By Chris J. Scoggin, CPA
Partner, Chaston Taxes and Accounting
Well, the good news is there were no MAJOR changes in tax year 2019. However, the changes from the Tax Cut and Jobs Act (TCJA) that went into effect in tax year 2018 are still causing some confusion with our clients. So just to refresh:
In 2018, the standard deduction was doubled, so most taxpayers now do not need to itemize deductions.
• If you itemize, you can only deduct up to $10,000 of state, local and property taxes.
• The personal exemption was eliminated.
• The Child Tax Credit was doubled to $2,000 per child for ages 16 and under, and $500 for older children and certain other dependents.
Most of these deductions and credits are inflation-adjusted so some of the new tax year 2019 deduction amounts are:
• The standard deduction has increased from $12,000 to $12,200 for Single taxpayers and from $24,000 to $24,400 for married filing jointly.
• For Traditional (tax deductible) and Roth IRA contributions, you can contribute up to $6,000, and if you are 50 or older, the contribution limit is $7,000. These contribution limits may be reduced for higher incomes if you have a retirement plan offered through your employer.
Finally, with the historically low tax rates passed with the TCJA, it is our opinion this MAY provide an opportunity for some taxpayers to accelerate income that will eventually be taxable and pay the tax at this year’s (2019 or 2020) reduced rates, before the rates are likely increased at some point in the future. This strategy can be complicated and should be discussed with your CPA and Financial Planner before implementing.
The Business tax questions we have been asked more than any other are what is QBI, and what is a Specified Service Trade or Business (SSTB). QBI or Qualified Business Income is income generated by a qualified small business that has gross receipts of $25 million or less. QBI allows you to exclude 20% of this income from taxation. This is a huge tax break but it comes with a lot of asterisks!
The first asterisk is this deduction phases out once qualified business income reaches $321,400 (2019) and is totally eliminated when QBI exceeds $421,400. There are some very effective planning opportunities if you feel your business income is at or just over these limits. Feel free to give Chaston Taxes and Accounting a call or talk to your accountant for advice.
Lastly, the most asked question is “What is a Specified Service Trade or Business (SSTB)?”
The QBI Deduction is not allowed for SSTBs. As a broad generalization, this is a business where the principal asset (and revenue generator) is the reputation, skill or effort of the owner(s).
For example, as a CPA and Partner in Chaston Taxes and Accounting, I do not qualify for the QBI deduction. However, if possible, we will ensure you get every deduction allowed under this year’s regulations!