Beginning January 1, 2018, the following items have been eliminated:

• Miscellaneous itemized deductions subject to the 2%-of-adjusted-gross-income floor
• Personal and dependency exemptions
• Moving expenses except for certain active duty military personnel
• Exclusion for bicycle commuting
• Phaseout of itemized deductions

All taxpayers must use Form 1040 beginning 2018 and beyond; Forms 1040A and 1040EZ have been eliminated. Form 1040 has been redesigned and is supplemented by new Schedules 1 through 6.

Schedule 1:

Schedule 1 is used to report income or adjustments to income that can’t be entered directly on Form 1040.

Additional income is entered on Schedule 1, lines 1 through 21.

Adjustments to income are entered on Schedule 1, lines 23 through 36.

Beginning 2018, a provision in the Tax Cuts and Jobs Act (sec. 199A) allows a deduction of up to 20% for certain domestic qualified business income (QBI) from pass-through entities (sole proprietorships, partnerships, limited liability companies, and S corporations). The QBI deduction is taken by sole proprietors, partners, S corporation shareholders, estates and trusts. The QBI deduction does not apply to C corporations.

In addition, you may also be entitled to add to the QBI deduction up to 20% of combined qualified REIT dividends and qualified publicly traded partnership (PTP) income.

The QBI deduction is subtracted from adjusted gross income on Form 1040. It is not deducted from business income and it is not an adjustment to gross income in figuring adjusted gross income. However, since this deduction is subtracted from adjusted gross income, those claiming the standard deduction or itemized deductions may claim this deduction.

Part of the justification for providing this tax benefit to non-C corporation businesses was the significant tax rate reduction for C corporations, from a maximum graduated rate of 35% to a flat 21% rate.

For 2018 and beyond, the TCJA eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation. For example, taking a client or potential client to a ball game or to a dinner-theater.

However, taxpayers may continue to deduct 50% of the cost of business meals if:

• the taxpayer (or an employee of the taxpayer) is present
• the food and/or beverages are not considered lavish or extravagant and
• the food and beverages are purchased separately, or shown on the bill separately from the cost of the entertainment.

• Business: 58 cpm
• Medical and moving for military personnel: 20 cpm (see Note below)
• Charitable: 14 cpm

Note: Moving Expenses Under the Tax Cuts and Jobs Act (TCJA):

Only members of the U.S. Armed Forces on active duty who move pursuant to a military order and incident to a permanent change of station may deduct unreimbursed moving expenses for 2018 and later years . These qualifying Armed Forces members are also the only taxpayers who may exclude employer allowances or reimbursements for eligible moving expenses.

Form 3903 is used to report deductible moving expenses. The excess of deductible moving expenses over excludable government allowances or reimbursements, as shown on Form 3903, is entered as an adjustment to income on Schedule 1 of Form 1040.

For a vehicle placed in service in 2019 and used over 50% for business, the first-year depreciation limit PLUS bonus depreciation is $18,100 ($10,000 plus $8,000 bonus depreciation).

If you elect NOT to apply bonus depreciation, or you are not eligible for bonus depreciation, the first-year depreciation limit is $10,100.

Business Use and Personal Use:

You must reduce the ceiling on depreciation by the percentage of personal-use of the vehicle. Personal use of a vehicle is a non-deductible personal expense.

Vehicles Exempt from Annual Depreciation Limits:

Certain vehicles are exempt from the annual depreciation limits, such as an ambulance, hearse, or combination hearse-ambulance used directly in business, taxi cabs used for transporting persons or property for compensation or hire.

Depreciation Limits Under the New Law (TCJA) for Passenger Vehicles placed in service after Dec. 31, 2017:

• Maximum deduction limit for cars placed in service in 2019, 100% business use and no bonus depreciation claimed:
  • $10,100 for the first year,
  • $16,100 for the second year,
  • $9,700 for the third year, and
  • $5,760 for each later year in the recovery period
• Maximum deduction limit for cars placed in service in 2019, 100% bonus depreciation claimed and100% business use:
  • $18,100 for the first year,
  • $16,100 for the second year,
  • $9,700 for the third year, and
  • $5,760 for each later year in the recovery period

The new law also removes computer or peripheral equipment from the definition of listed property. This change applies to property placed in service after Dec. 31, 2017.

