Last year brought massive changes to the tax code following the passage of the Tax Cut and Jobs Act in 2017. Several tax breaks were eliminated, the standard deduction was raised, and the corporate tax rate was reduced by 40 percent. While we won’t see the major changes to how 2019 personal and business taxes are filed, there are some minor updates that will affect your refund or payment you should know about. This is especially true if you have a “pass through” business, meaning your business income passes through to be included in your personal tax returns, such as if you own a sole proprietorship or an LLC.
Under the Affordable Care Act, people who were determined to be able to afford health insurance but didn’t have coverage were charged a fee with their taxes that would either reduce their refund or add to their payment. Beginning December 31, 2018, the individual mandate, also called the “shared responsibility payment,” was reduced to zero, so whether you did or didn’t have health insurance in 2019, it won’t affect your taxes.
Most years see a slight increase to the standard deduction in order to match inflation, and this year is no different. The new standard deductions are:
In prior years, the first year following a divorce in which a party paid alimony, the payer could claim a deduction for payments made. That has changed so that any divorce decree signed after December 31, 2018 in which alimony payments are a part of the settlement, those payments can neither be deducted by the payer or claimed as income by the payee on their tax returns.
For non-taxed accounts, such as a traditional or Roth IRA (Individual Retirement Account) or a health savings account, your contribution can be deducted from your taxable income, up to a certain limit. This years changes include:
Again, due to inflation, the IRS adjusted the income tax brackets. While the seven brackets themselves didn’t change, the associated income for each bracket did. For example, individuals who are filing single with a taxable income between $9,526 up to $38,700 will have a 12 percent tax rate. This means they would owe $952.50 plus 12 percent of the taxable income over $9,525. For married people filing jointly, the 12 percent income bracket is now $19,501 to 77,400 which meas that any couple falling in that bracket will owe $1,905 plus 12 percent over $19,050.
For people 65 and older, there is now the 1040-SR. Part of the Bipartisan Budget Act of 2018, this new form is similar to the 1040-EZ, making it shorter and easier to navigate, especially compared to Form 1040. Because taxpayers over the age of 65 are not permitted to file the 1040-EZ because that form doesn’t permit Social Security benefits and retirement plans, the 1040-SR provides most senior citizens the ability to fill out a shorter form that allows for their retirement benefits and Social Security.
In order to file this form, taxpayers must be 65 anytime during the tax year to qualify, so if you turned 65 at any point during 2019, you may be eligible to file. Also, this form does not allow itemized deductions, so you have to use the standard deduction. Fortunately, the Tax Cuts and Jobs Act did double the standard deduction, and senior citizens are entitled to an additional deduction of $1,300.
Instead of trying to navigate tax preparation yourself, reach out to our team of small business accountants in Raleigh! With decades of experience and thorough knowledge of the tax code, we can help you maximize your refund and minimize your payments while ensuring an accurate, timely return. Call us today at (919) 420-0092 or fill out our contact form to schedule a consultation!