As federal employees gather their 2019 income and deduction information in order to prepare their 2019 federal and state income tax returns, this column presents some reminders and important tax information in order to assist employees with the preparation of their returns. Employees should note that most of these reminders and tax information are a result of the passage of the Tax Cuts and Jobs Act of 2017 (TCJA) which became effective on Jan. 1, 2018.
· Personal exemptions. Personal exemptions for dependents have not been repealed; they have simply been dropped to zero. Dependent information will still be required in order for individuals to claim the Child Tax Credit, the Child and Dependent Care Tax Credit, the Earned Income Tax Credit, and the American Opportunity Tax Credit (which is an education tax credit for qualified expenses that an individual pays for a dependent to attend college.
· Standard deduction. The standard deduction amounts for 2019 have increased somewhat over their 2018 amounts for each of the filing statuses. For singles and married filing separately (MFS), the 2019 standard deduction amount is $12,200; for head of household (HOH) the 2019 standard deduction amount is $18,200; and for married filing jointly (MFJ) the 2019 standard deduction amount is $24,400. For single or HOH filers over age 65 and/or blind there is an additional $1,600 added to the standard deduction. With a married couple age 65 or older, or blind, there is an additional standard deduction amount of $1,300 for each spouse.
· Itemized deductions. Available itemized deductions have not changed in terms of actual deductions and dollar limitations compared the deductions that were available in 2018. Deductible medical expenses must exceed 7.5 percent of one’s adjusted gross income (AGI) in order to be deductible. In 2018 it also had to exceed 7.5 percent of one’s AGI. State and local income taxes, real estate taxes and personal property taxes are limited to $10,000, no matter one’s filing status. Miscellaneous itemized deductions including tax preparation fees, union dues, and employee business expenses continue to be nondeductible.
· Investments. Capital assets (this includes stocks, bonds, mutual funds, and exchange-traded funds) held for investments, owned long term (more than one year) – and sold at a capital gain, and qualified dividends – continue to be taxed at the 0, 15 and 20 percent “preferential” tax rates. However, the breakpoints for determining which tax rate have been adjusted somewhat upward. The maximum taxable income for the “0” percent rate applies to individuals with taxable income up to $39,375 on single returns; $52,750 for head-of-household filers, and $78,750 for married joint filers. The 15 percent rate starts at $39,376 and ends at $434,550 of taxable income for single filers; starts at $52,751 and ends at $461,700 for head of household filers, and starts at $78,751 and ends at $488,850 for married filing joint filers. The 20 percent tax rate will apply to single filers with taxable incomes over $434,550; to head of household filers with taxable incomes over $461,700, and to married filing joint filers with taxable incomes over $488,850 during 2019. The additional net investment income (NIT) surtax of 3.8 percent still applies to married individuals filing jointly with modified adjusted gross income (MAGI) above $250,000, and single filers with MAGI above $200,000.
∙ Roth IRA conversions. As part of the TCJA, the option to recharacterize a Roth IRA conversion has been repealed. Effective Jan. 1, 2018, once an individual converts a traditional IRA to a Roth IRA, the individual can no longer “recharacterize” or undo the conversion.
· Expired tax breaks were revived – most through 2020. These include: (1) Qualified tuition and fees deduction; (2) Tax-free treatment for forgiveness of principal residence mortgage debt is retroactively extended to discharges occurring before Jan. 1, 2021. Exclusion is limited to $2 million to married filing jointly and $1 million to married filing separately; (3) Nonbusiness energy property tax of up to $500 for certain energy-saving improvements to a principal residence is retroactively extended for three years through 2020; (4) Reduction of the medical expenses deduction floor to 7.5 percent of an individual’s adjusted gross income (AGI) is extended through 2020; and (5) Health coverage tax credit is extended through 2020.
· Alternative minimum tax (AMT) exemptions for 2019 increase to $111,700 for married couples filing jointly, $71,700 for single or head of household filers, and $55,850 for married couples filing separately.
· TCJA’s revamp of the “kiddie tax” has been repealed. Prior to Jan. 1, 2018, children age 18 or younger (under age 24 if a student) were taxed on unearned income in excess of a certain amount at their tax rate or their parents’’ tax rate, whichever was higher. TCJA changed the rules to tax unearned income at the ordinary income and capital gains rates that apply for trusts. This resulted in higher tax for married filers, including military families with survivor benefits. The TCJA “kiddie tax:” change is repealed, and the pre-2018 rules again apply. Note that affected filers can elect to apply for pre-2018 “kiddie tax” rules to both 2018 and 2019 tax returns.
∙ 2019 individual tax rates.
These tax rates are listed below by filing category.
Edward A. Zurndorfer is a Certified Financial Planner, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While the employees of Serving Those Who Serve are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
2019 Federal Income Tax