Tax Cuts and Jobs Act (TCJA). There are many changes for 2019 due to the TCJA bill that
was passed in December of 2017. Some are good and some are bad. To help you get organized and
not miss any new credits or deductions, we are highlighting some of the key changes to help you get
a bigger refund. If you should have any questions or need further explanation, please do not hesitate
to call us at 309-827-4010.
Tax Rates. Most tax rates were reduced. This means most people will pay less tax. The 2019 tax
rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
Standard Deduction. The standard deduction is a dollar amount that reduces the amount of
income on which you are taxed and varies according to your filing status. The standard deduction
reduces the income subject to tax. The TCJA nearly doubled standard deductions. When you take the
standard deduction, you can’t itemize deductions for mortgage interest, state taxes and charitable
deductions on Schedule A, Itemized Deductions.
The standard deduction for each filing status is:
- Single (S)………………………………………………………………………………. $12,200 (2019) $12,400 (2020)
- Married filing jointly (MFJ) or Qualifying widow(er) (QW)……… $24,400 (2019) $24,800 (2020)
- Married filing separately (MFS)………………………………………………. $12,200 (2019) $12,400 (2020)
- Head of household (HOH)……………………………………………………….. $18,350 (2019) $18,650 (2020)
The amounts are higher if you or your spouse are blind or over age 65 (event). You will receive an
additional $1,650 for each person and each “event” if your filing status is Single or Head of
Household. You will receive an additional $1,300 for each “event” if your filing status is Married
Filing Joint or Qualifying Widow(er). Most taxpayers have the choice of either taking a standard
deduction or itemizing. If you qualify for the standard deduction and your standard deduction is more
than your total itemized deductions, you should claim the standard deduction.
Changes to Itemized Deductions. In addition to nearly doubling standard deductions, the
TCJA changed several itemized deductions that can be claimed on Schedule A, Itemized Deductions.
You may not take the standard deduction if you claim itemized deductions. Alternatively, if you take
the standard deduction, you may not claim itemized deductions. For married filing separate
taxpayers, if one spouse elects to itemize, the other spouse is also required to itemize.
Limit on Overall Itemized Deductions Suspended. You may be able to deduct more of your total
itemized deductions if your itemized deductions were limited in the past due to the amount of your
adjusted gross income. The old rule that limited the total itemized deductions for certain higherincome individuals has been suspended.
Deduction for Medical and Dental Expenses Modified. You can deduct certain unreimbursed
medical expenses that exceed 7.5% of your 2019 adjusted gross income.
Deduction for State and Local Income, Sales and Property Taxes Modified. Your total deduction
for state and local income, sales and property taxes is limited to a combined, total deduction of
$10,000 ($5,000 if Married Filing Separate). Any state and local taxes you paid above this amount
cannot be deducted.
Deduction for Home Mortgage and Home Equity Interest Modified. Your deduction for
mortgage interest is limited to interest you paid on a loan secured by your main home or second
home that you used to buy, build, or substantially improve your main home or second home. For
example, interest on a home equity loan used to build an addition to an existing home is typically
deductible, while interest on the same loan used to pay personal living expenses, such as credit card
debts or buying a care, is not. As under prior law, the loan must be secured by the taxpayer’s main
home or second home (known as a qualified residence), not to exceed the cost of the home and meet
New Dollar Limit on Total Qualified Residence Loan Balance. The date you took out your
mortgage or home equity loan may also impact the amount of interest you can deduct. If your loan
was originated or treated as originating on or before Dec. 15, 2017, you may deduct interest on up to
$1,000,000 ($500,000 if you are married filing separately) in qualifying debt. If your loan originated
after that date, you may only deduct interest on up to $750,000 ($375,000 if you are married filing
separately) in qualifying debt. The limits apply to the combined amount of loans used to buy, build or
substantially improve the taxpayer’s main home and second home.
Limit for Charitable Contributions Modified. The limit on charitable contributions of cash has
increased from 50 percent to 60 percent of your adjusted gross income.
Deduction for Casualty and Theft Losses Modified. Generally, net personal casualty and theft
losses have been suspended, but can be deductible only to the extent they’re attributable to a
federally declared disaster. Claims must include the FEMA code assigned to the disaster. The loss
must still exceed $100 per casualty and the net total loss must exceed 10 percent of your AGI. In
addition, you can still elect to deduct the casualty loss in the tax year immediately preceding the tax
year in which you incurred the disaster loss.
Miscellaneous Itemized Deductions Suspended (Schedule A). The previous deduction for jobrelated expenses or other miscellaneous itemized deductions that exceeded 2 percent of your adjusted
gross income is suspended. This includes unreimbursed employee expenses such as uniforms, union
dues and the deduction for business-related meals, entertainment and travel, as well as any
deductions you may have previously been able to claim for tax preparation fees and investment
expenses, including investment management fees, safe deposit box fees and investment expenses
from pass-through entities.
Check back each week for more tax tips from Tax & Accounting Plus