​2019 Federal Tax Law

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ROTH TAX & FINANCIAL SERVICES - David Roth, EA

Professional Tax Preparation & Investment Planning​​

 

 

****THE FOLLOWING IS EXTREMELY IMPORTANT INFORMATION

This is an outline of some of the biggest changes to the new tax law that went into effect for the 2018 tax year and going forward.

The current 7-tier tax bracket will be reduced to four tax brackets. They are as follows:

SINGLE FILERS
10% - Income $0 to $9,700
12% - Income $9,526 to $39,475
22% - Income $39,476 to $84,200
24% - Income $84,201 to $160,725

32% - Income $160,726 to $204,100

35% - Income $204,101 to $510,300
37% - Income $510,301 and up

MARRIED FILERS
10% - Income $0 to $19,400
12% - Income $19,051 to $78,950
22% - Income $78,951 to $168,400

24% - Income $168,401 to $321,450

32% - Income $321,451 to $408,200

35% - Income $408,201 to $612,350
37% - Income $612,351 and up

This next section is particularly important to your deductions as taxpayers.

STANDARD DEDUCTION:
The standard deduction is for those that don’t have deductions that add up to or more than the standard deduction that the government gives you. Back in 2017 the standard deduction was $6,350 for a single filer, $9,350 for head of household and $12,700 for a married filer. Under the 2019 plan they nearly double the standard deduction so that single filers can deduct $12,200, $18,350 for head of household and married filers can deduct $24,400. This sounds appealing on paper but there are hidden factors here. Under the old system each taxpayer AND EACH OF THEIR CHILD DEPENDENTS got an additional $4,050 deduction called personal exemptions. This deduction has been eliminated.  For example in the old 2017 system a married couple with 3 children would get a standard + personal exemption deduction of $32,950 ($12,700 for married filers + $8,100 for their personal exemption + $12,150 for their three children). But in the current tax plan that same family would get a total of $24,000 in the deduction.


CHILD CREDITS:

The credit increases up to $2,000 per child, and the first $1,400 is refundable, meaning the credit could reduce your tax liability below zero and you would still be able to receive a tax refund. The cut off for the tax credit increases from $110,000 to $400,000 for married couples filing jointly. The expanded credit ends after 2025.


ITEMIZED DEDUCTIONS:

This is the area that has the most dramatic changes. The new law raised the standard deduction and therefore eliminated most of the itemized deductions. Itemized deductions are things like medical expenses, state and local taxes, mortgage interest, property and personal property taxes, charitable contributions, tax preparer expense & unreimbursed employee job expenses. If these deductions add up to more than your allotted standard deductions then you are allowed to use those to your benefit instead of the standard deduction.

The following aforementioned deductions remain:

  • Charitable contributions remain but with the increased standard deduction it may discourage taxpayers that normally contribute as they might not get the deduction.  The is an idea kicking around of having a donor-advised fund.  This would allow the taxpayer to take multiple years of payments in to the fund and add them up and claim them in one particular year.
  • Property taxes, state and local tax & sales tax.  This has been bundled into one.  You can chose two of these three to deduct but they are capped in total at $10,000.  This negatively impacts home owners particularly in high taxed regions of the country.
  • Mortgage interest but again not for all. This new plan would reduce your allowed deduction to up to two mortgages totally no more than $750,000. This again punishes those in higher housing markets.
  • ​Student loan interest is still allowed as a deduction up to $2,500 with certain income limitations.

 

The following are the deductions which the new law eliminated:


  • Unreimbursed Employee Expenses - This is of particular interest to those in the freelance workforce. A good example of this is the performing artist. These employees are required to stay up on their craft at their own expense. Some of these are as follows:
    • Many of these artists pay an agent at least 10% of their income.
    • Most pay 2% to 4% to their union from weekly incomes.
    • Tools or musical instruments. Many musicians have anywhere from $20,000 to $200,000 in instrument costs. Also many of these deductions are depreciated over 7 years. At this time it appears that those taxpayers that haven’t exhausted their deductions through depreciation would not recover the remaining deduction.
    • Promotional materials and advertising to remain relevant in a short term employment contract market.
    • Home Office Expenses
    • Required work clothing or uniforms
    • Required travel, lodging and food in the required course of their work.
  • Medical Expenses - The new tax law increased the limits that can be deducted. Taxpayers that incur major medical expenses can now only deduct the amounts that exceed 10% of their adjusted gross income.
  • Tax Preparation fees
  • ​​Moving Expenses for Work - The old plan allows a taxpayer to deduct these expenses if there new job is full-time and the new location is more than 50 miles from their previous location. It should be noted that this deduction is still allowed for businesses even if they move their business overseas. 


I haven’t addressed the changes proposed to businesses. The most impacting is lowering the existing corporate tax rate from 35% to 21% in the hopes that the increased corporate profits will create more jobs and higher wages.  Also pass through entities (LLCs and S Corps) will get a 20% deduction from corporate profits before the pass through to the personal returns.