Tax Brackets, Many Caps Shape Your 2019 Money Moves
It's that time of year when you start to plan myriad money moves for 2019. Much depends on what you'll be permitted to do by tax rules, so it's crucial to get a handle on various limits on deductions, contributions and donations, not to mention rules governing 2019 tax brackets and rates.
So save a copy of this list. These numbers impact your strategy for everything from retirement savings to your charitable donations, gifting to your own loved ones, handling capital gains taxes, coping with the alternative minimum tax (AMT), digesting alimony expenses and figuring out whether you can deduct any of your medical expenses.
So here's IBD's list of key caps involving salary, contributions, deductions, 2019 tax brackets and more:
2019 Tax Brackets
- 2019 tax brackets and rates on ordinary income. Many tax calculations start with your income tax bracket and rate, so here are the new tax brackets and rates. Thanks to indexing, 2019 tax brackets have climbed by about 2% compared to 2018:
- Brackets and rates for capital gains. How your capital gains are taxed depends on how long you owned the asset. If you owned the asset a year or less, any profit you make is taxed as ordinary income, at the rates shown above. But if you owned the asset more than one year, it is taxed at a different rate. The highest rate, 20%, is much lower than the highest rate, 37%, that applies to ordinary income. Cap-gain tax brackets:
New Standard Deduction
- Standard deduction. The old $4,050 standard deduction is gone. For your 2018 tax return, the standard deductions are $12,000 for single filers and $24,000 for marrieds filing jointly. If you take the standard deduction rather than itemize on your 2019 return, the deduction for singles will be $12,200. The deduction for marrieds filing jointly will be $24,400.
- IRA contributions. For 2019, you can kick in up to $6,000 — up $500 vs. 2018 — plus as much as an additional $1,000 if you're age 50 or older.
- 401(k) and other employer-sponsored retirement plans. The 2019 limit has climbed $500 to $19,000. If you are 50 or older, you can sock away as much as $6,000 more as a catch-up contribution.
- Estate tax lifetime exemption. The new limit for each person giving gifts is $11.4 million in 2019, which means $22.8 million per couple. That's an increase from $11.18 million per person ($22.36 million per couple) in 2018.
- Gift tax exclusion. The annual cap will again be $15,000.
- Alimony. For divorce decrees issued after Dec. 31, 2018, alimony payments will not be tax-deductible. And any alimony you receive will no longer be taxable income. The old rules will continue to apply to decrees issued prior to Dec. 31. But the new rules apply to decrees issued in 2019. Also, if you modify your pre-2019 decree, you could be subject to the new rules.
Medical, Charitable Deductions
- Medical expense deduction. If you itemize on your return for 2019, you'll be able to deduct unreimbursed medical expenses that exceed 10% of your adjusted gross income (AGI). For your 2018 return, you can deduct unreimbursed medical expenses that top 7.5% of your AGI.
- Charitable donation deduction. The limit on the portion of cash gifts that you can deduct rose for returns from 2018 through 2025. In each year, you now can deduct cash gifts that amount to as much as 60% of your AGI. That's up from the previous limit of 50% of AGI.
- Qualified business income deduction. Small-business owners — partnerships, S corporations, and sole proprietorships — can now calculate their taxes by exempting 20% of all net business taxable income that the business earns, with limits.
One of those limits caps the 20% exemption at the greater of 50% of the wages paid to employees and reported on a W-2, or 25% of those wages plus 2.5% of the cost of depreciable property owned by the business, according to Tim Steffen, director of advanced planning for Baird Private Wealth Management. The deduction applies to returns for 2018 through 2025.