January is just around the corner.
The IRS recently released a draft of the 2019 tax year filing instructions. Here are the tax changes you need to be aware of before the tax season arrives.
New 1040 Form
The IRS introduces a new form for taxpayers born before January 2, 1955. This tax return is called Form 1040-SR (U.S. Tax Return for Seniors) and mirrors what a regular 1040 looks like.
However, this form is not for taxpayers who itemize their deductions. This is used as a simplified tax return for seniors who don’t have many income statements.
For instance, if they only have retirement income, social security benefits, IRA distributions, pensions, and annuities as a form of income, the 1040-SR is right for them.
For the 2018 tax year, the six schedules were introduced to shorten the 1040 form and organize deductions, credits, and other information.
Below are what you report on each schedule and how it changes for the 2020 tax season.
- Schedule 1
Part 1 – Additional income, business/farm income or loss, unemployment compensation, prize/award money, or gambling winnings
Part 2 – Deductions such as student loan interest, self-employment tax, or educator expenses
- Schedule 2
Part 1 – Alternative Minimum Tax or excess advance premium tax credit repayment
Part 2 – Other taxes such as self-employment tax, household employment taxes, additional tax on IRAs, retirement plans, and other tax-favored accounts
- Schedule 3
Part 1 – Nonrefundable credits such as the foreign tax credit, education credit, or general business credit
Part 2 – Refundable credits such as the net premium tax credit or health coverage tax credit, and other payments such as amounts paid with tax-filing extension requests or excess social security tax withholding
Above, Schedule 2 and 4 combine into Schedule 2 where you report any additional taxes you owe. Schedule 3 and 5 combine into Schedule 3 where you report credits that you didn’t claim on Form 1040 or 1040-SR.
2019 Tax Bracket
Locate your tax bracket by checking below.
- 37% for incomes over $510,300 for single filers ($612,350 for married couples filing jointly)
- 35% for incomes over $204,100 ($408,200 for joint filers)
- 32% for incomes over $160,725 ($321,450 for joint filers)
- 24% for incomes over $84,200 ($168,400 for joint filers)
- 22% for incomes over $39,475 ($78,950 for joint filers)
- 12% for incomes over $9,700 ($19,400 for joint filers)
- 10% for incomes of $9,700 or less (less than $19,400 for joint filers)
As a reminder, these brackets apply to your 2019 tax return and will determine how much tax you pay.
Requirements to file
According to the IRS, you need to meet a certain gross income threshold to file a tax return. This includes all your income such as any money, goods, property, and services that are not exempt from tax.
It is also based on age and your filing status as seen below.
- Under 65 – At least $12,200
- Over 65 – $13,850
Married filing jointly
- Under 65 (both spouses) – $24,400
- 65 or older (one spouse) – $25,700
- 65 or older (both spouses) – $27,000
Head of household
- Under 65 – $18,350
- Over 65 – $20,000
- Under 65 – $24,400
- Over 65 – $25,700
Taxpayers are no longer subject to the healthcare penalty
For the tax year 2019, if you don’t have minimum essential health care coverage, you don’t have to pay the shared responsibility penalty.
For example, if you take a look at the 2019 Form 1040, you may notice that the “Full-year health care coverage or exempt” box is gone.
Reporting IRA and pensions
IRA distributions, pensions, and annuities will be reported on separate lines for both Form 1040 and Form 1040-SR. Lines 4a and 4b are for reporting IRA distributions and lines 4c and 4d are used to report pensions and annuities.
Capital gains or losses
Instead of capital gains and losses reporting on line 13 of Schedule 1, it will be on line 6 of Form 1040 and 1040-SR.
Standard deduction increases
For 2019, the standard deduction increases to the following:
- Single – $12,200; a $200 increase from 2018
- Married filing jointly or Qualifying widow(er) – $24,400; a $400 increase from 2018
- Head of household – $18,350; a $350 increase from 2018
Remember, for taxpayers over 65, they receive an additional $1,300 for their standard deduction.
Form for the qualified business income deduction
The new form used to compute the qualified business income deduction is reported on the worksheet, Form 8995.
Alternative minimum tax (AMT) threshold increases
The exemption amount for the AMT increases to $71,700 for individuals, $111,700 for joint filers or qualifying widow(er), and $55,850 if married filing separately.
Additionally, the phase-out income threshold increases to $510,300 and $1,020,600 if married filing jointly or qualifying widow(er).
Medical expense threshold increases
For the 2019 tax year, the medical expense threshold will return to 10% of your adjusted gross income (AGI), compared to 2018’s 7.5% AGI.
Here’s an example. Allie’s adjusted gross income is $30,000, she needs to be able to deduct more than $3,000 in medical expenses in order to be eligible for the deduction. Compared to 2018, Allie would have been able to deduct her expenses if they exceeded $2,250.
Therefore, you will need more medical expenses to qualify for the deduction.
Get ready to file
Now that you’re aware of the changes for tax year 2019, keep track of all your tax information.
The IRS opens electronic filing and starts accepting tax returns during mid-January. With that in mind, be an early bird for the upcoming 2020 tax season! If you have a 2016, 2017 or 2018 tax refund to claim, file now.