For qualifying property placed in service in 2019, first-year expensing is allowed up to a limit of $1,020,000. The limit begins to phase out dollar-for-dollar if the total cost of qualifying property exceeds $2,550,000.

Section 179 Deduction Phase-out:

If the cost of qualifying property placed in service in 2019 is more than $2,550,000, you reduce the $1,020,000 expensing limit dollar-for-dollar for each dollar the cost of qualifying property exceeds $2,550,000 (but not below zero).

For example, if you place machinery in service during 2019 costing $2,600,000, the $1,020,000 deduction limit is reduced by $50,000 to $970,000, which is entered on Form 4562, Line 5 of Part 1 (labeled "Dollar limitation for tax year.")

If the cost of the property was $3,570,000 or more, you could not take the Section 179 deduction because the $1,020,000 deduction limit would be completely phased out ($3,570,000 minus $2,550,000 = $1,020,000).

Bonus Depreciation:

The new law increases the bonus depreciation percentage from 50% to 100% for qualified property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023.

Law before the TCJA:

The bonus depreciation percentage for qualified property that a taxpayer acquired before Sept. 28, 2017, and placed in service before Jan. 1, 2018, remains at 50 percent. Special rules apply for longer production period property and certain aircraft.

Bonus Depreciation for Qualified Used Property:

The definition of property eligible for 100 percent bonus depreciation was expanded to include used qualified property acquired and placed in service after Sept. 27, 2017, if all the following factors apply:

• The taxpayer or its predecessor didn’t use the property at any time before acquiring it.
• The taxpayer didn’t acquire the property from a related party.
• The taxpayer didn’t acquire the property from a component member of a controlled group of corporations.
• The taxpayer’s basis of the used property is not figured in whole or in part by reference to the adjusted basis of the property in the hands of the seller or transferor.
• The taxpayer’s basis of the used property is not figured under the provision for deciding basis of property acquired from a decedent.
• Also, the cost of the used property eligible for bonus depreciation doesn’t include the basis of property determined by reference to the basis of other property held at any time by the taxpayer (for example, in a like-kind exchange or involuntary conversion).

The new law added qualified film, television and live theatrical productions as types of qualified property that may be eligible for 100 percent bonus depreciation. This provision applies to property acquired and placed in service after Sept. 27, 2017.

Under the new law, certain types of property are not eligible for bonus depreciation in any taxable year beginning after December 31, 2017. One such exclusion from qualified property is for property primarily used in the trade or business of the furnishing or sale of:

• Electrical energy, water or sewage disposal services,
• Gas or steam through a local distribution system or
• Transportation of gas or steam by pipeline.

This exclusion applies if the rates for the furnishing or sale have to be approved by a federal, state or local government agency, a public service or public utility commission, or an electric cooperative.

The new law also adds an exclusion for any property used in a trade or business that has had floor-plan financing indebtedness if the floor-plan financing interest was taken into account under section 163(j)(1)(C). Floor-plan financing indebtedness is secured by motor vehicle inventory that in a business that sells or leases motor vehicles to retail customers.

Changes to Treatment of Certain Farm Property

The new law shortens the recovery period for machinery and equipment used in a farming business from seven to five years. This shorter recovery period, however, doesn’t apply to grain bins, cotton ginning assets, fences or other land improvements. The original use of the property must occur after Dec. 31, 2017. This recovery period is effective for eligible property placed in service after Dec. 31, 2017.

Also, property used in a farming business and placed in service after Dec. 31, 2017, is not required to use the 150 percent declining balance method. However, if the property is 15-year or 20-year property, the taxpayer should continue to use the 150 percent declining balance method.

