MERSKIN



NEW FOR 2020The age for beginning mandatory distributions from traditional IRA’s, employer-provided qualified retirement plans, and individual retirement annuities has been increased to age 72.After an IRA owner dies, the remaining account balance must be distributed to the designated beneficiaries within 10 years after the date of death. INDIVIDUALSThe tax rates have been reduced for everyone and some of the tax brackets for married couples have been expanded to eliminate the “marriage penalty”. See the tax rate schedule attached to this letter.The “standard deduction” used by individuals not “itemizing” their deductions has been nearly doubled. The 2019 standard deduction for married couples will be $24,400, the deduction for those qualifying as “head of household” will be $18,350, and the deduction for single tax payers will be $12,200. There will still be additional amounts for taxpayers age 65 and older ($1,300 per married taxpayer and $1,650 for single taxpayers). The phase out rules based upon adjusted gross income have been eliminated.The child tax credit for dependents under the age of 17 will increase from $1,000 per child to $2,000 per child. The refundable portion (excess of the credits above the total income tax) will be $1,400 per child for many taxpayers. The threshold for phasing out this credit is $400,000 for married couples and $200,000 for single taxpayers. Many more families will be able to take advantage of this tax credit.The “alternative minimum tax” formula has been enhanced. The deduction allowed has been increased to $111,700 for married couples and 71,700 for single taxpayers. The threshold for phasing out the deduction has been increased from $150,000 to $1,000,000 for married couples and from $75,000 to $500,000 for single taxpayers. Couple these changes with some of the other changes in “itemized deductions” that are no longer allowed and there will be significantly less taxpayers affected by this tax calculation in the future.The “Shared Responsibility Payment” (generally referred to as the penalty for not having a minimum level of health coverage) has been removed for years after 2018.The general limit on the amount of charitable contributions that are deductible in a tax year has been increased from 50% of “adjusted gross income” to 60% of “adjusted gross income” for cash (checks) paid to 501(c) organizations.The “itemized deduction” phase out for medical expenses will be 10% of adjusted gross income for all taxpayers for 2019.“Itemized deductions” for gambling losses can now include expenses such as travel (still limited to winnings).The Gift & Estate deduction for individuals will increase to $11,400,000 in 2019.Qualified dividends will continue to be treated the same as long-term capital gains and thus receive favorable tax treatment. BUSINESSESThe “expensing election” under section 179 of the Internal Revenue Code remains at $1,000,000 and will be allowed for the purchase of additional “qualifying assets”. The definition of “qualifying assets” is expanded to include furniture and equipment purchased for residential rental units and certain improvements to the interior of residential and nonresidential buildings. Roofs, HVAC units, fire protection systems, and alarm systems for residential and nonresidential property, also qualify.An individual will be allowed to reduce his/her taxable income by 20% of his/her share of “qualified trade or business income” from sole proprietorships and “pass through” entities with some limitations. The 20% deduction is limited to 20% of taxable income less capital gains and qualified dividends. Professional service businesses are excluded from the definition of “qualified trade or business”.Bonus first year depreciation has increased from 50% to 100% for “qualifying property” purchased for a business. The definition of qualifying property has been expanded to include used equipment and the same property that qualifies for the “expensing election” under section 179 of the Internal Revenue Code.Leasehold improvement property is now depreciable over 15 years.Most farm equipment is now depreciable over 5 years rather than 7 puter equipment is no longer considered “listed” property. Therefore, you no longer need to keep a log of the computer use.The definition of “small business” has been raised from $10,000,000 to $25,000,000. This affects the ability of businesses to use the cash method of accounting, the accounting for inventories, the accounting for long-term construction contracts, and the capitalization of certain expenses related to the handling of inventory.Businesses will be entitled to a tax credit of 12.5% to 25% of the wages paid to an employee for medical leave if the written medical leave policy allows for 2 weeks or greater leave per year for all employees. This provision is only available in 2018 and 2019.The trade-in of like-kind business equipment is no longer a deferred gain transaction. The trade-in value is treated as a taxable sale.Expenses for entertainment, amusement, and recreation are no longer deductible.The 2-year carry back provision for a Net Operating Loss deduction is now only available to certain farm businesses. Losses can now be carried forward until fully used, however the loss deduction is limited to 80% of the taxable income in the carry forward year.The aggregate of all business losses deductible on a taxpayer’s annual tax return is limited to $500,000 for married couples and $250,000 for individuals. Any excess is carried over to future years. ................
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