It’s almost time for another tax season!
Believe it or not, the 2020 tax season is a couple months away. The worst feeling is scrambling last-minute to find your tax documents. Why not put your mind at ease by going over information you need to know to file your 2019 taxes?
Here are the tax changes you need to be prepared for next year.
2019 Tax Brackets
You might wonder what tax bracket you’re in. The IRS announced the slightly higher brackets below:
- 37% for incomes greater than $510,300 for single filers ($612,350 for married filing joint filers, $510,300 for head of household filers)
- 35% for incomes over $204,100 ($408,200 for joint filers, $204,100 for HOH)
- 32% for incomes over $160,725 ($321,450 for joint filers, $160,700 for HOH)
- 24% for incomes over $84,200 ($168,400 for joint filers, $84,200 for HOH)
- 22% for incomes over $39,475 ($78,950 for joint filers, $52,850 for HOH)
- 12% for incomes over $9,700 ($19,400 for joint filers, $13,850 for HOH)
- 10% for incomes less than $9,700 ($19,400 for married couples filing jointly, $13,850 for HOH)
For more information on other tax brackets such as married filing separately or estates and trusts, click here.
New 1040 Form
A new 1040 form has been introduced for taxpayers who were born before January 2, 1955. Form 1040-SR (Tax Return for Seniors) are used for these taxpayers and looks like the original 1040.
Compared to six schedules for the 2018 tax year, your 2019 tax return will have only three schedules. For example, Schedule 2 and 4 are combined to report additonal taxes and Schedule 3 and 5 are combined to report credits.
The standard deduction increases
Did you tie the knot this year? For married filing jointly filers, the standard deduction increases to $24,400; compared to $24,000 for the 2018 tax year. For single filers, the deduction raises to $12,200; an increase of $200 from last year. As for heads of households, their deduction will be $18,350 for tax year 2019; a $350 increase.
As for the aged or the blind, the additional standard deduction will be $1,400.
No more individual mandate penalty
Say goodbye to this pesky penalty. If you didn’t have health insurance for 2019, you will not face any penalties. This tax reform from the Tax Cuts and Jobs Act (TCJA) takes effect for the 2020 tax season. Luckily, you won’t have any additional payments to worry about next year.
Beforehand, under the Affordable Care Act, individuals would have to pay a individual shared responsibility payment if they did not obtain coverage nor qualified for an exemption.
Higher threshold for medical expenses
For taxpayers who bear the cost of their medical expenses, the bad news is that the threshold for their expenses will raise. You’re required to claim up to 10% of your adjusted gross income (AGI) in medical expenses; compared to last year’s 7.5%.
For example, Anita has an AGI of $45,000. She can only claim her dental and medical expenses if they exceed $4,500 (10% of her AGI) for the 2019 tax year. However, if she was filing for the 2018 tax year, her medical expenses would have to exceed $3,375 to claim a deduction.
This may make it harder to qualify for the deduction.
Eliminating the alimony deduction
Alimony deductions become a thing of the past. For any divorce or separation agreements that take place after December 31, 2018, the alimony payment deduction will no longer be available. Additionally, spouses who receive alimony do not have to report this as earned income on their tax return.
For IRS information about the alimony deduction, click here.
HSA contribution limit increases
For those of you who are enrolled in a high-deductible health insurance plan, below are the following contribution limits for individual and family coverage.
- Self-only: $3,500; a $50 increase from 2018
- Family: $7,000; a $100 increase from 2018
Here’s when you can reap the tax benefits of getting older
If you’re 55 years or older, you can contribute an additional $1,000 for individual and family coverage. For example, for self-only coverage, the contribution limit increases to $4,500 and for family coverage; $8,000!
Luckily, you have until the April tax deadline of 2020 to contribute to your HSA. This will allow you to deduct your contributions and get the tax break you deserve for your 2019 taxes.
Retirement contributions increase
- 401(k): $19,000; a $500 increase from 2018
- 401(k) catch-up contribution: Remains as additional $6,000 for ages 50 and up
- IRA: $6,000; a $500 increase from 2018
- IRA catch-up contribution: Remains as additional $1,000 for ages 50 and up
Similar to HSA contributions, you have an extended deadline if you didn’t contribute to your IRA throughout the year. You have until the April tax deadline of 2020 to contribute for the 2019 tax year.
However, for 401(k) contributions, you have until the April tax deadline or if you filed an extension, the October tax deadline of 2020 to make your contributions to count for your 2019 tax return.
Qualified business income deduction
Your qualified business income deduction will now be calculated and reported on Form 8995.
Alternative Minimum Tax (AMT) exemption increases
The AMT exemption amount increases to $71,700 ($111,700 if married filing jointly or qualifying widow(er); $55,850 if married filing separately).
It phases out at an increased threshold of $510,300 ($1,020,600 if married filing jointly or qualifying widow(er)).
Check your tax withholding
Reading articles going on and on about checking your W-4 allowances may irk you. Nevertheless, tax laws are constantly changing. Make sure you double-check and adjust your withholding so you don’t have to face an unexpected tax bill in the future.
You’d prefer to have a stress free tax season, right?
Keep track of all your tax documents and file early when the time comes. Most importantly, if you’re expecting a refund in 2020, you will need to file your late taxes in case the IRS holds your refund. (Yes, unfortunately, they can do that.)
Don’t let your confidence waver when it comes to a stressful tax situation, we’re here to help. Just contact our customer service when the tax reason rolls around in mid-January.
Tags: 2019 tax brackets, 2019 tax return, 2019 taxes, 2020 tax, 2020 taxes, 401k, alimony deduction, hsa, HSA contributions, individual shared responsibility, IRS withholding calculator, medical expenses, retirement, retirement contributions, tax withholding, w4