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Tax Cost of Living Adjustments (COLAs) for 2019

ID 99488041 © Bakhtiar Zein | Dreamstime.comThere are dozens of numbers used for benefits, limitations, thresholds, and other rules for various tax breaks that can be adjusted annually for inflation.

The limitations for retirement plans and IRAs for 2019 were covered in a previous blog. Now the IRS announced the new numbers for 2019.  

Here is a roundup of the new numbers important to small businesses and entrepreneurs in the year to come (they’re listed in the order in which they appear in the Tax Code and not in order of importance).

Small employer health insurance credit.

The average payroll limit to be able to take a 50% tax credit for health insurance premiums is $27,100 (the phases out and ends at $54,200) (up from $26,600 and $53,200, respectively, in 2018).

Medical FSAs.

The maximum salary reduction contribution to a medical flexible spending account in 2019 is $2,700 (up from $2,650 in 2018).

Transportation fringe benefits.

The dollar limit on tax-free reimbursements for parking, transit passes, and van pooling in 2019 is $265 per month (up from $260 in 2018). However, employers paying these reimbursements cannot deduct them.

Adoption assistance.

The dollar limit on tax-free adoption assistance in 2019 is $14,080 (up from $13,810 in 2018); modified adjusted gross income limits of employees apply. This amount is excluded from an employee’s gross income (and not subject to income tax withholding) but is still subject to FICA and FUTA taxes.

Section 179 deduction.

The election to expense the cost of purchasing equipment and other eligible property is limited to $1,020,000 in 2019 (up from $1 million in 2018). The deduction begins to phase out when these purchases exceed $2,550,000 (up from $2.5 million in 2018).

Qualified business income (QBI).

The 20% QBI deduction is not subject to any limitation for business owners with taxable income up to set limits: $321,400 for joint filers, $160,700 for singles and heads of households, and $160,750 for married persons filing separately. These are up from $315,000 for joint filers and $157,500 for all other filers in 2018. When taxable income exceeds these limits, then limitations come into play to cap or prevent any QBI deduction.

Cash method of accounting.

The ability to use the cash method of accounting by a corporation or partnership with a corporate partner depends on having average annual gross receipts in the 3 prior years not exceeding a set amount. For 2019, it’s $26 million (up from $25 million in 2018). The gross receipts test also applies for other accounting method purposes (e.g., whether keep track of the cost of goods sold for inventory).

Threshold for excess business loss.

Owners of pass-through entities cannot deduct excess business losses, and instead treat the excess as a net operating loss (NOL) in the following year. In figuring what is an “excess business loss,” it factors in adjusted gross income up to set amounts: $510,000 for joint filers and $255,000 for other filers (up from $500,000 and $250,000, respectively, in 2018).

Foreign earned income exclusion.

Individuals working abroad (but not for the government) may qualify to exclude earned income from a job or self-employment up to a set limit in 2019: $105,900 (up from $103,900 in 2018).

Penalty for failure to file a partnership or S corporation return.

The penalty amount in 2019 is $205 per owner per month up to 5 months (up from $200 per owner in 2018). Other business-related penalties, such as failing to file information returns, have also been adjusted for inflation in 2019.

Qualified small employer health reimbursement arrangements (QSEHRAs).

The maximum amount that can be reimbursed for employee health coverage in 2019 is $5,150 for self-only coverage or $10,450 for family coverage (up from $5,050 and $10,250, respectively in 2018).

Bottom line

This may all sound like a bunch of numbers, but they matter when it comes to paying your taxes. Many of these increased numbers are favorable for you and your business. Talk to your CPA or other tax adviser about how to take advantage of the new numbers in 2019.


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