IRS Sets Inflation Adjustments for 2019 by Tony Gutierrez, CPA
Posted on January 10, 2019 by Anthony Gutierrez
The IRS announced the annual inflation adjustments to various provisions of the tax code for 2019. You should consider each of these changes very carefully as you plan for tax efficiency this year and when you prepare your 2019 tax returns in 2020.
The top tax rate of 37 percent applies to individual taxpayers whose income exceeds $510,300 in 2019, or $612,350 for married taxpayers filing joint returns. The other six tax rates break down as follows:
- 35 percent for income over $204,100 ($408,200 for married couples filing jointly);
- 32 percent for income over $160,725 ($321,450 for married couples filing jointly);
- 24 percent for income over $84,200 ($168,400 for married couples filing jointly);
- 22 percent for income over $39,475 ($78,950 for married couples filing jointly);
- 12 percent for income over $9,700 ($19,400 for married couples filing jointly);
- 10 percent for income of $9,700 or less ($19,400 for married couples filing jointly).
Alternative Minimum Tax (AMT)
The Alternative Minimum Tax exemption amount for tax year 2019 increases to $71,700 for individuals and begins to phase out when taxpayer income reaches $510,300. For married couples filing joint returns, the AMT exemption rises to $111,700 and begins to phase when income reaches $1,020,600.
The standard deduction available to all taxpayers increases slightly from the prior year to $12,200 for individuals and for those married filing separately, and $24,400 for married couples filing jointly. Taxpayers whose expenses exceed these amounts may opt instead to itemize their deductions for the year without being subject to income limitations which the Tax Cuts and Jobs Act (TCJA) eliminated in 2018. However, taxpayers should be mindful that the new tax law repeals and restricts many of the miscellaneous itemized deductions they may have enjoyed prior to 2018.
Estate and Gift Tax Exemptions
The maximum amount excludible from the taxable estate of a decedent in 2019 is $11.4 million in assets, up from $11.18 million for 2018. The maximum amount an individual may gift (other than gifts of future interests in property) to other persons in 2019 without incurring gift tax remains at $15,000. Married spouses, however, can continue to make an unlimited number of tax-free gifts to each other as long as both are U.S. citizens.
Retirement Plan Contributions
For 2019, individual taxpayers may contribute up to $19,000 in annual salary deferrals to an employer-sponsored 401(k), 403(b) and most 457 plans, up from $18,500 in 2018. Catch-up contributions for retirement savers age 50 and older remains at $6,000.
The contribution limit to IRAs and Roth IRAs increases $500 from the prior year to $6,000, plus an additional $1,000 for savers age 50 and older. However, the IRS will increase the income eligibility thresholds for taxpayers to contribute to traditional IRAs and Roth IRAs.
Foreign Earned Income Exclusion
The foreign earned income exclusion for 2019 is $105,900, up from $103,900 for the prior tax year.
Taxpayers may for the first time go without health insurance during any and all months of 2019 without being subject to an individual shared responsibility penalty.
The dollar amount that employees may contribute to health flexible savings accounts via salary deferrals rises $50 in 2019 to $2,700. In addition, Medical Savings Account plans with self-only coverage in 2019 must have an annual deductible that is not less than $2,350, but not more than $3,500. The maximum out-of-pocket expenses for self-only coverage increases to $4,650, or $8,550 for family coverage.
To learn more about how you may leverage these inflation adjustments and implement planning strategies to maximize savings while minimizing your tax liabilities in 2019, please contact the advisors and accountants with Berkowitz Pollack Brant.
About the Author: Tony Gutierrez, CPA, is a director of Tax Services with Berkowitz Pollack Brant, where he focuses on income and estate tax planning for high-net-worth individuals, family offices, and closely held businesses in the U.S. and abroad. He can be reached at the CPA firm’s Miami office at 305-379-7000 or via email at email@example.com.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.