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9 Key Changes to Your
2019 Tax Return
Last year, seismic changes in the tax code had an enormous impact on your tax return. Many people were blindsided with unexpected tax bills, while others were pleasantly surprised with bigger refunds. Tax year 2019 (the tax return you’ll file this spring) won’t be as dramatically different, but it will bring even more changes to deal with. Whether you’ll end up paying more or less this year depends on your personal situation. In this guide, you’ll learn about the nine biggest changes affecting your 2019 tax return. You’ll also discover a preview of tax changes for 2020 that may alter next year’s return. Click through to learn more.
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Select a topic
1
Bigger Brackets for Low Tax Rates
2
Larger Standard Deductions
3
Higher Hurdle for Medical Expense Deductions
4
Health Insurance Tax Penalty Eliminated
5
New Tax Form Especially for Seniors
6
Changes for Small Business Owners
7
Alimony No Longer Has a Tax Impact
8
A Return to a Friendlier Kiddie Tax
9
Tax Breaks Brought Back from the Dead
PLUS
A Preview of 2020 Changes
9 Key Changes
to Your 2019 Tax Return
9 Key Changes to your
Bigger Brackets
for Low Tax Rates
Click to read more
Last year brought broad tax rate cuts. While the rates haven’t changed again, the amount of money taxed at each rate – the tax brackets – have gotten bigger (see the charts below). That means you’ll pay lower rates on more of your income, potentially reducing your overall tax bill. Think of tax brackets like money buckets. Only the earnings that land in a particular bucket get taxed at that bucket’s rate. So, even if your total taxable income lands in a high-rate bucket, you won’t pay that higher rate on all of it.
Here’s how it works. Say you’re single and your taxable income comes to $50,000. At first glance, that would land you in the 22% tax bracket – but you won’t have an $11,000 tax bill (22% x $50,000). Here’s why: • The first $9,700 is taxed at 10%, or $970. • Income that’s more than $9,700 but not over $39,475 is taxed at 12%, or $3,573. • The remaining $10,525 ($50,000-$39,475) is taxed at 22%, or $2,315. That brings the total tax bill to $6,568, substantially lower than $11,000.
2019 Tax Brackets and Rates
Single Filers
Head of Household
Married Filing Jointly
Married Filing Separately
Your total income doesn’t equal your taxable income. Standard or itemized deductions will reduce your taxable income, and so do other adjustments (like retirement account contributions or student loan interest payments, for example).
Remember:
SIngle
Up to $9,700 $9,701 to $39,475 $39,476 to $84,200 $84,201 to $160,725 $160,726 to $204,100 $204,101 to $510,300 Over $510,300
Up to $9,700
$9,701 to $39,475
$39,476 to $84,200
$84,201 to $160,725
$160,726 to $204,100
$204,101 to $510,300
Over $510,300
Up to $13,850 $13,851 to $52,850 $52,851 to $84,200 $84,201 to $160,700 $160,701 to $204,100 $204,101 to $510,300 Over $510,300
Up to $13,850
$13,851 to $52,850
$52,851 to $84,200
$84,201 to $160,700
$160,701 to $204,100
Up to $19,400 $19,401 to $78,950 $78,951 to $168,400 $168,401 to $321,450 $321,451 to $408,200 $408,201 to $612,350 Over $612,350
Up to $19,400
$19,401 to $78,950
$78,951 to $168,400
$168,401 to $321,450
$321,451 to $408,200
$408,201 to $612,350
Over $612,350
Up to $9,700 $9,701 to $39,475 $39,476 to $84,200 $84,201 to $160,725 $160,726 to $204,100 $204,101 to $306,175 Over $306,175
$204,101 to $306,175
Over $306,175
BACK
Head of household
Here’s how it works. Say you’re single and your taxable income comes to $50,000. At first glance, that would land you in the 22% tax bracket – but you won’t have an $11,000 tax bill (22% x $50,000). Here’s why: • The first $9,700 is taxed at 10%, or $970. • Income that’s more than $9,700 but not over $39,475 is taxed at 12%, or $3,573. • The remaining $10,525 ($50,000 - $39,475) is taxed at 22%, or $2,315. That brings the total tax bill to $6,568, substantially lower than $11,000.