Use of Alternative Depreciation System for Farming Businesses

Farming businesses that elect out of the interest deduction limit must use the alternative depreciation system to depreciate any property with a recovery period of 10 years or more, such as single purpose agricultural or horticultural structures, trees or vines bearing fruit or nuts, farm buildings and certain land improvements. This provision applies to taxable years beginning after Dec. 31, 2017.

Applicable Recovery Period for Real Property

The new law keeps the general recovery periods of 39 years for nonresidential real property and 27.5 years for residential rental property.

The new law changes the alternative depreciation system recovery period for residential rental property from 40 years to 30 years.

Qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property are no longer separately defined and no longer have a 15-year recovery period under the new law.

These changes affect property placed in service after Dec. 31, 2017.

Under the new law, a real property trade or business electing out of the interest deduction limit must use the alternative depreciation system to depreciate any of its nonresidential real property, residential rental property, and qualified improvement property. This change applies to taxable years beginning after Dec. 31, 2017.

The deduction for mortgage interest on a principal residence and second residence is limited to acquisition debt up $750,000 ($375,000 for married persons filing separately) for loans acquired after December 15, 2017.

Acquisition debt incurred on or before December 15, 2017, is "grandfathered", which means, the prior law limit of $1 million ($500,000 is married filing separately) still applies to those loans for purposes of deducting interest on your returns for 2018 through 2025.

If you refinance grandfathered debt (debt obtained before December 16, 2017),the refinanced debt remains grandfathered to the extent of the loan balance at the time of refinancing,

No deduction is allowed for interest on home equity debt, regardless of when the loan was obtained. However, this bar does not apply to the extent proceeds are used to buy, build, or substantially improve a first or second residence that the loan is secured by and the loan falls within the definition of home acquisition debt. So, if the applicable limit on acquisition debt has not been reached, the interest on the home equity loan falling within the limit can still be deducted.

For example, If the loan is used to pay off credit card debt or buy a car, the interest is not deductible. If the loan is used to improve a second home, but the loan is not secured by the second home, the interest is not deductible.

Starting in 2018 and beyond, you cannot deduct more than $10,000 ($5,000 if married filling separately) of the following taxes, in any combination:

• On Schedule A, you may deduct state and local income taxes or state and local general sales taxes, but not both.
• State and local real property taxes
• State and local personal property taxes

Example: Married couple files 2019 joint tax return. They paid the following taxes:

• 2019 state/local income taxes withheld from their 2019 gross wages: $1,000.
• They paid their 2018 state/local income tax liability shown on their 2018 return when they filed their 2018 return on April 15, 2019: $300
• 2019 State and local sales tax: $1,300
• 2019 real estate taxes: $8,800
• 2019 personal property tax on two vehicles: $950
• Total taxes paid: $12,350

Result: On Schedule A, they deduct the combination of $1,300 sales tax and $8,700 real estate taxes, for a maximum SALT deduction of $10,000. The remaining $2,350 is not deductible.

Foreign Taxes:

• Foreign real property taxes are no longer deductible.
• Foreign Income taxes ARE still allowed as an itemized deduction and are NOT subject to the $10,000 limit ($5,000 limit if married filing separately). However, claiming a foreign tax credit may be a better alternative to the deduction.

Your standard deduction depends on your filing status.

• Married filing Joint return: $24,400
• Qualifying widow(er): $24,400
• Head of household: $18,350
• Single: $12,200
• Married filing separately: $12,200
• Dependents - minimum deduction: $1,100
• Additional Deduction if Age 65 or Older, or Blind. If you turned 65 on January 1, 2020, you are considered to be 65 as of December 31, 2019 for purposes of claiming this deduction. The larger deduction for blindness is allowed regardless of age.
  • Married-per-spouse, filing jointly or separately:
    • $1,300 ($2,600 for age and blindness)
  • Qualifying widow(er):
    • $1,300 ($2,600 for age and blindness)
  • Single or head of household:
    • $1,650 ($3,300 for age and blindness)

Complete Blindness:

To be eligible for the additional standard deduction for blindness, you must be completely blind as of December 31. The larger deduction for blindness is allowed regardless of age.

