The promise of spring weather means one thing: tax season is here yet again.
Whether you own a business, are a full-time employee or, all of the above, preparation for your 2019 taxes is hopefully on your to-do list. While multiple streams of income is a great way to increase your earnings, it can complicate things a bit when it comes to tax planning and filing. To add to this, much of what you learned about filing taxes over the past decade or so has changed as tax codes are continually being adjusted, including the tax reform that recently took effect for 2018.
Here’s what you need to know about changes to 2019 tax policies:
Higher Income Brackets
Inflation has a way of eating away at the value of money. For instance, there’s a big difference in the worth of $20,000 even just 10 years ago versus today. Subsequently, when tax agencies fail to update income figures used in calculations, people can get overtaxed. In 2019, new income tax brackets took effect to address this.
Find the 2019 tax rate and their corresponding income limits below for single filers:
• 10% for $9,700 or less
• 12% for $9,701 to $39,475
• 22% for $39,476 to $84,200
• 24% for $84,201 to $160,725
• 32% for $160,726 to $204,100
• 35% for $204,101 to $510,300
• 37% for more than $510,300
Higher Standard Deductions
Another way to account for inflation is to increase standard deductions. These increases also took effect for 2019 taxes. Deductions help to limit how much of your income becomes subject to federal taxes (and smaller taxable income equals less tax responsibility!) This is great news for individuals or couples who might feel worried about their tax liabilities for 2019.
The limits have increased by several hundred dollars each, depending on how you file your tax returns. Married couples who file jointly will see a $400 increase to $24,400. Married people who file separately only see a small $200 increase to $12,200. The same is true of people who are single and file accordingly. Heads-of-households instead see a $350 increase to $18,350.
No Federal Tax Penalty for Health Insurance
The Affordable Care Act, or “Obamacare”, helped many Americans gain access to insurance coverage. While it benefited some lower-income families, the middle class often found they still could not afford health insurance on their own. Many opted out of getting it but were then struck with a penalty at the end of the year for doing so.
The new administration has removed this penalty at the federal level. The keywords here are “federal level.” There are still several states that retained their individual mandate penalty. For some, this was primarily to fund better health care provisions. Some, like California, even extended more affordable coverage to the middle class.
No Alimony Deduction
Disclaimer: if you finalized your divorce settlement before January 1, 2019, then this does not apply to you. For everyone else, how you file money paid and received for spousal support has changed. In the past, the payer deducted alimony payments from their taxable income and the recipient included the money as taxable income.
Now, the reverse is true: alimony payments can no longer be deducted from the taxable income of the payer and the recipient no longer needs to pay income taxes on what they receive. This compelled many ex-spouses to turn to other means of bridging income gaps, such as the breadwinner giving up their retirement accounts or parting with the house. These then come with their own tax considerations for the recipients.
Higher Limits for Retirement Contribution
Higher-income workers might feel happy to know that they can contribute more money to their retirement accounts. (This is especially great news for the breadwinners who part with their retirement savings during a divorce.) Here are the current limits to keep an eye out for:
• $19,000 limit for 401(k) base contributions
• $6,000 limit for IRA base contributions
• $6,000 for 401(k) catch-up contributions
• $1,000 for IRA catch-up contributions
Note, however, that only the base contribution limits increased. The catch-up contribution limits remain the same. However, there should be additional increases for 2020, which will affect your 2021 tax return filing.
Higher Limits for HSA Contributions
People with health savings accounts also saw an increase in their contribution limits. While these are not retirement accounts, many people do use them as part of their tax planning and retirement strategies. This is because when money is withdrawn for eligible medical payments, that withdrawal is not subject to taxes.
Considering the potential for big increases in medical costs as Americans age, this helps to ensure there is money set aside to pay for these expenses. To this end, family coverage contributions now go up to $7,000. Meanwhile, self-only coverage rises to $3,500. To add to this, tax experts expect to see increases again for the 2020 tax year.
When It’s Time to File Your 2019 Taxes, Call Pine!
Depending on your financial situation, some of these are good news and others are bad. Proper tax planning can help to reduce liabilities at tax filing time, regardless of where you fall on that scale. Contact Pine & Company CPAs today for help keeping ahead of changes to 2019 taxes, and for help planning a smart tax strategy and for your small business or household.