HOME
As before, individuals age 65 or older (or who are blind) can claim more. For single taxpayers age 65 or older the standard deduction rises to $13,850. For heads of household, it’s $20,000. For married filing jointly, the standard deduction for a couple in which both spouses are 65 or older rises to $27,000.
When You Can Claim Even More
What’s Your Standard Deduction for Tax Year 2019?
• Filing status • Age • Whether you’re blind Most Americans use the standard deduction to reduce their taxable income. Adults who were age 65 by December 31, 2018, are eligible for bigger standard deductions.
Tax deductions exist to help offset part of the basic cost of living. When it comes to filing your taxes, every year you have the choice of itemizing your deductions (based on some of your actual personal expenses) or taking a standard deduction – one that’s the same for everybody. For your 2019 tax return, the standard deduction amounts are higher than ever. But your standard deduction depends on three things:
Larger Standard
Deductions
2018
$12,000
2019
$12,200
$18,350
$18,000
$24,400
$24,000
What's your standard Deduction for tax year 2019?
• Filing status • Age • Whether you’re blind Most Americans use the standard deduction to reduce their taxable income. Adults who were age 65 by December 31, 2018, are eligible for bigger standard deductions. [Note: Tax filing status in chart below can be clickable pop-ups, with deduction amounts]
LARGER STANDARD
What’s considered a deductible medical expense?
Medical expenses can still be included in itemized deductions. Taxpayers would have found it more difficult to qualify for these deductions this tax season until Congress instituted a year-end reprieve. Unlike many other itemized deductions, medical expense deductions are based on a percentage of your adjusted gross income (AGI). Medical expenses greater than 7.5% of AGI can be deducted. This threshold had been set to go up to 10% this tax season until Congress extended the 7.5% limit for tax years 2019 and 2020. Here’s an example. If your AGI equals $60,000, then your medical expenses for 2019 would have to exceed $4,500 (7.5% of $60,000) to claim any deduction at all. If your medical expenses added up to $7,500, you could deduct just $3,000 ($7,500 less $4,500).
Higher Hurdle
for Medical Expense Deductions
IRS Publication 502.
Unlike many other itemized deductions, medical expense deductions are based on a percentage of your adjusted gross income (AGI).
• Health insurance premiums • Copays • Deductibles • Out-of-pocket costs for doctor visits and prescriptions • Dental and vision care expenses • Acupuncture • Stop smoking programs • Hearing aids • Transportation to and from medical appointments
Find a full listing of deductible medical expenses in IRS Publication 502.
The Affordable Care Act (ACA) required all Americans to have health insurance or pay a stiff tax penalty (this was known as the “individual mandate”). For most people (some were exempt from penalties), that added an extra $695 per uninsured adult and $347.50 per uninsured child to their tax bills.
Health Insurance
Tax Penalty Eliminated
Starting in 2019, taxpayers will no longer be subject to IRS tax penalties if they don’t have health insurance for themselves and their families. That doesn’t mean uninsured taxpayers may not still face tax consequences at the state level, though. Some states have enacted – or are in the process of enacting – their own versions of the individual mandate. As of 2019, Massachusetts, New Jersey, and Washington D.C. have penalties in effect. Three more states will join them in 2020: Rhode Island, Vermont, and California.
Taxpayers will no longer be subject to IRS tax penalties if they don’t have health insurance
While most seniors will be able to use the simplified new form, there are some who will still need to use regular Form 1040. Here’s why: • You can’t itemize deductions with the 1040-SR. • Both you and your spouse must be 65 or older if you’re filing jointly.
Americans aged 65 and older (by December 31, 2019) now have access to a new tax form designed especially for them. IRS Form 1040-SR is geared toward retirees, but you don’t have to be retired to use it. Whether or not you’re retired, Form 1040-SR makes tax time much easier for seniors, from the lines included to the design and layout. The new form comes with senior-friendly features, such as an easy-to-read larger font and bigger spaces for writing in information. The 1040-SR also highlights the types of income most seniors have, such as Social Security benefits, pension payments, and retirement account distributions.