Partial Blindness:

To claim the additional standard deduction if you are partially blind as of December 31, you will need to get a letter from your eye doctor certifying that you cannot see better than 20/200 in your better eye with lenses or that your filed of vision is 20 degrees or less. If your eye doctor believes your vision will never improve beyond these limits, this fact should be stated in the letter.

You can no longer claim a personal exemption for yourself, your spouse or your dependents.

Maximum EIC:

• $3,526 for one qualifying child
• $5,828 for two qualifying children
• $6,557 for three or more qualifying children
• $529 for taxpayers who have no qualifying child

The phaseout ranges for the EIC have been adjusted for inflation.

For 2018 through 2025, the child tax credit amount is increased up to $2,000 per qualifying child under age 17. This credit is refundable, which means if the credit exceeds your tax liability, you get the excess amount refunded to you, within limits.

The credit will not begin to phase out until modified adjusted gross income (MAGI) exceeds $400,000 if married filing jointly, or $200,000 for all others.

In most cases MAGI is the same as adjusted gross income (AG). If you claim the foreign earned income exclusion, foreign housing exclusion or deduction, or possession exclusion for American Samoa residents, these amounts must be added back to AGI to get MAGI for credit purposes. The threshold amounts will NOT be indexed after 2018 for inflation.

The maximum credit of $2,000 per qualifying child is reduced by 5% or $50 for each $1,000 (or fraction of $1,000) that your MAGI exceeds the phaseout threshold.

To figure the amount of your child tax credit, complete the Child Tax Credit and Credit for Other Dependents Worksheet in the IRS instructions to Form 1040 or 1040-SR.

Credit for Other Dependents:

You can claim a nonrefundable credit up to $500 for each eligible dependent for whom the child tax credit cannot be claimed. The credit for "other dependents" is figured together with the child tax credit on the Child Tax Credit and Credit for Other Dependents Worksheet in the Form 1040 or 1040-SR instructions.

You may be able to claim the Saver's Credit if you, or your spouse if filing jointly, made contributions to a retirement plan in 2019 by April 15, 2020. This includes contributions to traditional IRA or Roth IRA made by April 15, 2020.

The Saver's Credit may be generally claimed on Form 8880.

The saver's credit is based on adjusted gross income.

The adjusted gross income (AGI) brackets for the 10%, 20%, and 50% credits for 2019 are:

• Credit Rate: 50%:
  • Married Filing Jointly for AGI up to $38,500
  • Head of household for AGI up to $28,875
  • Single, Married Filing Separately, Qualifying Widow(er) AGI up to $19,250
• Credit Rate: 20%:
  • Married Filing Jointly - AGI: $38,501 - $41,500
  • Head of household - AGI: $28,876 - $31,125
  • Single, Married Filing Separately, Qualifying Widow(er) - AGI: $19,251 - $20,750
  Credit Rate: 10%:
  • Married Filing Jointly - AGI: $41,501 - $64,000
  • Head of household - AGI: $31,126 - $48,000
  • Single, Married Filing Separately, Qualifying Widow(er) - AGI: $20,751 - $32,00
  Credit Rate: 0%:
  • Married Filing Jointly -AGI over $64,000
  • Head of household - AGI over $48,000
  • Single, Married Filing Separately, Qualifying Widow(er) - AGI over: $32,000
• In addition to the above income limits restricting eligibility for the Saver's Credit, there are other restrictions. You cannot claim the Saver's Credit for 2019 contributions you made if any of the following are true:
  • Your were born after January 1, 2001 (you must be at least age 18 on January 1, 2020.
  • You are claimed as a dependent on another taxpayer's 2019 return.
    • You were a full-time student during any part of the five or more months in 2019..

