April 15, 2019 will be the deadline for most filers, not filing an extension. Many Tax payers were puzzled as they heard of certain changes they could not benefit yet. The reason to this, comes from certain changes going into effect immediately and others beginning their impact on tax payers after 2018 or for the 2019 tax year. Here is a quick recap for those dazed and confused.
Form 1040 became shorter and certain tax activity was moved to supplemented schedules. The new 1040 uses a building block or building approach, with specific tax activity being reported in separate schedules.
Personal Exemption amounts were suspended between January 1, 2018 – January 1 2026. The personal exemption did not disappear or was not completely repealed, only the personal exemption amount for any amount of exemptions claimed on the Federal return are zero and so do not impact the return.
Rate Changes occurred with the rate structure and the rate experienced by tax payers in the respective brackets. The changes went into effect immediately, with tax payers feeling the impact this year. Only two tax brackets did not see a change at all the lowest and the second highest.
The Standard deductions increased for all the filing statuses. The amount of the increase was almost double of the original standard deductions. Although the standard deductions were increased, families with multiple children may have been negatively impacted due to the suspension of personal exemptions.
The Qualified Business Income deduction became available for pass-through businesses and sole proprietors. This allows a deduction of up to 20% of qualified business income. Specific service trades or business along with higher income sole proprietors did see a further limitation to this deduction.
Itemized Deductions saw many changes to Charitable Contributions, State and local taxes, qualified Residence Interest, Casualty and Theft Losses and Overall Limitation on Itemized Deductions. If you have any questions into these deductions, please let us know.
Other Dependents tax credit was created for other dependents that failed the Child Tax Credit tests.
Changes for the Following Tax Year
Alimony payments made after the 2018 tax year, or those that are modified and express application of the Tax Cuts and Jobs Act; are no longer deductible by the paying spouse and no longer included as income to the recipient spouse.
Shared Responsibility Penalty was placed into suspension after the 2018 tax year filing. The penalty was not completely repealed but rather the penalty payment was suspended to zero just like the personal exemption. Many tax payers had to pay the penalty this year, but may not the next. Although the penalty is reduced to zero, we still recommend for people to remain covered by health insurance. Not only because the obvious benefits to health but also because another administration may repeal the changes we saw this tax season.
Please do not consider this an all inclusive resource. Please make sure you are abiding by all accounting, legal, Federal, State and local tax regulations.