Tax Changes & COLAs for Businesses
On the business side, not much has changed this year after a truly momentous 2018.
1) Taxable income thresholds pertaining to the 20% deduction of qualified business income have been updated.
Many pass-through business entities will be able to exclude a bit more income from federal taxation in 2019. To be very specific here, Internal Revenue Code Section 199A lets non-corporate taxpayers deduct 20% of their qualified business income (QBI) from a partnership, LLC, or S corporation as well as 20% of the dividends they realize from qualified real estate investment trusts (REITs), cooperatives, and publicly traded partnerships.
Taxpayers who own certain consulting or service businesses (including businesses of this kind in the fields of law, health care, financial services and brokerage services, and athletics) may not fully qualify for the deduction based on their taxable income levels.
The 2019 taxable income thresholds determining eligibility for the Sec. 199A deduction are:
- Single filer or head of household: $160,700 – $210,700
- Married couples filing jointly: $321,400 – $421,400
- Married couples filing separately: $160,725 – $210,72518
2) The limit on earnings subject to the Social Security payroll tax has increased.
The taxable wage cap is set at $132,900 for 2019. Last year’s cap was $128,400. This $132,900 limit also applies to net self-employment earnings.19,20
3) The standard mileage rate is now $0.58.
This is the mileage rate that pertains to the business use of a motor vehicle and can be used to calculate deductible costs of operating such a vehicle in a business context. Last year, the rate was $0.545 per mile.21
4) Up to $265 per month may now be excluded from a worker’s income for qualified parking benefits.
This is $5 more than in 2019. This $265 monthly limit also applies to monthly employee vanpooling expenses as well as bus and train pass expenses.16
5) The yearly QSHERA reimbursement limit has risen.
Do you own a business that provides tax-free reimbursements of medical expenses for eligible workers via a qualified small employer health reimbursement arrangement (QSEHRA)? If so, note that the payment/reimbursement limit has increased by $100 for self-only coverage (to $5,150) and by $200 for family coverage (to $10,450).16
6) A COLA has been given to the phase-out range for the Small Business Health Care Tax Credit.
If you are a solopreneur or own a small business, note that the phase-out range for this credit applies at $27,100 this year ($500 higher). The top of the phase-out range is now $54,200 (a $1,000 increase from 2018).16
This Special Report is not intended as a guide for the preparation of tax returns. The information contained herein is general in nature and is not intended to be, and should not be construed as, legal, accounting or tax advice or opinion. No information herein was intended or written to be used by readers for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. Readers are cautioned that this material may not be applicable to, or suitable for, their specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. Readers are encouraged to consult with professional advisors for advice concerning specific matters before making any decision. Both Scarlet Oak Financial Services/ Faye Sykes and MarketingPro, Inc. disclaim any responsibility for positions taken by taxpayers in their individual cases or for any misunderstanding on the part of readers. Neither Scarlet Oak Financial Services, Faye Sykes, nor MarketingPro, Inc. assume any obligation to inform readers of any changes in tax laws or other factors that could affect the information contained herein.
This material was prepared by MarketingPro, Inc. for use by Scarlet Oak Financial Services and Faye Sykes.
1 – cnbc.com/2019/01/08/irs-confirms-tax-season-to-start-jan-28-despite-government-shutdown.html [1/8/19]
2 – blog.indinero.com/2019-business-tax-deadlines [6/1/18]
3 – thebalancesmb.com/payroll-tax-deadlines-for-january-and-february-3974577 [1/4/19]
4 – taxact.com/support/24459/2018/irs-filing-deadlines [1/10/19]
5 – trustetc.com/resources/investor-awareness/contribution-limits [11/1/18]
6 – shrm.org/resourcesandtools/hr-topics/benefits/pages/agencies-preview-form-5500-for-2019-filings-while-revamp-delayed.aspx [11/26/18]
7 – forbes.com/sites/kellyphillipserb/2018/11/15/irs-announces-2019-tax-rates-standard-deduction-amounts-and-more [11/15/18]
8 – fool.com/taxes/2018/12/15/your-2019-guide-to-the-alternative-minimum-tax.aspx [12/15/18]
9 – paychex.com/articles/compliance/aca-individual-mandate-penalty-reduced-2019 [12/21/18]
10 – foxbusiness.com/business-leaders/amazon-ceo-jeff-bezos-divorce-subject-to-these-tax-changes [1/10/19]
11 – forbes.com/sites/ashleaebeling/2018/11/01/irs-announces-2019-retirement-plan-contribution-limits-for-401ks-and-more/ [11/1/18]
12 – irs.gov/newsroom/401k-contribution-limit-increases-to-19000-for-2019-ira-limit-increases-to-6000 [11/27/18]
13 – forbes.com/sites/ashleaebeling/2018/11/15/irs-announces-higher-2019-estate-and-gift-tax-limits [11/15/18]
14 – taxfoundation.org/2019-tax-brackets [11/28/18]
15 – thebalance.com/lifetime-learning-tax-credit-3192933 [1/11/19]
16 – tinyurl.com/ycdgvpr5 [1/14/19]
17 – investrustwealthmanagement.com/2018/09/27/what-are-the-new-rules-for-401k-hardship-withdrawals/ [9/27/18]
18 – tax.thomsonreuters.com/news/moves-that-will-maximize-the-new-deduction-for-pass-through-income [12/12/18]
19 – shrm.org/resourcesandtools/hr-topics/compensation/pages/fica-social-security-tax-2019.aspx [12/19/18]
20 – irs.gov/pub/irs-pdf/p334.pdf 
21 – tinyurl.com/ycd6bl8q [12/14/18]
22 – medicareresources.org/faqs/what-kind-of-medicare-benefit-changes-can-i-expect-this-year/ [10/15/18]
23 – forbes.com/sites/howardgleckman/2019/01/15/the-new-1040-will-fit-on-a-big-postcard-but-it-wont-make-tax-filing-any-simpler [1/15/19]