Withdrawals can eliminate the credit:

Your eligible contributions for 2019 must be reduced by the total distributions you received (and also your spouse if filing jointly) after 2016 and before the due date of y our 2019 return (including extensions) from a traditional IRA, Roth IRA, ABLE accounts, 401(k) plans, SEPS, SIMPLE plans, 403(b) plans, governmental 457(b) plans, the Federal Thrift Savings Plan, and other qualified retirement plans.

In figuring the reduction to the credit, do not count the following:

• tax-free rollovers
• direct transfers (trustee-to-trustee)
• conversions of a traditional IRA to a Roth IRA
• in-plan rollovers from a 401(k) plan to a designated Roth account
• distributions of excess contributions or deferrals
• IRA contributions returned by the due date.
• See Form 8880 for other disregarded distributions.

Distributions from 529 plans to pay tuition in primary and secondary school up to $10,000 is not a taxable distribution. Distributions from 529 plans can be rolled over tax free to ABLE accounts (up to annual contribution limits). Also, annual contributions to ABLE accounts can be increased under certain circumstances.

HSAs can be use by individuals covered by a high-deductible health plan (HDHP) to save for health care costs on a tax-free basis.

HSA contributions go into your account tax-free, as is the case with traditional IRAs and 401(k)s, investment growth is tax-free and withdrawals are tax-free PROVIDED you use the money for healthcare expenses. If you withdraw funds for non-medical expenses, you'll be hit with a 20% penalty for doing so, plus you'll pay taxes on your withdrawal.

Medicare Enrollees:

To contribute to an HSA:

• You must NOT be enrolled in Medicare Part A or Part B, and
• You must NOT be a dependent of another taxpayer.

Note that, if are enrolled in Medicare Par A or Part B, you won't be hit with a penalty for taking withdrawals for non-medical purposes but you will be taxed on that money.

For 2019, the minimum annual HDHP deductible is:

• $1,350 for self-only coverage and $2,700 for family coverage.

For 2019, the limit of out-of-pocket costs (co-payments) for 2019 is:

• $6,750 for self-only coverage and
• $13,500 for family coverage.
• The limit applies to co-payments, deductibles and other payment but not premiums..

Under the Tax Cuts and Jobs Act, only exchanges of real property held for business and investment property completed in 2018 and beyond are eligible for like-kind treatment. Gain is taxed to extent of "boot" received.

Vehicles:

Exchanges of personal property in 2018 and beyond, such as trading in a vehicle used for business, are no longer eligible for like-kind treatment. When trading in a vehicle you used for business, you must treat the trade-in and the purchase of the replacement vehicle as two separate transactions (sale of old vehicle and purchase replacement vehicle). Report the gain in the year you traded in your vehicle.

Related Parties:

If you make a qualifying like-kind exchange with certain related parties, tax-free treatment may be lost unless both parties keep the exchanged property for at least two years.

What is "like-kind' property?

Like-kind property refers to the nature or character of the property. For example, real estate traded for real estate, land for a building, farm land for city lots, commercial property for residential rental property or a leasehold interest of 30 years or more for an outright ownership in realty.

Real property in the U.S. and foreign real property are NOT (by nature) like-kind.

For 2019 you are NOT required to have minimum essential health coverage through:

• an employer plan
• a government program, or
• other plan

Penalty Repealed for individuals:

Beginning 2019, the penalty has been repealed.

• One half of the self-employments tax may be claimed as an above-the-line deduction on Schedule 1 of Form 1040.
• On Schedule SE for 2019, self-employment tax of 15.3% applies to earnings of up to $132,900 after the earnings are reduced by 7.65%.
• The 15.3% rate equals 12.4% for Social Security (6.2% employee share and 6.2% employer share) plus 2.9% for Medicare (1.45% employee share and 1.45% employer share). (Self-employed persons pay both the employer and employee share.)
• There is no cap on earnings for the 2.9% Medicare rate. The 2.9% rate applies to total earnings, from the first dollar on up.

