Changes in federal income tax rules are coming. Here are some highlights
Last year officials made good on promises to file postcard-like 1040s with the IRS. Shocking, but forms 1040 EZ, a one-page form for single people, and 1040A, a short version of the full 1040 tax return, were abandoned by the IRS.
Now it starts — again — the pseudo-postcard is growing. Complications arising from simplification bring many changes to filing 2019 tax returns. The Bipartisan Budget Act of 2018, for example, greenlights a new tax return just for seniors
Beginning in 2020, senior citizens can file a “1040-SR” tax return, not the full traditional 1040. The goal of the form is to make tax filing easier for seniors, especially seniors, people over age 65.
Form 1040EZ was unable to handle Social Security, conceivably 85% of benefits, incomes above $100,000, pensions, and more than $1,500 in interest. Form inflexibility and deficiencies previously forced many people to file full 1040 tax returns.
New Forms – Now, seniors can use form 1040-SR, a senior-friendly form allowing reporting of extra interest, dividends, and capital gains. Surprising there’s no cap for higher incomes, either.
The new senior tax return doesn’t allow using itemized deductions. Seniors are forced to take a standard deduction. Elders, age 65 or higher, get an extra $1,300 standard deduction.
Not sure if 1040-SR makes things simpler or adds complications? Form1040-SR is easy on senior eyes because of large readable font sizing and contrasting colors.
Another positive change for filing 2019 tax returns is a redesign of supplemental 1040 schedules by the IRS and the Treasury. Last year’s six forms reduce to three. Additional pages four, five, and six are gone because they’re merging into schedules one to three.
Taking Home Office is Less Risky - Start using part of your home exclusively for business. If you’re self-employed, you may get a decent write-off. Once considered a red flag, the IRS now makes the deduction more available to taxpayers. Physicians and other professionals doing administrative work, even if not meeting clients, can likely worry less when writing off allowable home office expenses.
Deduct expenses associated with allowable percentages, based on the ratio of business space over total space, such as rent utilities, insurance, and maid service.
Other changes include:
401 K contributions increase to $19,000 for 2019. Catch-up provisions for those over age 50 are now $6,000.
Contribute $6,000 to a traditional IRA, up from $5,500, plus an extra $1,000 catch-up if over age 50.
If divorcing in 2019, no alimony paid is deductible. Alimony received, for new 2019 divorces, isn’t included in income.
Slightly higher 2019 federal tax brackets now range from 10% to 37% because of inflation adjustments.
Standard deduction increases to $12,200 for Single and Married Filing Separately Filing Statuses. Head of House Hold grows to $18,350, and married folk’s standard deduction grown to $24,400.
Gone is the controversial individual mandate. There’re no Obamacare Penalties for not having health insurance. Some states have a penalty, though.
It’s growing tougher to itemize deductions. For those itemizing, medical expenses are tougher to deduct. The threshold for using medical expenses must now exceed ten percent of adjusted gross income. The limit for medical costs was previously at 7.5%.
Tax day is April 15, 2020. Most tax documents will come by early February.
Jim Germer is a Bradenton CPA and financial adviser at 100 3rd AVE W., Suite 130. Call (941) 746-5600 or email jim.germer@ceterafs.com. Securities offered through Cetera Financial Specialists LLC (doing insurance business in CA as CFGFS Insurance Agency) member FINRA/SIPC. Advisory services offered through Cetera Investment Advisers LLC. Cetera entities are under separate ownership from any other named entity.
This story was originally published November 18, 2019 at 5:00 AM.