing 28 RETROACTIVE changes that might affect 2018 tax returns for some individuals.Clients who have tuition expenses, PMI mortgage insurance or made energy efficient home improvements in 2018 may want to delay filing.These are currently not deductible, but might be deductible before April 15th.

For Individuals:

The 1040 is now an odd-looking ½ page document broken into many sub-schedules. Additionally, Form 1040-EZ and 1040-A have been eliminated.

The standard deduction has doubled for most taxpayers ($24,000 for married filing joint filers, $18,000 for head-of-household filers, and $12,000 for single taxpayers).The additional standard deduction for elderly and blind are retained.However, personal exemptions are suspended until 2026 causing taxpayers to lose a deduction of $4,150 per person on the return.

The medical itemized deduction threshold goes back down to 7.5% for all taxpayers through 2019.

The law retains special tax rates for long-term capital gains and qualified dividends.These are taxed at:

- 0% for taxable income below $77,200 - married filing joint (MFJ), $51,700 - head-of-household (HH), and $38,600 – single (S) taxpayers.

- 15% unless income up to $479,000 - (MFJ), $452,400 - (HH), and $425,800 (S) taxpayers.

  • 20% for income above those limits.

The Net Investment Income Tax of 3.8% on net investment income and Medicare tax on self-employment income remains at 0.9% for MFJ filers over $250,000 and single filers over $200,000.

The maximum annual contribution for an IRA remains at $5,500 for 2018 and increases to $6,000 for 2019.Individuals over 55 years old can submit an additional $1,000 in catch up contributions for both years.Contributions to ABLE funds for handicapped beneficiaries are limited to $15,000 annually.

HSA contributions are limited to $7,000 for family coverage and 3,500 for single coverage for 2019.

Retirees under 65 are able to earn up to $17,040 for 2018 and $17,640 in 2019 before losing benefits.

The estate and gift tax exclusion amounts are doubled in 2018 to $10,000,000 and increase to $11,400,000 in 2019.Annual gift tax exclusion is $15,000 per person for 2018 and 2019.

New limitations are now placed on non-corporate taxpayer net operating losses (NOL).Prior NOLs may continue to be deducted at 100%, but NOL created in 2018 – 2026 may only be carried forward and are limited to offsetting only 80% of current year business or farm income.

The deduction for unreimbursed volunteer drivers for charitable organizations remains at 14 cents per mile for 2018 and 2019.Medical travel deductions are at 18 cents per mile for 2018 and 20 cents per mile for 2019.

The “nanny tax” for household help wages subject to tax is $2,100 for 2018 and 2019. You must pay employment taxes for household help wages when that threshold is reached.

Kiddie tax rules have been simplified.Minors with unearned income in excess of $2,100 will be taxed at rates of 24 – 37%.

The penalty for failure to have health insurance remains in place but has been changed to zero for 2019.

Cancellation or discharge of principal residence indebtedness is now taxable income unless the tax extender bill restores the exclusion from gross income for 2018 and 2019.

Charitable contribution limit increases from 50% of Adjusted Gross Income (AGI) to 60% of AGI.

Limitations on itemized deductions were suspended for 2018 – 2025; however, several itemized deductions were reduced or eliminated for that same period:

State income tax, State sales tax and property taxes can only be deducted up to a total of $10,000.

Mortgage interest is limited to $750,000 of acquisition debt and home equity interest is excluded.

Mortgage insurance premiums are no longer deductible as interest.

All miscellaneous itemized deductions were eliminated, including fees for investment advice, tax preparation, union dues, safe deposit boxes and unreimbursed business expenses.

Moving expenses, other than military personnel, are no longer deductible.

Qualified tuition and related costs taken as an adjustment to adjusted gross income are no longer allowed unless the extender bill restores this adjustment to income.

If you have any foreign accounts in excess of $10,000 at any point during 2018 or receive income from sources outside of the United States, you will need to provide us with account information and balances, including bank accounts, retirement accounts, etc.Penalties for failing to report can be up to 50% of the balance in those accounts or $100,000 whichever is greater.

Child tax credit increased from $1,000 to $2,000 in 2018 and 2019 and is refundable up to $1,400 per child.The income phase out increased to $400,000 in 2018 for joint filers and $200,000 for all other filers.It now specifically applies only to US citizens.

Casualty losses are no longer allowed except when occurring in a federally-declared disaster.

Alimony is no longer taxable / deductible for agreements executed after December 31, 2018.

