Proposed Tax Changes for Tax Year 2019

There are several changes that carried over from 2018 that still will affect many taxpayers until the year 2025.

These are a couple of changes that may effect many tax payers.

  • Standard deduction will be increased significantly
  • The deduction for personal exemptions is going away
  • The deduction of business expenses (ie:  mileage, office expenses, travel, meals, uniform expense, etc.)

We will keep you updated as we receive additional information.

Here’s the latest Tax News for 2018.  There will be a lot of changes, so please read over this document.

Once again, the IRS will be holding the Earned Income Credit Returns until mid-February before they are released.

PARENT NOT LIVING WITH TAXPAYER:

A parent does not need to live in the tax-payer’s home for the taxpayer to qualify as HOH.   A taxpayer can qualify by paying more than half the cost of keeping up the parent’s home. The home must be the parent’s main home for the entire year.  A taxpayer who pays more than half the cost for keeping a parent in a rest home or nursing facility is keeping up a main home.  The parent must be the taxpayer’s dependent (but not under a multiple support agreement) for HOH status to apply.

STUDENT LOAN INTEREST DEDUCTION:

Taxpayers can deduct up to $2500 of interest paid on qualified education loans for college or vocational school expenses as an adjustment to income (above-the-line) (IRC 221).The deduction is available for interest on qualifying loans for the benefit of the taxpayer or the taxpayer’s spouse or dependent at the time that the debt was incurred.  Read more at the IRS.

BUSINESS EXPENSES:

If you receive 1099 income or are self-employed, reduce your net business income by making business purchases before the end of the year. If you’ve been eyeing any big-ticket items and you have the funds, make those purchases before December 31. In addition, you can make extra payments to vendors or business credit lines and take the deduction for amounts you pay before the end of the year.  Read more about what can be deducted as a business expense at the IRS.

ITEMIZED DEDUCTIONS:

Unfortunately, many of the “tax-deductible” pitches you receive throughout the year are only beneficial to tax-payers who can itemize deductions on Schedule A. The IRS allows each person to take either the standard deduction (based on filing status), or itemized deductions; however if the total of your itemized deductions equals less than your standard deduction you won’t want to itemize.

With standard deduction amounts ranging from about $12,200 for a single filer to almost $24,400 for married-filing-joint filers, your itemized deductions have to be pretty hefty to exceed the standard amounts. Common itemized deductions include mortgage interest, property taxes, charitable contributions, state taxes paid and medical expense in excess of 10% of your adjusted gross income. If you don’t itemize, save yourself some money during the year by saying “no” to tax deductible offers you don’t really want.

Itemized Deductions need to be more than this to itemize:

  • $24,400 for MFJ
  • $12,200 for Single
  • $18,350 for HOH
  • $12,200 for MFS
  • $24,400 for QW

This will be effect until 2025 unless it is renewed.  As long as this is in effect there will be no personal exemption.

FILING STATUS:

There are five filing statuses:

*SINGLE

*MARRIED FILING JOINT (MFJ)

*MARRIED FILING SEPARATELY (MFS)

*HEAD OF HOUSEHOLD (HOH)

*QUALIFYING WIDOW(ER) (QW)

SINGLE:

A tax-payer is single if unmarried or separated from a spouse, either by divorce or a separate maintenance decree, on December 31. A widow(er) whose spouse died before 2016 is single unless he meets the test for qualifying widow(er).

MARRIED FILING JOINTLY:

Taxpayers may file jointly if on the last day of the year they are:

*Married and living together,

*Married and living apart, but not legally separated or divorced,

*Separated under an interlocutory (not final) divorce decree, or

*Living in a common-law marriage, if common-law marriage is recognized in the

state where they currently reside or in the state where the marriage began.

If one spouse died in 2016, the survivor can file jointly with the decedent if the couple met one of the above tests on the date of death and the survivor did not remarry in 2016.

*Same-sex marriages. For federal tax purposes, the term spouse includes an individual married to a person of the same sex if the couple is lawfully married under state (or foreign) law, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. However, individuals who have entered into a registered domestic partnership, civil union or other similar relationship that is not considered a marriage under state (or foreign) law are not considered married for federal tax purposes.

HEAD OF HOUSEHOLD:

To qualify as Head of Household the tax payer must meet all of these test:

*The taxpayer is not married at the end of the year ( exception: Married taxpayers can qualify as HOH but meeting the test for considered unmarried.

*The taxpayer paid more than half the costs of keeping up his home.

*The home was the principal residence for more than half the year for either of the following:

The taxpayer’s qualifying child

The taxpayer’s qualifying relative who is the taxpayer’s dependent

*The taxpayer is a U.S. Citizen or resident during the entire year.

EXEMPTIONS:

Any person 65 years of age or older having a total annual income derived from any and all sources below specific limits is completely exempt from the tax. Total annual income from “any and all sources” means all income, including social security income, regardless of whether the income is taxable for federal purposes and without deduction for loss.

IDENTITY PROTECTION:

If you want to make sure your identity is protected, you may apply for an Identity Protection Personal Identification Number that will be used to protect your return.

W-4 INFORMATION:

Each Employee needs to fill out a new W-4 with their employer for 2020.

NEW – 1040SR:

There will be a new 1040SR for senior citizens.

NEW CREDIT – QUALIFIED BUSINESS INCOME

There is a new credit called QBI (Qualified Business Income) for each trade, business or farm that is showing a profit from their business activity.  The credit is calculated by percentage of the amount of net income.  The credit is subject to phase-outs and limitations based on total income.

BUSINESS ENTERTAINMENT EXPENSES:

Before 2018, expenses incurred at the time of the entertainment activity but not directly associated with use of the entertainment facility, such as food, beverages, gas, fishing bait, etc., were still allowed if the expenses otherwise qualified.  After the TCJA, all expenses related to an activity of a type generally considered to constitute entertainment, or recreation are nondeductible [IRC Sec. 274(a)(1)].  However, food and beverages may be deductible, subject to the 50% deduction limit, if the cost is separately stated from the other entertainment costs (Notice 2018-76).

MOVING EXPENSE DEDUCTIONS:

Only military changing duty stations may deduct moving expenses.

ALIMONY DEDUCTION:

The deduction for alimony paid beginning after 2018 is no longer deductible to the payer or reportable by the recipient.  Before 2018 the law is the same, however the date of divorce must be included.

EDUCATION CREDITS:

The Education Credits , Lifetime and American Opportunity and Tuition & Fees Deduction are still in effect with certain phase out levels.

CHECK YOUR TAX PREPARER’S QUALIFICATIONS:

All paid tax preparers are required to have a Preparer Tax Identification Number or PTIN. Paid preparers must sign return and include their PTIN as required by   law. The preparer must also give you a copy of the return.

THE HALL INCOME TAX

The HALL income tax is imposed only on individuals and other entities receiving interest from bonds and notes and dividends from stock. Enacted in 1929, this tax is called the Hall income tax for the senator who sponsored the legislation. The law can be found in Tennessee Code Annotated in Title 67, Chapter 2.:

Please note: This is only a short list of some of the new tax rules for 2019. Please spend time with your tax preparer and learn the rules at IRS.GOV so you and your advisor are knowledgeable about qualifying expenses, eligible purchases, contributions, gifts, etc., so you can reduce your tax burden.