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Tax Considerations for Individuals As a Result of Tax Reform

January 15, 2020
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It’s almost that time of year again—taxes. On your federal individual return for 2018, we saw some big changes this year that were ushered in by tax reform. This year there aren’t quite as many changes for 2019, however there are some that may impact you:

  1. Higher Medical Expense Deduction Threshold – In prior years, if you were itemizing your deductions you were able to deduct medical expenses on Schedule A above 7.5% of your Adjusted Gross Income (AGI). Now, only medical expenses above 10% of your AGI will be deductible.
    This will only affect taxpayers with high medical costs, as most taxpayers were either already taking just the standard deduction or did not reach the 7.5% threshold in 2019.
  2. No Individual Mandate Penalty— as of 2019 taxpayers will no longer be penalized for not carrying health insurance.
    This is a tax reform change that was delayed.
  3. Alimony is not deductible to payer/taxable to payee—this applies to alimony agreements made or modified this year and thereafter.
    This is a tax reform change that was delayed.
  4. Higher Contribution Limits—contribute by April 15, 2020 for 2019—
    a. Health Savings Accounts – contribute up to $3,500 for single coverage / $7,000 for family coverage + $1,000 in catch-up contributions if you are 55+
    b. Individual Retirement Accounts – contribute up to $6,000 + $1,000 in catch-up contributions if you are 55+.

  5. Higher Standard Deductions, adjusted for inflation
    a. Standard Deductions - $12,200 single /$24,400 married filing jointly

  6. Changes to forms—supplemental schedules for the Form 1040 have been redesigned. There were (6) supplemental schedules for 2018, for 2019 there will be (3). Also, the IRS is introducing a 1040-SR specially designed for senior citizens to file their taxes. This includes a larger font size and more color contrasts, making it easier for seniors to file. Additionally, Forms 8995/8995-A are being rolled out for computation of the Qualified Business Income Deduction.

Some tax planning strategies are straight forward and others require more in-depth consideration depending on your personal financial situation. Please call on us to help you sort through the options and implement strategies that make sense for you.

With offices in Williston and Rutland Vermont, Davis & Hodgdon Associates CPAs has been assisting Vermont’s residents and entrepreneurs for more than 30 years. Our proactive approach make us more than an accounting firm - we counsel our clients on a wide range of financial and management issues, resulting in better decision making and more confidence in their success.

Written by Alexander Dixon, Accountant