LUTZ BUSINESS INSIGHTS
personal and business tax updates for 2019
Steve nebbia, tax manager
The sweeping tax changes that were implemented in 2018 signaled a seismic shift in the way individuals paid taxes. However, there aren’t many changes coming for you this year. The IRS rules for 2019 are more of the same, with a few tweaks here and there.
A Quick Review of Major Changes From The 2017 TCJA
As you gather your tax documents to take to your accountant, it’s important to review some of the key changes of the Tax Cuts and Jobs Act (TCJA) and how they affect the majority of wage-earning Americans.
- Increased Standard Deduction–married filing joint increased to $24,000, and single filers bumped up to $12,000.
- Real estate and local tax deductions capped at $10,000
- Personal and dependent exemption (around $4000) repealed
- Coverdell and 529 accounts can be used for education from kindergarten through college, instead of just college
- Mortgage interest payments deductible for up to a $750,000 mortgage, down from $1.1 million
- Medical expenses are deductible in excess of 7.5% of Adjusted Gross Income (AGI), down from 10%
- Capital gains, dividends, and Alternative Minimum Tax (AMT) all decreased, based on tax bracket and indexed for inflation
- Decrease of penalty tax for failure to comply with the Affordable Care Act (ACA).
- Elimination of casualty loss or theft – damages no longer deductible unless the area was part of a Federally recognized disaster area
Tax Tweaks For 2019
These changes to the individual tax code are scheduled to expire in 2025. Only the overhauled corporate tax structures are permanent. Even so, there are some changes for 2019.
- The standard deduction increases a bit – up to $12,200 for individuals and $24,400 for married couples filing jointly.
- The penalty for failure to obtain health insurance is repealed–if you decide not to buy health insurance, the IRS won’t charge you for it. However, some states are penalizing individuals for not buying health insurance.
- Medical expenses are more difficult to deduct. The AGI floor bumps back up to 10%–if your income is $100,000, you have to spend more than $10,000 to get any of those expenses back. If you had $12,000 in medical and dental expenses, you could deduct $2000.
Big Changes To Alimony Reporting For 2019
Prior to 2019, alimony payments were an almost zero-sum game for the IRS – the paying ex-spouse got to deduct the payments from their income, while the receiving ex-spouse paid taxes on the income. The receiving spouse was generally in a lower tax bracket, thus lowering the aggregate taxes for both parties.
The alimony deduction for the paying ex-spouse has been eliminated. That person must claim those payments as income. Also, the ex-spouse receiving the money no longer claims the income. This is a boon to the IRS as the paying spouse is typically in a higher tax bracket.
Business Deduction Changes For 2019
There are also some changes to business and pass-through taxation. Here are some of the highlights.
Qualified Business Income (QBI) Deduction
- QBI applies to the owners of sole proprietorships, partnerships, S-corps, and LLCs.
- Section 199A (net amount of income, gain, deduction, and loss) allows up to 20% deduction.
- Also applies to trusts, estates, and individual taxpayers
- The maximized deduction could provide a top marginal tax rate of 29.6% (80% of the top 37% marginal rate)
Talk to your CPA if you have questions on this law.
The maximum business loss for couples is now $500,000, and excess losses can be carried forward. Separate business activities are to be analyzed accordingly.
Expenses, Depreciation, And Deductions
Qualified property placed in service between 9/17/17 and 1/1/23 is eligible for 100% Bonus Depreciation, with the following step-down amounts, through 2026.
- 80% in 2023
- 60% in 2024
- 40% in 2025
- 20% in 2026
Section 179 expensing guidelines have implemented these changes.
- Expense amount limited to $1,000,000
- Phase-out threshold listed to $2,500,000
- Qualified real property eligibility has expanded to non-residential real property, including roofs, HVAC systems, and security and fire protection systems.
The IRS has disallowed some of the perks of business ownership, eliminating deductions for entertainment, recreational activities, and membership dues. However, you can still write off the company Christmas party and other team building activities for employees at 100%.
Despite the goal of simplification, completing your income taxes is still a task best left to the professionals. Lutz is here to help you with all the aspects of your financial life, from retirement planning to filing your tax returns.
ABOUT THE AUTHOR
STEVE NEBBIA + TAX MANAGER
Steve Nebbia is a Tax Manager at Lutz with over five years of related experience. He provides tax consulting and compliance services to clients with a focus on business income tax for a variety of industries, individual income tax, and trust and estate planning.
AREAS OF FOCUS
- Tax Consulting & Compliance
- Individual & Business Income Tax
- Trust & Estate Planning
AFFILIATIONS AND CREDENTIALS
- American Institute of Certified Public Accountants, Member
- Nebraska Society of Certified Public Accountants, Member
- Certified Public Accountant
- Master's in Science of Accountancy, University of Notre Dame, Notre Dame, IN
- BSBA in Finance and Accounting, University of Nebraska, Lincoln, NE
- Omaha Parks Foundation, Board Member
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