As tax season begins it is important to be aware of the changes that could affect your personal tax return.  The top five topics that you should be aware of are:

  1. Bigger contributions to retirement accounts
  2. End to alimony deductions
  3. New 1040-SR form for seniors filing their tax return
  4. No health insurance penalty
  5. New tax brackets

Bigger Contributions to Retirement Accounts

For Traditional and Roth IRAs, contributions increased by $500 to $6,000 with an extra $1,000 catch-up for taxpayers 50 years or older.    

401(K) contribution limits have also increased by $500 to $19,000 with an extra $6,000 catch-up for taxpayers 50 or older.  The advantage of this is that it allows the taxpayer to reduce taxable income in the year of contributions.  The flip side to the tax savings is that you are not allowed to access money in your 401(K) until the taxpayer reaches the age of 59½ and, once you withdraw money, it becomes taxable.  Keep in mind there are exceptions to rules on early withdrawal to from a 401(K), but there can be penalties.  You should discuss any tax matters with your tax advisor.  You are not required to withdraw money from your 401(K) at 59½, but you will have to take required minimum distributions once you  are 70½.

End to Alimony Deductions

For divorce decrees signed after December 31, 2018 that require alimony payments, the taxpayer will not be allowed a deduction for the payments made.  This will be a lot simpler to manage; however, it might mean higher taxes for the alimony payer.  If you were divorced before the end of 2018, you will follow the rules that were in place before the tax reform, as long as there were no modifications to the divorce decree. 

New 1040-SR Tax Form for Seniors

For 2019, seniors aged 65 or older will be able to file their own tax return thanks to the Bipartisan Budget Act of 2018.  The new 1040-SR is a much simpler version of the complex Form 1040, and it is easier to read with larger font size and better color contrast.  There are no income limits or restrictions on types of income.  Seniors can also claim the standard deduction or itemized deduction on Schedule-A. 

No Health Insurance Penalty

The penalty for not having health insurance no longer applies for 2019 Federal Tax Returns.  But for every rule there is an exception. Some states have their own rules when it comes to the individual health care mandate.  If you live in a state that requires you to have health insurance and you do not have coverage, you will be charged a fee to file your 2019 State Tax return.  As of now, District of Columbia, New Jersey, and Massachusetts are the only states mandating that filers show proof of health insurance.

New Tax Brackets 

For 2019 there are seven tax brackets.  They are 10%, 12%, 22%, 24%, 32%, 35% and 37%. Below are tables depicting how the brackets look for each filing status:

Individual Taxpayers

If Taxable Income Is Between:

The Tax Due Is:

0 - $9,700

10% of taxable income

$9,701 - $39,475

$970 + 12% of the amount over $9,700

$39,476 - $84,200

$4,543 + 22% of the amount over $39,475

$84,201 - $160,725

$14,382.50 + 24% of the amount over $84,200

$160,726 - $204,100

$32,748.50 + 32% of the amount over $160,725

$204,101 - $510,300

$46,628.50 + 35% of the amount over $204,100

$510,301 +

$153,798.50 + 37% of the amount over $510,300

 

Married Individuals Filing Joint Returns and Surviving Spouses

If Taxable Income Is Between:

The Tax Due Is:

0 - $19,400

10% of taxable income

$19,401 - $78,950

$1,940 + 12% of the amount over $19,400

$78,951 - $168,400

$9,086 + 22% of the amount over $78,950

$168,401 - $321,450

$28,765 + 24% of the amount over $168,400

$321,451 - $408,200

$65,497 + 32% of the amount over $321,450

$408,201 - $612,350

$93,257 + 35% of the amount over $408,200

$612,351 +

$164,709.50 + 37% of the amount over $612,350

 

Head of Household

If Taxable Income Is Between:

The Tax Due Is:

0 - $13,850

10% of taxable income

$13,851 - $52,850

$1,385 + 12% of the amount over $13,850

$52,851 - $84,200

$6,065 + 22% of the amount over $52,850

$84,201 - $160,700

$12,962 + 24% of the amount over $84,200

$160,701 - $204,100

$31,322 + 32% of the amount over $160,700

$204,101 - $510,300

$45,210 + 35% of the amount over $204,100

$510,301 +

$152,380 + 37% of the amount over $510,300

 

Married Filing Separately

If Taxable Income Is Between:

The Tax Due Is:

0 - $9,700

10% of taxable income

$9,701 - $39,475

$970 + 12% of the amount over $9,700

$39,476 - $84,200

$4,543 + 22% of the amount over $39,475

$84,201 - $160,725

$14,382.50 + 24% of the amount over $84,200

$160,726 - $204,100

$32,748.50 + 32% of the amount over $160,725

$204,101 - $306,175

$46,628.50 + 35% of the amount over $204,100

$306,176 +

$82,354.75 + 37% of the amount over $306,175

 

These five points represent the most prominent changes for taxpayers for the year 2019. If you have concerns or questions about how these may impact you, please feel free to contact us at SobelCo in Livingston at 973-994-9494 or in Woodcliff Lake at 201-327-0400.