Here’s a quick hit list of some of the most significant changes facing taxpayers when preparing (or properly extending) their tax returns for 2019.
We are now in the second tax reporting year under the Tax Cuts and Jobs Act (TCJA) of 2017, the most sweeping tax legislation in more than 30 years. While tax compliance may have been simplified for many wage earners, it turned out that executives, investors and entrepreneurs are experiencing greater complexities, more voluminous tax returns, new computations, new and revised decisions and many interactions with their tax lawyer or CPA. The new tax code, despite the IRS guidance since issuance, remains complex and void of technical corrections as guidance and interpretation continue to evolve. To help address these challenges, here’s a quick hit list of some of the most significant changes facing taxpayers when preparing (or properly extending) their tax returns for 2019.
- Form 1040-SR. This form is a special tax return for seniors, introduced for 2019. You can use this form if you were born before January 2, 1955. The form generally mirrors Form 1040.
- Fewer numbered schedules. This year, there are only three numbered schedules instead of six. Schedules 2 and 4 were combined into Schedule 2 and this is where you will report any additional taxes you may owe. Schedules 3 and 5 were combined into Schedule 3 and it is where you will report any credits that you didn't claim on Form 1040 or 1040-SR.
- Healthcare coverage shared responsibility payment. For 2019, you no longer need to either make a shared responsibility payment or file Form 8965 if you did not have minimum essential healthcare coverage for part or all of 2019.
- Standard deduction amount increased. For 2019, the standard deduction amount has been increased for all filers. The amounts are: single or married filing separately—$12,200; married filing jointly or qualifying widow(er)—$24,400; and head of household—$18,350.
- Alternative minimum tax (AMT) exemption amount increased. The AMT exemption amount is increased to $71,700 ($111,700 if married filing jointly or qualifying widow(er); $55,850 if married filing separately). The income levels at which the AMT exemption begins to phase out have increased to $510,300 ($1,020,600 if married filing jointly or qualifying widow(er)).
- Qualified opportunity investment. If you held a qualified investment in a qualified opportunity fund at any time during the year, special reporting is now required.
- Virtual currency. If, in 2019, you engaged in a transaction involving virtual currency, special reporting is now required.
- Medicaid waiver payments. Changes have been made to how Medicaid waiver payments are treated for purposes of the earned income credit.
- Standard mileage rates. The 2019 rate for business use of your vehicle is 58 cents a mile. The 2019 rate for use of your vehicle to get medical care or to move is 20 cents a mile.
- Adoption credit. The adoption credit and the exclusion for employer-provided adoption benefits have both increased to $14,080 per eligible child in 2019. The amount begins to phase out if you have modified adjusted gross income (MAGI) in excess of $211,160 and is completely phased out if your MAGI is $251,160 or more.
- Identity Protection Personal Identification Numbers (IP PINs). New IP PINs are generated every year. In mid-January, you should have received your IP Pin to use when filing your 2019 tax returns.
- The Taxpayer Certainty and Disaster Tax Relief Act of 2019. Enacted on December 20, 2019, the act extended certain previously expired tax benefits to 2018 and 2019, and provided tax relief for certain incidents federally declared as disasters in 2018 and 2019. The extended benefits and the disaster relief may now be claimed on your 2018 and 2019 returns, if you qualify.
- The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act). Also enacted late last year, this legislation modified the rules related to the taxation of unearned income of certain minor children. The SECURE Act also relaxed certain retirement plan contribution and distribution requirements beginning January 1, 2020. For an in-depth analysis, see our SECURE Act Alert.
- The penalty for failure to file a tax return. Failure to file within 60 days of the due date (with extensions) has increased to the smaller of $435 or the amount of tax owed. The increased penalty applies to returns whose due date (with extensions) is after December 31, 2019.
- Deduction for tuition and fees. You can deduct qualified expenses paid in 2019, subject to certain limitations.
