2019 FEDERAL TAX HIGHLIGHTS
(December 31, 2019)
NEW LEGISLATION FOR 2019
President Trump signed into law the “The Further Consolidated Appropriations Act” which funds the government through Fiscal Year 2020 and contains provisions addressing expiring tax credits, repeal of certain ACA taxes, and retirement security.
Highlights of the major changes for individuals: These provisions have various effective dates.
- The repeal of the maximum age limit on contributions to a traditional IRA by working individuals who have passed the age of 70 ½.
- The required beginning date for required minimum distributions is changed to April 1 following the calendar year that the IRA owner attains age 72.
- Modification of the post-death RMD rules for non-spouse beneficiaries
- Penalty free distributions of up to $10,000 from IRAs or defined contribution plans for the birth of a child or adoption
- Failure to file a tax return penalty will now be the lesser of $400 or 100% of the tax due.
- Kiddie tax rates are reduced to the pre-TCJA act so that they will no longer be taxed at the rates in effect for trusts and estates
- Expanding 529 Plan distributions
Extender Provision Highlights
- Discharge of qualified principal residence indebtedness
- Deductibility of mortgage insurance premiums
- Medical expense threshold reset to 7.5% of AGI
- Tuition and Fees Deduction
- Nonbusiness energy property credit
Listed below are some of the highlights from the TCJA enacted in 2018
- There are now 7 brackets in total- 10%, 12%, 22%, 24%, 32%, 35% and 37%.
- The standard deduction is increased to $24,400 for joint filers, $18,350 for heads of household, and $12,200 for all other filers.
- The TCJA temporarily suspended the deduction for personal exemptions for taxpayers and their dependents.
- The TCJA suspends all miscellaneous itemized deductions previously subject to the two-percent AGI floor including unreimbursed employment related expenses.
- Limitation on losses for taxpayers other than corporations- Excess business losses above the 2019 threshold of $510,000 for married taxpayers and $255,000 for others must be carried forward.
- The child tax credit is increased to $2,000 per child under age 17 with a $500 nonrefundable credit available for dependents other than children.
- Alternative minimum tax exemptions have been increased.
- State, local and property tax deductions are limited to a total of $10,000.
- Mortgage interest deduction is limited to indebtedness of $750,000 per individual and unmarried joint owner, $750,000 for married joint owners, and $375,000 for those joint owners filing married filing separately.
- The deduction for interest on home equity indebtedness is suspended.
- Obamacare Individual Mandate for health insurance is repealed as of 1/1/2019.
- Distributions from 529 plans up to $10,000 per year can be used for elementary through high school as well as secondary education.
- Alimony payments are no longer deductible by the payer spouse or includible in income of the payee spouse.
- Qualified Business Income Deduction; The deduction for a qualified business will be the greater of 20% of the taxpayer’s combined qualified business income or 20% of taxable income minus net capital gains. The deduction can be limited based on the taxpayer’s taxable income and filing status.
- 21% flat rate applies to all C corporations
- Entertainment expenses and club membership dues are no longer deductible. Expenses for meals directly associated with business activity continue to be deductible at 50%.
- NOL’s limited to 80% of taxable income without carrybacks
- Bonus depreciation increased to 100% for qualified property.
- Section 179 deduction –The deduction for qualified property is increased to $1,020,000 and the phase-out threshold is increased to $2,550,000.
Other Miscellaneous Updates
IRA Contribution: For 2019 and 2020, the maximum that can be contributed to an IRA or Roth IRA is $6,000. For persons 50 and over, an additional “catch-up” contribution up to $1,000 may be made for both 2019 and 2020.
|Retirement Plan Contribution Limits:||2019||2020|
|Maximum 401(k) and 403(b) employee contribution||$19,000||$19,000|
|Maximum SIMPLE employee contribution||$13,000||$13,000|
“Catch-up” Contribution Limits: Taxpayers who are at least age 50 before the end of the respective year can increase their contribution limits by the following amounts:
|401(k), 403(b), salary reduction SEP plans and 457 plans||$6,000||$6,000|
Affordable Care Act
Although the shared responsibility payment feature of this Act was repealed (the individual mandate) the reporting of health insurance obtained through the Health Insurance Marketplace continues.
