Individual 2019 Year-End Tax Planning
Dear Clients and Friends,
The Tax Cuts and Jobs Act (TCJA) brought about sweeping changes for the 2018 filing season. Many of the changes are in effect for the 2019 filing season, as well as some that are similar but received cost of living adjustments. Here are some items to consider as 2019 winds down.
The maximum individual federal income tax bracket is 37%, beginning with adjusted gross income of $612,350 for married filing joint filers ($510,300 for single filers). For 2020 the 37% bracket begins at $622,050 for married filing joint filers ($518,400 for single filers).
Capital gains rates are also adjusted for 2019 and 2020. The 15% capital gains rate starts with income of $78,750 for married filing joint filers ($39,375 for single filers). The 20% capital gains rate starts with income of $461,700 for married filing joint filers ($488,850 for single filers).
Loss harvesting may be a strategy to reduce capital gains. Review your investment portfolios to see if it might be worthwhile to sell loss securities and use the losses to offset capital gains. Keep in mind that only $3,000 in capital losses in excess of gains can be used each year. The remainder will carry forward.
The Net Investment Income Tax (NIIT) is still in effect in 2019. This is an additional tax on investment income when modified adjusted gross income exceeds $250,000 for married filing joint filers ($125,000 for single filers). Also in effect is the Additional Medicare Tax. This tax is 0.9% for wages or self-employment income in excess of $250,000 for married filing joint filers ($200,000 for single filers).
Taxpayers may take the higher of the standard deduction or itemized deductions. The TCJA brought a significant change to the standard deduction starting in 2018, with an increase in 2019. For 2019, the standard deduction is $24,400 for married filing joint filers ($12,200 for single filers).
TCJA also brought significant changes to itemized deductions. The tax deduction (real estate taxes, sales or income tax, etc.) is limited to $10,000 in total. The TCJA also eliminated miscellaneous items deductions such as investment expenses and unreimbursed business expenses.
Retirement contribution limits have been adjusted in 2019. The 401(k) base contribution is $19,000, with a catch-up contribution of $6,000 for taxpayers age 50 and older. The IRA base contribution is $6,000, with a catch-up contribution of $1,000 for taxpayers age 50 and older. IRA contributions can be made up to the due date of your individual return – April 15, 2020.
If you receive distributions from a retirement plan, be sure you’ve met your Required Minimum Distributions (RMD). There may be penalties if the RMD is not distributed by December 31, 2019.
Business 2019 Year-End Tax Planning
Dear Clients and Friends,
The Tax Cuts and Jobs Act (TCJA) brought sweeping changes for the 2018 filing season. Many of the changes are in effect for the 2019 filing season, as well as some that are similar but received cost of living adjustments. Here are some items to consider as 2019 winds down and we look forward to 2020.
Now may be a good time to review your choice of business entity for 2020. Does it make sense to make an s corporation election? Is it a good time to elect to be taxed as a c corporation? These decisions are personal to each business and their goals.
Employee business expenses may be reimbursed on a per diem rate or for actual expenses. Per diem rate by the U.S. General Services Administration. Rates vary based on location. Here is a link to the U.S. GSA website for rates. https://www.gsa.gov/travel/plan-book/per-diem-rates
If you are reimbursing employees for actual expenses, you should have an accountable plan in effect. An accountable plan generally indicates that the employee must provide documentation supporting the business purpose and receipts for the expenditures.
Qualified businesses may be eligible take a deduction of 20% of their Qualified Business Income (QBI). IN general, QBI is the net taxable income of the business with some exceptions. The deduction is subject to limitations so be sure to consult your tax advisor.
Accelerated tax depreciation is available for 2019 and 2020 based on the TCJA changes.
- The Section 179 depreciation limits have been adjusted to $1 million for 2019 (with a $2.5 million spending cap) and $1,040,000 for 2020 (with a $2.59 million spending cap).
- A 100% bonus allowed for non-real property through December 31, 2022.
- We are still waiting to hear if there will be more clarification on Qualified Improvement Property (QIP)
State sales and income taxes have seen many changes in 2019-2020 as a result of the South Dakota v. Wayfair case. Most states had previously determined which out-of-state companies need to pay sales and income taxes based on their physical presence (nexus) in the state. Many states have changed their laws to an economic nexus standard whereby nexus is determined based on revenues earned in the state and/or the number on transactions. Be sure to review your out-of-state activities.
Here are some other year-end reminders and planning opportunities.
- Be sure to maintain current reseller and exemption certificates.
- Review your 1099 recipients to be sure you have their tax ID and filings status. Be sure to check often forgotten vendors such as landlords.
- Check to be sure shareholder medical premiums for a >2% s corporation shareholder are being reported properly in Form W-2, box 1 and box 14.
- Review your fixed asset schedules for items that have been scrapped or abandoned so they are removed from your personal property affidavits.
- Like-kind exchanges are limited to real property effective January 1, 2018.
- The Research Tax Credit is still available for improvements to products and processes.
Please feel free to contact our office if you have any questions.
We wish you Happy Holidays and look forward to seeing you in the New Year!
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