• For 2010, the maximum wage base for Social Security withholdings is $132,900.
• The employee's share of the Social Security tax rate is 6.2% (50% x 12.4%), therefore, Social Security tax withholdings should not exceed $8,239.80 (6.2% x $132,900).
• The employee's share of the Medicare tax rate of 1.45% (50% x 2.9%) is withheld from all wages, regardless of amount.
• The employer also pays 1.45% of each employee's total gross wages.

For 2019, the contribution limit for traditional IRAs and Roth IRAs is increased to $6,000, or $7,000 for those age 50 or older.

You can make only one IRA rollover (60-day rollover) every 12 months. However, there is no restriction on the number of direct transfers you can make each year. If you miss the 60-day deadline because of an event specified in Revenue Procedure 2016-47, you can complete the rollover by self-certifying your eligibility for this relief.

Traditional IRA Deduction Limit for Contributions:

The deduction limit for 2018 contributions to a traditional IRA is phased out for active plan participants with modified adjusted gross income (MAGI) between:

• $64,000 and $74,000 for a single person or head of household,
• or between $103,000 and $123.000 for married persons filing jointly and qualifying widows and widowers.

The phaseout range is MAGI between $193,000 - $203,000 for a spouse who is not an active plan participant and who files jointly with a spouse who is an active plan participant.

Roth IRA Contribution Limit:

The 2019 Roth IRA contribution limit is phased out for a single person or head of household with MAGI between $122,000 and $137,000 and for married persons filing jointly and qualifying widows and widowers with MAGI between $193,000 and $203,000.

The maximum amount of age-based long-term care premiums that can be included as deductible medical expenses for 2019 are:.

• Age 40 or under: $420
• Age 41 through 50: $790
• Age 51 through 60: $1,580
• Age 61 through 70: $4, 220
• Over 70: $5,270

For 2019, the limit on the adoption credit as well as the exclusion for employer-paid adoption assistance is $14,080.

The benefit phaseout range is modified adjusted gross income between $211,160 to $251,160.

Under the Tax Cuts and Jobs Act, the itemized deduction for personal casualty and theft losses is restricted for 2018 though 2025. Only a casualty or theft loss of personal-use property in a federally declared disaster is deductible. The $100 and 10%-of-AGI limits continue to apply.

Children with unearned income in 2019 above $2,200 pay tax on it using the tax rates applicable to trusts and estates. The tax on this unearned income is no longer figured using the top rates of the parents.

The Kiddie Tax computation is generally made on Form 8615 and is attached to the child's return. However, if your child is under age 19 or a full-time student under age 24 and his or her only income is interest and dividends, and other tests are met, you may elect on Form 8814 to include your child's unearned income on your own tax return, instead of computing the kiddie tax on Form 8615.

• For 2019, the annual gift tax exclusion remains at $15,000 per donee for gifts of cash or present interests.
• The basic exemption amount for 2019 gift tax and estate tax purposes is increased to $11,400,000.
• The top tax rate for 2019 remains at 40%.

For 2019, the maximum foreign earned income exclusion is $105,900. The limit on housing expenses that may be taken into account in figuring the housing exclusion is generally $31,770, but the limit is increased by the IRS for high cost localities.

The rate brackets for 2019 ordinary income remain at: 10%, 12%, 22%, 24%, 32%, 35% and 37%.

• If single and head of household:
  • Top bracket of 37% applies if taxable income exceeds $510,300
• If married filing jointly and qualifying widow(er):
  • Top bracket of 37% applies if taxable income exceeds $612,350
• If married filing separately:
  • Top bracket of 37% applies if taxable income exceeds $306,175

The AMT exemptions, exemption phaseout thresholds, and the dividing line between the 26% and 28% AMT brackets are adjusted for inflation.

The 2019 AMT exemptions (prior to any phaseout) are:

• $111,700 for married couples filing jointly
• $111,700 Qualifying widows and widowers
• $71,700 for single persons
• $71,700 for heads of households
• $55,850 for married persons filing separately