Alternative Minimum Tax (AMT) was retained and applies when income exceeds $109,400 (joint) and $70,300 for (single) taxpayers; however, this will not impact as many taxpayers since large State income tax and property tax deductions were the largest preference items creating AMT tax.

For Businesses:

There are several large changes to business taxes for 2018.A 20% deduction for qualified business income (QBI) has been created to help offset the repeal of many common business deductions.

There are a large number of limitations in the rules surrounding the complex calculations of the 20% business income deduction (also known as 199A QBI deduction).This deduction is impacted by the business’s net income and total payroll coding / classifications on the business tax return and the 1040 since this benefit is distributed to business owners through their K-1 forms and received by the business owner on their 1040.

2018 and 2019 corporate tax rates are now a flat 21% and corporate AMT taxes have been eliminated.

Partnerships are subject to new audit regulations which centralize audits and force partnership to pay taxes for all partners at the highest possible tax rates regardless of changes in partners and tax rates of individual partners.Partnerships should consider indemnity agreements and annual opt out options.

The standard mileage for all business miles was 54.5 cents per mile for 2018.This increases to 58 cents for 2019.

Entertainment and meals directly related to business have been deductible at 50% for several years.For 2018, deductions are no longer allowed for expenses related to entertainment, amusement, recreation, membership dues (social, recreational and civic) and facility costs related to entertainment, amusement and recreation.Meals are still deductible with the 50% limit.Meals provided to employees for the convenience of the employer are also not deductible unless they are infrequent, provided at the workplace and to the workforce as a whole and de Minimis in cost.

Net operating losses (NOL) may no longer be carried back.NOL created in 2018 and later may only be carried forward and used to reduce current year income by 80%, instead of the previous 100%.

Partnership and S-Corporation returns are due March 15, 2019.Calendar year C-Corporations are due April 15, 2019.Fiscal year c-corporations must be filed by the 15th day of the fourth month following the close of the year.Fiscal years ending on June 30th must be filed by the 15th day of the third month following the year’s close.Extensions for partnership and corporation returns last until through September 15.

The Sec. 179 deduction limitation increased from $510,000 for 2017 to $1,000,000 for 2018 and 2019 allowing a trade or businesses to accelerate the deduction of equipment purchases and nonresidential interior improvements.Bonus depreciation increased to 100% for most assets with a useful life of less than 20 years.

Depreciation has several other changes:(1) residential rental property has a life of 30 years, down from 40 when depreciated on a straight-line basis; (2) the definition of qualified improvement property has been expanded so more property can have a 15-year depreciation period; and (3) automobile depreciation limitations have been reduced.

Social security withholding remains at 6.2% for 2018 and 2019. The maximum FICA/SE earnings subject to tax increases to $132,900 up from $128,400 for 2018.Medicare tax remains at 1.45% for employers and employees.Employers are required to withholding an additional 0.9% if an employee’s pay reaches $200,000 or $250,000 for MFJ filers.

Businesses providing health insurance to employees in 2018 must report the cost of health insurance on employee’s W-2 forms.Employers with more than 50 employees must also submit 1095 forms to the IRS by February 28, 2019.Employers must issue 1099, W-2 and 1095 forms by January 31, 2019.

Schedule C business owners may still use a simplified option when figuring the business use of their home.The simplified option does not change the criteria for who may claim the home office deduction.Under the simplified option, you claim a standard deduction of $5 per square foot of home to a maximum of 300 square feet.Home office and other unreimbursed business expenses are no longer deductible for W-2 employees.

In 2018, Section 1031 Like-Kind exchanges were limited to real property located within the US.

Florida minimum wage increased to $8.46 per hour for 2019 up from $8.25 in 2018.Tipped employee’s wage rate increases to $5.44 for 2019, up from $5.23 in 2018.Florida’s wage base for reemployment compensation tax is $7,000 for 2019.The minimum rate for 2019 is 0.0010 per employee.The maximum rate remains at 0.0540 or $378 per employee.

The dollar limit on annual elective deferrals under 401(k) plans and salary reduction SEP is $18,500 for 2018 and $19,000 for 2019.Taxpayers aged 50 and over, can make an additional $6,000 in catch-up contributions for both years.

The dollar limit on annual elective deferrals to a SIMPLE plan is $12,500 for 2018 and $13,000 for 2019.Taxpayers over age 50 can make an additional $3,000 in catch-up contribution for both years.Employers are still limited to 3% of wages or 2% if SIMPLE plans are funded by employer-only contributions.

Reach out to us with questions.

941.474.9309 Fax 941.474.2370 office@englewoodcpas.com www.englewoodcpas.com