The Tax Cuts and Jobs Act (TCJA) of 2017 ushered in big changes that significantly affected many taxpayers’ 2018 returns. By contrast, 2019 tax changes are subtle, mostly reflecting inflation adjustments to exemptions and tax brackets.
Still, the cutoffs for specific rates and exemptions may affect your final investment decisions for 2019. Here are eight things to keep in mind as you prepare to file your 2019 taxes—and remember, due to COVID-19, .
1. Income tax brackets shifted a bit
There are still seven tax rates, but the income ranges (tax brackets) for each rate have shifted slightly to account for inflation. For 2019, the following rates and income ranges apply:
|Tax rate||Income level|
|Single filers||Married couples filing jointly (and qualifying widows or widowers)|
|10%||$0 to $9,700||$0 to $19,400|
|12%||$9,701 to $39,475||$19,401 to $78,950|
|22%||$39,476 to $84,200||$78,951 to $168,400|
|24%||$84,201 to $160,725||$168,401 to $321,450|
|32%||$160,726 to $204,100||$321,451 to $408,200|
|35%||$204,101 to $510,300||$408,201 to $612,350|
|37%||$510,301 or more||$612,351 or more|
Source: Internal Revenue Service
2. The standard deduction increased slightly
One of the biggest changes to come out of the TCJA was the doubling of the standard deduction, which led to fewer people itemizing deductions in 2018.
After an inflation adjustment, the 2019 standard deduction is $12,200 for single filers and $24,400 for married filers. For single heads of household, who are generally unmarried with one or more dependents, it’s $18,350.
3. Itemized deductions remain the same
The TCJA eliminated many itemized deductions—including deductions for tax preparation fees, investment advisor fees, and unreimbursed job expenses—in favor of the higher standard deduction. In addition, some remaining itemizations were limited.
The following rules haven’t changed much for 2019, but are still worth pointing out:
- The deduction for state and local income taxes, property taxes, and real estate taxes is capped at $10,000.
- The mortgage interest deduction is limited to $750,000 of indebtedness. But people who had $1,000,000 of home mortgage debt before December 16, 2017, will still be able to deduct the interest on that loan.
- Only medical expenses that exceed 7.5% of adjusted gross income (AGI) can be deducted in 2019.
- Charitable donations are deductible, and the cash donation limit is 60% of AGI (up from 50% under pre-TCJA law). Note: For tax year 2020, the cash donation limit was temporarily increased to 100% of AGI.
- No miscellaneous itemized deductions are allowed.
4. You can contribute more to your individual retirement account (IRA)
For 2019, individuals can contribute as much as $6,000 to an IRA, up $500 from 2018. People age 50 and older also qualify to make an additional $1,000 catch-up contribution.
This year, you have until July 15, 2020, to contribute to your IRA for the 2019 tax year. That’s especially important for taxpayers who may qualify to deduct some or all of their IRA contributions.
5. You can save a bit more in your health savings account (HSA)
For tax year 2019, you have until July 15, 2020, to make your HSA contributions. The maximum amount you can contribute for 2019 is $3,500 for an individual (up $50 from 2018) and $7,000 for a family (up $100). People age 55 and older can contribute an extra $1,000 catch-up contribution.
To be eligible for an HSA, you must be enrolled in a high-deductible health plan (which usually has lower premiums as well).
6. You may qualify for the child tax credit
The TCJA increased the child tax credit and made it available to people with higher incomes. In 2019, you may be eligible for a tax credit of up to $2,000 per dependent child age 16 and younger, if your household income is below $200,000 for single filers or $400,000 for joint filers. The child tax credit can even be refundable (up to $1,400), meaning it can be paid to you as a refund if it’s more than the amount of your tax bill.
If your dependent does not qualify for the child tax credit, you may still qualify for up to $500 of tax credits under the “credit for other dependents” (see for more details). Tax credits, which reduce the tax you owe dollar for dollar, are generally better than deductions, which reduce your taxable income.
7. The alternative minimum tax (AMT) exemption went up
The TCJA greatly reduced the number of taxpayers subject to the AMT, which now mostly affects households with incomes over $500,000, according to the Tax Policy Center. Still, the AMT has investment implications for some high earners.
For 2019, the AMT exemptions are $71,700 for single filers, $111,700 for married taxpayers filing jointly, and $55,850 for married taxpayers filing separately. The phase-out thresholds are $1,020,600 for married taxpayers filing a joint return and $510,300 for all other taxpayers.
8. The estate tax exemption is even higher
The estate and gift tax exemption, which is indexed to inflation, rises to $11.4 million for 2019 and $11.58 million for 2020. But the now-higher exemption is set to expire at the end of 2025, meaning it could be essentially cut in half at that time if Congress doesn’t act.
The annual gift exclusion, which allows you to give money to your loved ones each year without incurring any tax liability or using up any of your lifetime estate and gift tax exemption, stays at $15,000 per recipient.
What You Can Do Next
Read more insights.
Schwab clients, see all of your Schwab tax forms in one place by logging into your 1099 dashboard.