New Tax Form
Especially for Seniors
IRS Form 1040-SR
Page 1 of
NEW TAX FORM
Millions of Americans have business income, even if they don’t realize it. If you receive compensation for work you do and no tax is withheld from your payments, it counts as business income. Did you work as a freelancer, a consultant or just have a side gig this year? Chances are you’re running a business.
Are You a Business?
Changes for
Small Business Owners
the opportunity to earn some tax-free income. Business owners that qualify for the deduction can exclude 20% of their profits from taxable income (but not from self-employment taxes). That valuable deduction begins to phase out when total taxpayer income reaches: • $160,700 for single filers • $321,400 for joint filers This special business deduction is available to all pass-through businesses, which means that the company’s income passes through to the taxpayer’s personal tax return. Pass-through business types include sole proprietors, LLCs, partnerships, and S corporations.
In the gig economy, more Americans than ever qualify as small business owners, which means they will need to file a Schedule C to report business income or losses when they complete their 2019 tax returns. What’s more, this year, small business owners will have to contend with a couple of changes in the tax law. The biggest change: Elimination of Schedule C-EZ, a simplified version of the form that was much easier to complete. Now all sole proprietors and single-member LLCs (who don’t elect to be taxed as corporations) will have to fill out the comprehensive and much longer form Schedule C when they file. Another change: The income phase-outs for the 20% business income deduction have increased, giving more small business owners
SMALL BUSINESS OWNERS
For divorces finalized on or after January 1, 2019, alimony won’t show up on either party’s tax return. Before this change, people paying alimony got a tax deduction for the full amount. People receiving alimony had to include it in their taxable income and pay tax on the payments they received. Now, for anyone whose divorce was finalized in 2019, alimony has no tax effect for either party. As a result, alimony payers will have higher tax bills while recipients will have lower tax bills than they would have had under the old law.
Alimony
Has a
For divorces finalized before 2019 – any time through December 31, 2018 – the old rules still apply. That means their alimony payments will still be taxable to the recipient and deductible to the payer.
Be Aware:
No Longer
Tax Impact
Alimony No Longer
Has a TAX IMPACT
The SECURE Act, which takes effect in 2020 and primarily addresses retirement account issues, brought relief – current and retroactive – to those parents taking bigger tax hits because of their children’s unearned income. You can choose to follow the original law for 2019, where your children’s unearned income will be taxed at your tax rate. In addition, you can file an amended return for 2018 following the more advantageous kiddie tax rules and get some money back.
When children under age 19 (or full-time students under age 24) have unearned income, such as interest and dividends from investments, those earnings may trigger the kiddie tax. For years, children’s unearned income over a certain amount ($2,200 for tax year 2019) was taxed at the parents’ tax rate. A 2017 tax law changed the way the kiddie tax worked but had an unfortunate unintended consequence: military families with survivor benefits, families of slain police officers, and some students with scholarships faced substantially higher tax bills.
A Return to a
Friendlier Kiddie Tax
FRIENDLIER KIDDIE TAX
Homeowner tax Breaks
The $4,000 cap applies if your adjusted gross income is under $65,000 on a single return or under $130,000 if you're married and file a joint return. For singles, the maximum write-off drops to $2,000 if your income is more than $65,000, and it disappears when income passes $80,000. For married couples, the max is $2,000 when income passes $130,000, and it's wiped out completely if your AGI exceeds $160,000. If you qualify for this break, you can claim it whether or not you itemize deductions.
Several tax breaks that expired at the end of 2017 were revived by Congress for 2018 to 2020 tax returns. Some have income limits. College tuition and fees deduction If you make too much to claim the American Opportunity or Lifetime Learning credit (which can be more valuable if you qualify), this write-off can save you money. On your 2019 return, you can deduct up to $4,000 of what you paid in qualifying tuition and fees for yourself, your spouse or your dependents.
