The changes to the Internal Revenue Code (I.R.C.) for 2019 are certainly less extensive than the ones made for 2018. Nevertheless, some significant alterations and adjustments to the I.R.C. are evident this year. Here are 8 important changes that you should be aware of in 2019.

1: Income Tax Brackets

Income tax brackets have been adjusted for inflation. The thresholds for these brackets are roughly 2% higher than in 2018.

2: Standard deduction

The standard deduction has increased slightly for a range of $200-400, depending on filing status. The additional standard deduction is $1,300 for single filers who are blind or 65 and older (and $1650 for unmarried taxpayers blind or aged 65+)

*Single filer and married couples filing separately:  $12,200 (Instead of $12,000)

*Head of household: $18,350 (instead of $18,000)

*Married couples filing jointly & surviving spouses: $24,400 (instead of $24,000)

3: Capital Gains

In 2019, the long-term capital gains tax rates (assets held for more than a year) are either 0%, 15%, or 20%. For assets held less than a year, short term capital gains are equal to your ordinary income tax rates of either 10%, 12%, 22%, 24%, 32%, 35%, or 37%.

Long-Term Capital Gains Tax Rate Single Filers (taxable income) Married Filing Jointly Heads of Household Married Filing Separately
0% $0-$39,375 $0-$78,750 $0-$52,750 $0-$39,375
15% $39,376-$434,550 $78,751-$488,850 $0-$461,700 $39,376-$244,425
20% Over $434,550 Over $488,850 Over $461,700 Over $244,425

 

 

 

4: Contribution Limits on Retirement Plans

For a traditional IRA, annual contributions of up to $5,500 or 100% of compensation (whichever is less) is allowed. Also allowed is catch up contributions of $1,000 if you are 50 years of age or older. Non employed spouses may also contribute up to $5,000 per year if conditions are met. ($6,500 if over 50).

For a SEP IRA, 25% of compensation is allowed up to $55,000, and approximately 20% for sole proprietors. In a simple IRA, employees can defer up to $12,500, and catch up contributions of $3,000 if you are over the age of 50. Employers must also match dollar for dollar up to 3% of compensation. However, this can be lowered to 1% for two of every five years, or 2% of compensation as a non-elective contribution.

5: Federal Estate/Gift Tax Exemption

In 2019, it rises to $11.4 million for individuals (up from $11.2 million). ‘Wealthy” married couples can now protect up to $22.8 million of their estate from federal death taxes (which can be as high as 40%). This is only allowed if the surviving spouse uses the late spouse’s unused portion of their estate/gift tax exemption.

6: Child Tax Credit

The maximum EITC (earned income tax credit) is $6,557 for taxpayers with three or more qualifying children, $5,828 for taxpayers with two or more children, $3,526 for taxpayers with one child, and $529 for taxpayers without any children. These amounts have increased slightly since 2018.

7: Affordable Care Act

The penalty for not having health insurance has been suspended for 2019 and possibly years to come. However, while the penalty is now $0, some states (like New Jersey) are considering bills to impose state fines on uninsured taxpayers.

8: Foreign Earned Income Exclusion

If you earned income while working/living in another country in 2019, then you can claim the foreign earned income exclusion. You can shield as much as $105,900 of earned income for the year. Up from the $103,900 limit in 2018.

 

As you begin to digest these important tax law changes, you should consider consulting with your tax advisor and retirement advisor to take advantage of planning opportunities that could affect your overall retirement plan. It is more important now than ever to have your tax preparer collaborate with your retirement advisor to ensure you are taking full advantage of the new law. We will continue to dig into the new law to learn the impact on your personal and business taxes in the months to come.

This information is not intended to be a substitute for specific individualized tax advice.

 

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