Tax planning in 2019 continues to be a moving target due to the TCJA (Tax Cuts and Jobs Act) enacted in December 2017. Although there is still uncertainty as we await clarification by the government and IRS, enough of the law is currently in practice to allow substantial tax planning to occur.
The key is to be proactive for our clients to get the most benefit. Some changes in the law are only temporary, so the window to benefit may be small unless Congress passes permanent provisions. As a result, timing income may not have the same effect as in past years.
This is a partial list of items that may affect you. Your tax advisor can help you understand how they apply to your own circumstances.
Individual and Income-Related 2019 Tax Planning Items
When it comes to filing your personal return, here are some of the changes that will impact your total taxes owed:
- Personal exemption: suspended until 2025. At $4,050 per dependent, many taxpayers relied on this deduction. If this change affects you, look into the increased Child Credit and the new Family Credit to help offset it.
- Standard deduction: nearly doubled for years 2018-2025, indexed for inflation. If you previously itemized deductions, this may not be your preferred strategy going forward. The standard deduction is now $12,000 for singles and $24,000 for joint filers.
Other changes to review:
- Moving expense deductions: suspended (unless you’re active-duty military)
- Homeowner related deductions: almost all limits have changed
- Alternative minimum tax (AMT): substantial exemption increase
- Kiddie tax: rates increased
Business Related Tax Planning
You may have recently heard in the news about a reduction in business taxes. Here are what those deductions look like, as well as other things you need to be aware of as a business owner:
- Corporate tax rate: substantial tax cut. The tax rate on corporations before the TCJA was graduated, but could be up to 35 percent. Going forward, the rate is flat at 21 percent. In addition, the AMT on corporations is repealed—but don’t worry if you have credits from past AMT payments, you can use them in years 2018-2021.
- Pass-through businesses: significant new deduction. Generally equates to 20 percent of qualified business income (QBI). This is a major new deduction for entities like partnerships, LLCs, S corps, etc. Talk to your CPA regarding limitations and calculations, as this could be a major change in the total tax liability of your company.
- Section 179 expensing: significant enhancements. You may now deduct the cost of qualifying assets (furniture, equipment, etc.) instead of depreciating them over multiple years. In addition, the limit has increased to $1 million (from $510,000 in 2017).
- Bonus depreciation: First year depreciation is increased, used assets now qualify, and the rate will go up to 100 percent through January 1, 2023, (then gradually reduce). This is a great benefit, but certain businesses will no longer qualify (examples: dealerships with floor-plan financing, gross receipts of $25 million+).
Other changes to review:
- Meals and entertainment deductions: eliminated
- Interest expense deduction: limited
- Section 199 deduction: eliminated
- Business net operating losses (NOLs): reduced by 20 percent
- 1031 exchanges: limited
What we still don’t know about the TCJA
The TCJA was the largest tax reform we’ve seen in a long time and the documentation was extensive. As tax preparers and the IRS work through it this tax season, we expect to see additional documentation, technical corrections and a timeline for anything retroactively adjusted.
We will continue to post updates as they are released/published, as well as greater depth on the items above. Don’t hesitate to contact us with questions.