Here’s a quick summary of the tax code updates that may affect your 2019 federal tax return.
New for 2019
Changes to Alimony Deduction
Alimony and separate maintenance payments are no longer deductible to the payer or taxable for the recipient for any divorce or separation agreement executed after December 31, 2018, or for any divorce or separation agreement modified after this date.
Health Insurance Mandate Expired
The tax penalty for failure to obtain health insurance expired at the end of 2018. The rest of the Affordable Care Act is still in effect, including the employer’s reporting requirements, so you can still expect a Form 1095 to arrive.
Medical Expense Deduction
Medical expenditures in excess of 7.5% of AGI were deductible in 2017 and 2018. For tax year 2019 the 10% threshold is reinstated.
Expired Deductions and Credits Extended
The Consolidated Appropriations Act passed in December included the retroactive renewal of several popular deductions. The deduction of cancelled mortgage debt for a principal residence was renewed through 2019, and the mortgage insurance premium deduction, the above-the-line qualified tuition and related expenses deduction, the temporary reduction in federal excise taxes on beer and spirits, the employer credit for paid family and medical leave, and the work opportunity credit have all been renewed through 2020. The biodiesel tax credit was renewed through 2022.
The major overhaul Form 1040 went through last year resulted in a not quite postcard sized form that was achieved by moving information onto 6 new schedules, that could be attached or not as applicable. This system has been streamlined down to 3 schedules for the 2019 form. Also new this year is Form 8995, a separate attachment for reporting calculations for the Qualified Business Income Deduction.
Annual Inflation Updates
The Single and Married Filing Separately standard deduction is $12,200 for 2019. Head of Household is $18,350, and Married Filing Joint is $24,400.
Standard Mileage Rate
The standard mileage rate for the cost of operating your car for business is 58 cents a mile. Please note that in addition to mileage you are also allowed to deduct tolls, parking, property taxes and interest. The standard mileage rate allowed for the use of your car for medical purposes is 20 cents a mile and the standard mileage rate for the use of your car for volunteer services for a charity is 14 cents a mile for the entirety of 2019. (You can keep track of your mileage by using an App on your smart phone called Mile IQ. If you are self-employed and drive for business purposes, you need to keep track of time, place, and purpose for all your mileage driven. We suggest you take a picture of your odometer on January 1st and December 31st, and save receipts that document your mileage, such as oil change receipts.)
IRA and Retirement Account Contributions
The annual contribution limit for both Roth and Traditional IRAs increases to $6,000 for 2019 and 2020 with an additional $1,000 additional if age 50 or older. Contributions to 401(k) and similar retirement plans are $19,000 for 2019/2020 with a catch-up amount of $6,000 if age 50 or older. Self-Employment Pension Plan (SEP) maximum contributions increase to $55,000 for 2019.
Health Savings Accounts (HSAs) Contributions
The maximum HSA contribution increased to $3,500 for single coverage and $7,000 for family coverage in 2019, with an additional $1,000 allowed if age 55 or older. Please note that you have until April 15, 2020 to contribute to your HSA for a 2019 deduction.
Other Items to Note
New Redesigned 2020 Form W-4
As the personal and dependent exemptions went out the window with the Tax Cuts and Jobs Act, the old withholding form that depended on counting allowances required a full overhaul. The new form is a bit like a mini tax return. You will choose your filing status, estimate your total household income across all jobs, claim dependents, and optionally account for non-wage income. The IRS recommends using their new Tax Withholding Estimator, which will provide you with directions for filling out new W-4s for all your and your spouse’s jobs as necessary.
Need a Copy of Your Previous Return?
You can obtain a record of your past tax returns and other tax documents. IRS transcripts are often used to validate income and tax filing status for mortgage applications, student and small business loan applications, and during tax preparation. You can obtain them directly from the IRS using their Get Transcript online service.
Charitable deductions must be supported by documentation for every $1.00 you claim. For donations over $250.00, documentation must be obtained from the charity. The IRS has been auditing Non-Cash Contributions. We will only include non-cash contributions on your tax return if a worksheet is prepared. A worksheet is attached here.
The IRS will begin accepting returns on January 27, 2020. Schedule early. Our calendar fills up fast as people begin to receive their W-2s. Take the stress out of filing by calling us as soon as you have your documents together. Leave yourself time before the April 15th deadline to catch and sort out any issues that arise. By filing earlier, you get your refund faster or have more time to pay what you owe and help protect any refund from identity thieves.