Every year the IRS adjusts more than 40 tax provisions for inflation. 2019 is no different! Except that instead of the Consumer Price Index or CPI, the IRS now uses the “Chained Consumer Price Index” to adjust income thresholds, deduction amounts, and credit values accordingly.
2019 will prove to be exciting for both CPAs and their clients, not just because of new tax rates, but also because it is the first real filing season since tax reform kicked in. Oh, yeah, and the government is shutdown right now, which impacts filing and refunds!
Some other items we have to look forward to are a new look for the 1040, continued guidance for Section 199A pass-through rules and SALT, as well as tax laws affecting online sales. Here is what you need to know now:
Income Tax Brackets and Rates
In 2019, the income limits for all tax brackets and all filers will be adjusted for inflation and will be as follows in Tables 1. The top marginal income tax rate of 37 percent will hit taxpayers with taxable income of $510,300 and higher for single filers and $612,350 and higher for married couples filing jointly.
Table 1. Tax Brackets and Rates, 2019
Standard Deduction and Personal Exemption
The standard deduction for single filers will increase by $200 and by $400 for married couples filing jointly, see Table 2. The personal exemption for 2019 remains eliminated.
Table 2. 2019 Standard Deduction and Personal Exemption
Alternative Minimum Tax
The Alternative Minimum Tax (AMT) was created in the 1960s to prevent high-income taxpayers from avoiding the individual income tax. This parallel tax income system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT. The taxpayer then needs to pay the higher of the two.
The AMT uses an alternative definition of taxable income called Alternative Minimum Taxable Income (AMTI). To prevent low- and middle-income taxpayers from being subject to the AMT, taxpayers are allowed to exempt a significant amount of their income from AMTI. However, this exemption phases out for high-income taxpayers. The AMT is levied at two rates: 26 percent and 28 percent.
The AMT exemption amount for 2019 is $71,700 for singles and $111,700 for married couples filing jointly. In 2019, the 28 percent AMT rate applies to excess AMTI of $194,800 for all taxpayers ($97,400 for married couples filing joint returns).
AMT exemptions phase out at 25 cents per dollar earned once taxpayer AMTI hits a certain threshold. In 2019, the exemption will start phasing out at $510,300 in AMTI for single filers and $1,020,600 for married taxpayers filing jointly.
2019 Alternative Minimum Tax Exemption Phaseout Thresholds are: $510,300 for Unmarried Individuals and $1,020,600 Married Filing Jointly.
Earned Income Tax Credit
The maximum Earned Income Tax Credit in 2019 for single and joint filers is $529, if the filer has no children, see below. The maximum credit is $3,526 for one child, $5,828 for two children, and $6,557 for three or more children. All these are relatively small increases from 2018.
Table 3. 2019 Earned Income Tax Credit Parameters
Child Tax Credit
The child tax credit totals at $2,000 per qualifying child and is not adjusted for inflation. However, the refundable portion of the Child Tax Credit, also known as the Additional Child Tax Credit, is adjusted for inflation. The Additional Child Tax Credit will remain at $1,400 for 2019.
Capital Gains
Long-term capital gains are taxed using different brackets and rates than ordinary income.
Table 4. 2019 Capital Gains Brackets
Qualified Business Income Deduction (Sec. 199A)
The Tax Cuts and Jobs Act includes a 20 percent deduction for pass-through businesses against up to $160,700 of qualified business income for unmarried taxpayers and $321,400 for married taxpayers This issue is very complicated and we suggest, if you believe you are eligible, that you review our prior article here: https://fuoco.cpa/tax-reform-tax-break-for-pass-through-entities/
Annual Exclusion for Gifts
In 2019, the first $15,000 of gifts to any person are excluded from tax. The exclusion is increased to $155,000 for gifts to spouses.
Contact Us: Do not lose the opportunity get a head start and greet 2019 in the best financial shape possible! Contact our tax planning professionals in New York or Florida to minimize your tax liabilities in the New Year. Call for an appointment today, toll free at 855-534-2727. We are still engaging individual and business clients for 2018 tax returns, if you are considering a change of provider.