If you or a family member enrolled in health insurance through the Marketplace and advance payments of the premium tax credit were made to your insurance company, you will receive Form 1095-A. A copy of this form is required to prepare your tax return. Please provide this form to us.
Estate & Gift Tax
For 2019 the applicable federal estate and gift tax exemption for individuals is $11,400,000 and to $22,800,000 for a married couple. For 2020, the estimated exemption is $11,580,000 per individual. The annual gift tax exclusion amount is $15,000 per recipient in 2019 and 2020.
Kiddie Tax: In 2019, the “kiddie tax” applies to children up to age 18, and full-time students age 19-23, whereby a child’s investment income greater than $2,100 is taxed at higher rates. The SECURE Act, provides an election for years 2018 and 2019 that allows this income to be taxed at the parent’s rate.
Standard Mileage Rates: The business mileage rate for 2019 is 58 cents per mile. Business related costs for parking, tolls, auto loan interest, and auto excise tax may be deducted in addition to the standard mileage rate. The standard mileage rate for medical purposes in 2019 is 20 cents.
Social Security Retirement Earnings Test: For persons who are at least age 62, but under their full retirement age, the maximum income that can be earned while drawing Social Security without losing benefits for 2019 is $17,640 and rises to $18,240 for 2020. For persons who reach full retirement age in 2019 or 2020, the limit of earnings for the period prior to this date are $46,920 and $48,600 respectively. Full retirement age is determined based on the individual’s date of birth and gradually increases from age 65 to age 67.
2019 MASSACHUSETTS TAX HIGHLIGHTS
As a general rule, Massachusetts does not adopt any federal personal income tax law changes made to the Internal Revenue Code after January 1, 2005. However, certain specific Massachusetts personal income tax provisions automatically conform to the current Internal Revenue Code.
Tax Rate: The 2019 tax rate for income (other than short-term capital gains, long-term gains on collectibles and short-term gains on the sale of trade or business property used in a trade or business) is changed to 5.05%.
Senior Circuit Breaker Tax Credit – Real estate tax credit for persons age 65 and older: The maximum credit is increased to $1,130 for 2019. The 2019 limitations on income are $60,000, for single, $75,000 for head of household and $90,000 for married filing jointly. The assessed value of the real estate at January 1, 2019 cannot exceed $808,000 to qualify for this credit. For properties with greater than 1 acre of land, the assessed value and real estate taxes must be pro-rated.
Estate Tax: The Massachusetts filing threshold and exempt amount remains at $1,000,000 with a top rate of 16%. There is no gift tax in Massachusetts.
Prepaid Tuition or College Savings Program Deduction: A deduction is available for contributions to a pre-paid tuition program or a college savings program established by the Commonwealth. The deduction is capped at $1,000 for a single person or head of household and $2,000 for a married couple filing jointly.
Paid Family and Medical Leave Contributions: Effective October 1, 2019 employers were required to withhold contributions from employees and certain self-employed individuals based on their earnings.
Short-Term Rentals: As of July 1, 2019, short term rentals of less than 31 days are subject to room occupancy excise tax.
Provisions of the Federal TCJA Act enacted in 2018 that were not adopted by Mass:
Alimony: Massachusetts does not adopt the new federal law change under the TCJA which requires that alimony be no longer deductible by the payer or includable in income of the recipient. Instead, alimony will continue to be deductible by the payer and included in the gross income of the recipient.
Deferral of Gain Invested in Qualified Opportunity Zones.
Please feel free to contact us for additional information on any tax matter or to discuss how the 2019 tax law changes will affect you.