Reminder – Tax Rule Changes for 2019

While preparing your tax returns this spring, be mindful that the IRS has issued new Tax Brackets & Rates for 2019, effective January 1. The changes affect most every tax payer, whether an employee or self-employed business owner. You may need to make adjustments in your withholding taxes, or your tax estimates if you are self-employed.

Specifically, a provision in the tax code known as indexing will affect 2019 Tax Brackets & Rates.  Indexing is essentially an inflation-adjusted modification to account for rising inflation trends. The purpose of indexing is to eliminate moving into a higher tax bracket due to pay raises that do little more than match the rate of inflation.

For 2019, income brackets increased by roughly 2% across all income levels as follows:

Capital gains are taxed at a substantially lower rate than ordinary income. There are just three rates for capital gains, ranging from 0% to 20%. Income brackets for capital gains have also increased slightly for 2019.

With personal exemptions eliminated under the new tax law, a larger single standard deduction (almost double) was devised in order to streamline returns for taxpayers. Standard deduction amounts increased slightly for 2019 as well.

For both employees and self-employed individuals, IRA and Qualified Plan contributions have increased as well.

Other significant changes occurring for 2019 include:

  • Estate Tax Exemption increases from $11.18 million to $11.40 million per person.
  • Elimination of the ACA penalty for not having health insurance becomes effective.
  • Unreimbursed medical expenses must exceed 10% of AGI in order to deduct.
  • For divorce decrees issued after December 31, 2018, alimony is no longer deductible for the payer and no longer taxable for the recipient.

Because everyone’s tax situation is unique, now might be a good time to discuss planning opportunities with your tax adviser and our wealth professionals at Madison.

Important Note: This material is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Madison Wealth Management does not provide tax, legal or accounting advice. © Madison Wealth Management 2019