Tax Breaks Brought
Back from the Dead
Deduction for private mortgage insurance premiums
Forgiveness of debt on a foreclosure or short sale
Tax credit for energy-efficient home improvements
The credit is equal to 10% of the cost of qualifying windows, doors, skylights, roofs and insulation, PLUS material and labor costs for other qualified upgrades. There are, however, a number of restrictions that can cut into your tax savings. For instance, there's an overall credit limit of $500—and it's a lifetime cap on the total tax credits for eligible home improvements you've made since 2006. There's a similar $200 lifetime limit for new windows. There are also annual credit caps for circulating fans ($50); natural gas, propane or oil furnaces or hot water boilers ($150); and any other qualifying energy-efficient upgrades ($300).
Note that this deduction begins phasing out if your AGI exceeds $100,000, and disappears if your AGI exceeds $109,000 ($50,000 and $54,000 if you’re married filing a separate return).
Generally, when a debt is forgiven, the law treats the amount as income to the debtor. But, when it comes to mortgage debt forgiven as part of a foreclosure or short sale, up to $2 million of discharged debt on a principal residence is tax free.
Forgiveness of Debt on a Foreclosure or Short Sale
Homeowner Tax Breaks
PLUS, A Preview of
2020 Changes
Here are six changes that may affect your tax planning this year and the return you file next year. • Workers with earnings from a job can now contribute to a traditional IRA as long as they have taxable earned income. Previously, you could only contribute until age 70½. • The age for starting required minimum distributions from traditional IRAs, 401(k)s and similar retirement plans is now 72, up from 70½. However, if you turned 70½ in 2019, you fall under the old rules, and must take your first RMD by April 1, 2020.
• If you inherit an IRA or 401(k) from someone other than a spouse in 2020 or later, you must withdraw the money within 10 years after the year of the account owner’s death. Heirs who remain under the old rules and can take withdrawals based on their life expectancy: Spouses; the disabled or chronically ill; minor children (not grandchildren) until they reach the age of majority, typically 18; and beneficiaries who are not more than 10 years younger than the original account owner. • Within a year of having a baby or adopting, each parent can take up to $5,000 out of an IRA, 401(k) or similar plan
to help with expenses without owing a 10% early withdrawal penalty. Withdrawals will still be subject to ordinary income tax. • You can take up to $10,000 tax-free from a 529 plan to repay the beneficiary’s student loans – a lifetime limit. You can also withdraw $10,000 for each of the beneficiary’s siblings to repay their education loans. (This is retroactive to Jan. 1, 2019.) • Contribution limits to retirement plans have been raised. You can contribute up to $19,500 to a 401(k), 403(b) or 457 plan in 2020, or $500 more than the year before. Workers age 50 and older can kick in an extra $6,500, a $500 increase.
You can take up to $10,000 tax-free from a 529 plan to repay the beneficiary’s student loans – a lifetime limit.
expenses without owing a 10% early withdrawal penalty. Withdrawals will still be subject to ordinary income tax. • You can take up to $10,000 tax- free from a 529 plan to repay the beneficiary’s student loans – a lifetime limit. You can also withdraw $10,000 for each of the beneficiary’s siblings to repay their education loans. (This is retroactive to Jan. 1, 2019.) • Contribution limits to retirement plans have been raised. You can contribute up to $19,500 to a 401(k), 403(b) or 457 plan in 2020, or $500 more than the year before. Workers age 50 and older can kick in an extra $6,500, a $500 increase.
• If you inherit an IRA or 401(k) from someone other than a spouse in 2020 or later, you must withdraw the money within 10 years after the year of the account owner’s death. Heirs who remain under the old rules and can take withdrawals based on their life expectancy: Spouses; the disabled or chronically ill; minor children (not grandchildren) until they reach the age of majority, typically 18; and beneficiaries who are not more than 10 years younger than the original account owner. • Within a year of having a baby or adopting, each parent can take up to $5,000 out of an IRA, 401(k) or similar plan to help with