Changes for 2019 Taxes

     Perhaps one of the few good things to emerge from the Coronavirus Crisis is Uncle Sam’s generous extension of the filing deadline for 2019 taxes from April 15^th to July 15^th. For those of you who pay taxes quarterly, the June 15^th payment deadline has also been pushed back to July 15^th. While all the states appear to have extended their annual deadline, some have not changed their quarterly deadlines. Also, if you are eligible to make a 2019 contribution to an IRA, you have until July 15^th.

     So what’s new for 2019? Most of the changes of the Tax Cuts and Jobs Act were already implemented in 2018. One exception is the treatment of alimony payments for divorces occurring in 2019 and later. Alimony payments are no longer deductible for the payer and are not deemed as taxable income to the recipient. For divorces occurring prior to 2019, alimony remains deductible as an above-the-line deduction, meaning that payers can still benefit even if they do not itemize deductions. The new treatment of alimony payments is equivalent to the treatment that child support payments have always received.

     The standard deduction for 2019 is $12,200 for singles and $24,400 for married filing jointly. The brackets for calculating the federal tax owed on taxable income are shown below:

     For long-term capital gains (for assets held at least one year plus a day), the table below applies:

     Please bear in mind that capital gains stack on top of ordinary income. For example, a single taxpayer who earns $100,000 will pay 15% on long-term capital gains.

     For people with complex tax situations (e.g., owning a business or rental property), we strongly advocate obtaining professional help with tax preparation. Most other taxpayers will be able to use one of the myriad of tax preparation software packages. For those who are shopping around, an excellent summary of the different offerings (including the IRS’s Free File portal) was recently posted on Money.com and may be found here. Normally, it makes sense to continue with the same software you used in the prior year since all your information will already be encoded. If, for some reason, you are one of the 10% of taxpayers who still manually fill out the 1040 and mail it in, then please consider switching to electronic filing with one of the tax preparation packages mentioned in the article.

     Before leaving the subject of taxes, here are a few reminders for the 2020 tax year. The maximum salary deferral to a 401(k) plan is $19,500 for participants under age 50 and $26,000 for those age 50 or older. The IRA contribution limits remain unchanged from 2019 at $6,000 with a $1,000 age 50+ catch-up.. The contribution limit for a Health Savings Account is $3,550 for individuals and $7,100 for families. Thanks to the CARES Act, there is no required minimum distribution for retirement accounts in 2020. One good way to take advantage of this waiver is to do a Roth conversion in lieu of taking a distribution.

     If you have any tax planning questions for which we can be of assistance, please do not hesitate to reach out to us.