After one of the most monumental revisions of the Internal Revenue Code in more than 30 years, tax law changes enacted a few years ago may impact the 2019 federal tax return you file this year. All U.S. taxpayers — including individuals, businesses, exempt organizations and trusts — were affected by the Tax Cuts and Jobs Act of 2017. Here is a breakdown of what you can expect in some key areas when filing your 2019 federal tax return.
The income brackets and tax rate changes became effective Jan. 1, 2018, pushing many taxpayers into a lower bracket. Although not everyone will pay less tax under the new rules, here are a couple of examples of taxpayers who could see a lower tax bill for 2019:
- A married couple who filed a joint return with taxable income of $150,000 in 2017 was in the 25% tax bracket. Under the new tax brackets, this couple will be in the 22% tax bracket. This comes to a savings of approximately $4,000 in taxes in 2019 (assuming their taxable income remains the same).
- A single taxpayer with taxable income of $60,000 in 2017 was in the 25% bracket. For 2019, this taxpayer is in the 22% tax bracket — for a savings of approximately $1,600 in taxes.
For your 2019 tax return, the standard deduction is $24,400 for married taxpayers filing jointly and $12,200 for individuals. The increased amount may mean itemized deductions you are used to being able to use to reduce your taxes may not be applicable for 2019. In addition to the increase in the standard deduction, tax legislation limited or removed the ability to deduct certain itemized deductions through 2025.
Federal estate taxes have been simplified and exemptions increased for inflation. This does not mean, however, that estate planning isn’t necessary if your wealth falls to less than $11 million, as state regulations can have different thresholds. If you’ve had any significant changes in your family such as a birth, marriage, divorce or death, it’s important to revisit your estate planning documents to make any necessary changes.
The annual federal gift tax exclusion allows gifts of up to $15,000 made during the 2019 tax year to as many people as you wished without those gifts counting against your $11.4 million lifetime exemption.
Charitable contributions can reduce your tax bill only if you are able to itemize your taxes. Due to the increase in the standard deduction, it may no longer be beneficial for you to claim these deductions. If you are claiming a charitable contribution, be sure that the charity you’re considering is a qualified charity to receive tax-deductible contributions. We recommend using the online search tool, Exempt Organizations Select Check, at IRS.gov to confirm a charity is recognized as a 501(c) nonprofit organization. If in doubt, consult one of our MBC advisors.
Goodwill and the Salvation Army offer online value guides to assist in placing a value on any household or clothing donations. For any donation of $250 or more, you must have written acknowledgment from the charitable organization — usually a letter on the charity’s letterhead — stating the amount of the cash donation, a description of a noncash donation and a statement of whether anything was provided (with value) in exchange for donation.
Monday, March 16, 2020
- Deadline for S corporation tax returns for the year 2019, or to request an automatic six-month extension.
- Deadline to file partnership tax returns or to request an automatic six-month extension
Wednesday, April 15, 2020
- Deadline to file individual tax returns (Form 1040) for the year 2019 or to request an automatic six-month extension.
- Deadline for C corporation tax returns for the year 2019, or to request an automatic six-month extension.
- Deadline to file estate income tax or trust income tax returns or to request an automatic 5 1/2-month extension.
- Last day to make a contribution to traditional IRA, Roth IRA, Health Savings Account, SEP-IRA, or solo 401(k) for the 2019 tax year.
- First-quarter estimated tax payments due for the 2020 tax year.
So many things have tax consequences that we often don’t think about until it’s too late — changing jobs, having children, planning for retirement, exercising stock options, receiving a raise, opting into an employer-provided retirement plan like a 401(k). It’s always a good idea to review how the tax laws affect you and that’s where we can help!
Miller, Bales & Company is a financial planning agency led by certified public accountants. In addition to our CPA experience, Miller, Bales & Company’s partnership with Cetera Financial Specialists allows you to benefit from sophisticated trading and technology platforms, so you receive high-level knowledge and effective financial planning for your wealth management. Before making any big financial decisions, plan ahead and speak to your financial advisor. There may be alternatives that will provide a better tax outcome for you.