2019 Year-End Tax Guide

THE MARCUM 2019 YEAR-END TAX GUIDE | www.marcumllp.com

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PREFERENTIAL CAPITAL GAIN INCOME TAX RATES - 2019

S INGLE

J OINT

H EAD OF H OUSEHOLD

M ARRIED S EPARATE

15% $39,375

$78,750

$52,750

$39,375

20% $434,550

$488,850

$461,700

$244,425

The standard deduction has undergone a slight modification from 2018 to 2019 due to the inflation adjustment. (The additional standard deduction for the elderly or disabled is retained in the law.)

J OINT F ILERS

S INGLE

H EAD OF H OUSEHOLD

2018 2019

2018 2019

2018 2019

$24,000 $24,400

$12,000 $12,200

$18,000 $18,350

Due to the elimination of, or limitation on, many popular itemized deductions, many more taxpayers used the standard deduction in 2018. This produced some of the “simplification” promised by lawmakers on enactment of the TCJA.

CHARITABLE CONTRIBUTION DEDUCTIONS 60% Adjusted Gross Income Glitch

Bunching Contributions Charitable contributions produce no tax benefit until the standard deduction is reached. This scenario is exacerbated by the limitation on the state and local tax (SALT) deduction and the elimination of miscellaneous itemized deductions. It is possible that a taxpayer could realize no tax benefit for his or her annual contributions. One solution is to “bunch” or “stack” several years’ worth of contributions into a single year. If the itemized deductions then exceed the standard deduction, a tax benefit is provided for such excess amount. Example: Husband H and Wife W ($24,400 standard deduction combined for 2019) have a $10,000 SALT deduction and a $5,000 mortgage interest deduction in each of the next five years. The first $9,000 of contributions will produce no tax benefit for them. If two years of contributions are bunched into a single year ($18,000), a $9,000 itemized deduction benefit is generated in the year of bunching. The use of qualified appreciated capital gain property produces an additional benefit to the normal bunching strategy, since the gain inherent in the contributed property may be leveraged to escape taxation. The donor can then use the cash which would have been contributed to acquire a

For individuals, cash charitable contributions were previously limited to 50% of Adjusted Gross Income (AGI). The TCJA increased this limit to 60% of AGI. One might expect that in circumstances where contributions of cash and property equal to 50% of AGI have already been made, an additional cash contribution equal to 10% of AGI would be permitted. Unfortunately, due to a glitch in the law, this is not the case. Where there is a combined contribution of appreciated property and cash, the total contribution can be limited to 50% of AGI. For example, assume that taxpayer X (individual) has $10 million AGI and makes a donation of appreciated stock which has been held for more than one year. This contribution is normally limited to 30% of AGI (or $3 million). X would expect to be able to contribute an additional $3 million in cash to maximize the 60% of AGI limit. However, under the new law, the cash deduction reduces the contribution limit on the stock contribution to 20%, so that only $2 million of the stock contribution is immediately deductible. The excess contribution becomes a carryover to the following year.

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