- Deduction for mortgage insurance premiums. You can treat amounts you paid for qualified mortgage insurance during 2019 as home mortgage interest.
- Exclusion of qualified principal residence indebtedness. Qualified principal residence indebtedness discharged in 2019 can be excluded from income.
- Credit for certain nonbusiness energy property. You can claim the nonbusiness energy property credit in 2019 if you meet certain criteria.
- Alternative motor vehicle credit. You may be able to claim the alternative motor vehicle credit for vehicles purchased in 2019.
- Credit for two-wheeled plug-in electric vehicles. You may be able to claim the credit for qualified two-wheeled plug-in electric vehicles for vehicles acquired in 2019.
- Credit for alternative fuel vehicle refueling property. You may be able to claim this credit for alternative fuel vehicle refueling property you placed in service during 2019.
- Deduction for medical expenses. You may be able to deduct the part of your medical and dental expenses that exceed 7.5 percent of your adjusted gross income. This deduction was already available for 2018 and is now extended to 2019.
- Certain distributions from retirement plans in disaster areas. New rules provide for tax-favored distributions from and repayments to retirement plans (including IRAs) for certain taxpayers who suffered economic losses as a result of certain incidents federally declared as disasters in 2019.
- Increased standard deduction. If you suffered a casualty loss attributable to certain incidents federally declared as disasters in 2019, you may be able to claim a larger standard deduction.
- Tax on certain children with unearned income (Kiddie tax). A child may be able to calculate their tax based on the tax rate of his or her parent and not at trust and estate rates.
- Tax extenders. Late in 2019 the president signed into law the Taxpayer Certainty and Disaster Tax Relief Act of 2019. The act extends over 30 code provisions generally through 2020. Here are a few individual extenders (select business extenders below):
- Exclusion from gross income of discharge of qualified principal residence indebtedness
- Treatment of mortgage insurance premiums as qualified residence interest
- Reduction in medical expense deduction floor
- Deduction of qualified tuition and related expenses
- Empowerment zone tax incentives
- Nonbusiness energy property
- Qualified fuel cell motor vehicles and two-wheeled plug-in electric vehicle credits
- Qualified business income deduction. Rental real estate is eligible for the QBI deduction if you can (1) claim the rentals are trades or businesses under existing law, or (2) use the new safe harbor rules. In order to qualify for the new safe harbor, you must keep separate books and records for the activity; perform 250 or more hours of rental services per year; and maintain reports, logs or similar documents that show the hours of all services performed, a description of all services performed, the dates on which the services were performed and who performed the services.
- Maximum net earnings. The maximum net self-employment earnings subject to the Social Security part of the self-employment tax is $132,900 for 2019. There is no maximum limit on earnings subject to the Medicare part.
- Standard mileage rate. For 2019, the standard mileage rate for the cost of operating your car, van, pickup or panel truck for each mile of business use is 58 cents a mile.
- Maximum first year depreciation for passenger automobiles. Increased to $18,100 ($10,100 if electing out of bonus depreciation).
- Select Business Tax Extenders
- New Markets Tax Credit
- Employer tax credit for paid family and medical leave
- Work Opportunity Tax Credit
- Look-through rule for related controlled foreign corporations
Each year at this time, at the top of everyone’s mind is how tax reform will affect their individual and business tax situation, both current and prospective. With the second year of tax reporting underway, provisions that changed the income tax landscape for individuals, businesses, tax-exempt organizations, estates and trusts continue to impact nearly all taxpayers. Most of the individual provisions included in the new law are currently set to expire after 2025, except for the extenders noted above. As major legislative developments and opportunities emerge, we are always available to discuss the impact of a new or pending tax law on your personal or business situation. Many of the rules under tax reform are complex and require careful planning. Contact us for further information and guidance. If you would like to discuss the tax law changes indicated herein or have other concerns, please do not hesitate to contact Michael A. Gillen or the practitioner with whom you are in regular contact.
For information on other pertinent topics, please visit our publications page.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.