By Terry E. Morris, CPA
Director, Jones CPA Group, P.C.
With another tax season upon us, it’s an ideal time to revisit the highlights of the Tax Cuts and Jobs Act. While most of the key provisions became effective January 1, 2018, a few took effect in 2019. This article will highlight those changes as well as revisit some of the key changes that affect the individual taxpayer.
Most business-owning taxpayers can take advantage of a brand-new deduction under IRC Section 199A known as the Qualified Business Income (QBI) deduction. The law provides owners of pass-through entities and sole proprietors the possibility to take advantage of this reduction to taxable income.
For 2019, single taxpayers with taxable income less than $160,700 ($321,400 if married), the calculation is less complicated. The deduction against taxable income is equal to 20% of their qualified business income plus 20% of their qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income, not to exceed 20% of taxable income less qualified net capital gains. Once income exceeds these amounts, a limitation based on the business’s W-2 wages and certain depreciable property starts phasing in and income from certain “specified service trade or businesses” (SSTBs) is phased out of the QBI calculation. This is a key tax planning area to review before yearend to see if and how this may apply to your tax scenario. Because of the complexity of this calculation, we highly recommend discussing this with a tax professional for strategies you may be able to employ to help maximize this deduction.
Other key tax law changes affecting individuals are:
- Elimination of the personal exemptions you received in the past for yourself, your spouse and your dependents ($4,050 each in 2017).
- The standard deduction for 2019 was increased from $12,000 to $12,200 for single taxpayers and from $24,000 to $24,400 for married taxpayers. For those filing as Head of Household, the standard deduction increased from $18,000 to $18,350. Note that if the standard deduction is taken on the federal return Virginia requires the standard deduction as well. Virginia residents, in some cases, may want to force itemized deductions to avoid paying more in Virginia taxes than the savings gained in federal taxes. In 2019, the Virginia standard deduction for single taxpayers increased from $3,000 to $4,500, for married taxpayers, it increased from $6,000 to $9,000.
- For families with adjusted gross income less than $200,000 /$400,000 (single/married), the child tax credit has is $2,000 per qualifying child. The credit fully phases out once adjusted gross income is more than $240,000/$440,000 (single/married).
- Certain itemized deductions have been limited. State and local taxes are now capped at $10,000. Mortgage interest will be limited for post-2017 debt up to $750,000 while the pre-2018 debt limit remains at $1,000,000.
- In 2019, the first year “bonus” depreciation on certain qualified property has been remains at 100% and the Section 179 election to immediately expense the cost of certain business assets has been increased from $1,000,000 to $1,020,000 with some phaseout rules once asset purchases exceed $2,550,000.
- Tax rates range from 10%-37% with a broadening of the income range in some of the tax brackets. The top tax rate is applied at an income level greater than $510,310/$612,350 (single/married).
- Alimony is no longer deductible for the paying spouse and no longer taxable for the receiving spouse for new agreements executed after 12/31/18.
- Beginning in 2019, penalty assessments for lack of health insurance are eliminated.
- Taxpayers who receive state tax credits in exchange for a charitable donation must now reduce their federal charitable donation deduction by the amount of the tax credit. To the extent the tax credit was used to reduce the state income tax liability, this amount may be deducted as an itemized state income tax payment, though this deduction is now capped at $10,000.
As mentioned at the beginning of this article, the new tax act has brought numerous changes to the tax laws. These changes will affect everyone differently based on individual facts and circumstances. Jones CPA Group would be happy to discuss these changes with you before year-end to help you maximize deductions, lower taxable income and do an overall review of your tax needs.
At Jones CPA Group, we’re more than a public accounting firm. Since 1979, we’ve built a reputation as accessible professionals who help our clients make sound financial decisions. Terry E. Morris, CPA can be reached at terry@jonescpagroup.com.
