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Dear Friends & Cltents:

We would like to take this chance to wish you and your family

HAPPY NEW TAX YEAR ....... greeting from Torrance Office and we trust you have had a wonderful year and we are looking forward to seeing all of you at your upcoming tax appointment.

This year, we are celebrating our 49 years anniversary in the income tax business because folks like you who make being in business a pleasure. You have enabled us to grow. You have encouraged us to do a better job, and for this we are deeply grateful and we thank you for placing your trust and confidence in us previous years.

We hope our service to you last year, was as ef.ficient and courteous as we continuously strive to make it.

As requested by most of you, the following are Highlights of Tax Law changes that took effect in 2019 taxable year with greatest impact on both Individual and business for you to read and share with your friends, neighbors and co-workers:

I. The Tax Cuts and Jobs Act (TCJA): 

As I mentioned before,the new TAX LAW(TCJA) decreased the Federal Tax for majority of you. Lowered the Tax Rates from 39.6% to 37% and Corporate Tax Rates from 35% to 21% and giving 20% deductions for business under the QBI rules. Also, This bill repealed the Corporate AMT and individual shared responsibility requirement for 2019 years.

However, the state of California and most of other state did not confirm with the federal under the TCJA, however, Californa will confirm to the new law in regarding to like kind exchanges to Real Property only in case that the taxpayers with AGI over $250,000 for Single filers and $500,000 for Joint filers.

II. Failure to file Penalty increased: (Sec.6651-a)

The penalty of not filing the tax return increased from $210 to 215. The penalty is 5% monthly for tax due up to 25% Max.

III. Tax Rate Structure:

The new Tax law keeps the same Seven tax rates brackets with different rate as below:

1. 2019 Tax Rates for Federal:

 Tax Rate  

Married Joint

Head of Household

Single

 10%

$0 - $19,400

$0 - $13,850

$0 - $9,700

 12%

$19,400 - $78,950

$13,850 - $52,850  

$9,700 - $39,745

 22%

$78,950 - $168,400

$51,800 - $84,200

$39,745 - $84,200

 24%

$168,400 - $321,450

$84,200 - $160,700

$84,200 - $160,725

 32%

$321,450 - $408,200

$160,700 - $204,100 

$160,725 - $204,100

35%

$408,200 - $612,350

$204,100 - $510,300  

$204,100 - $510,300

 37%

 Over $612,350

Over $510,300

Over $510,300

2.  Estate & Gift Tax rate remains at: between 10%-37% in 2019, $11,400,000 lifetime exemption. however, Heirs will continue to receive a "stepped-up,at date of death" basis for inherited assets for purposes of any subsequent sale. Gift Tax Annual exclusion remains $15,000 per donee during 2019 and for Non-citizen spouses $155,000. The annual exclusion is available to all donors including non-resident citizens. Taxable gifts are taxed at the same rates that  apply to U.S. Citizens [IRS Code Sec. 2501 (a(1)] .

3.  Long Term Capital Gain and Loss:

The 0% rate will continue for taxpayers with income below $39,375 for Singles and $78,750 for Joint filers, and $52,750 for Head of House Hold (HOH). The Top rate on Capital Gain remains at 20% starting at $434,551 for Singles and $488,851 for Joint Filers AND $461,700 for HOH.

The Annual limit for the Capital loss is $3,000 and any more losses must be carried over only.

4. Standard Deduction: 

(a) The standard deduction for taxpayers who do not itemize deductions in 2019 is:

Federal State
Married Filing Joint & Widow(er)  $24,000 $9,704
Head of Household  $18,350 $9,704
Single  $12,200 $4,537
Married Filing Separate  $12,200 $4,537

(b) And additional standard deduction amount for elderly over 65 or blind (for Married Filing Jointly, Qualify Widow (er) & Married Filing Separately is $1,300 and for Single & Head of Household is $IJ650 per person.

(c) Child Tax credit,is remained at $2,000 for each qualified child under 17 years old. The phaseout is $200,000 for Single,HOH,QW and $400,000 for Married Filing Jointly.

(d) State and property taxes may not exceed $10,000 ($5,000 for Married Filing Separately). This also, applied to Estates and Trusts, (California still does not conform).

(e) Home Mortgage Interest. Mortgage Interest used to buy building or improve your home decrease to $750,000 (375,000 for Married Filing Separately) for mortgage taken after 12/15/2017, (California does not conform)

5. Itemized Deduction Limitation: 

(a)Under the new law, the Phase-Out of itemized deductions is eliminated~for federal, (California does not conform) .

(b) The Medical expenses deductible on schedulelA" will be after 10% of AGI to all taxpayers including Who are age of 50 or Older, (keeping in mind that there are many out of pocket expenses exceed this limit including special diet expenses, such as gluten-free food & special need supplies) . 

6. Personal Exemption: 

(a) The personal exemption amount. Under the new law, for individual and their dependents are repealed for Federal only. That repeal would reduce the net benefit of the standard deduction for most of you.

(b) The kiddies Tax Rates. All net unearned income over $2,200 will be taxed using the rates for estate and trusts. (10% for 0-$2,600, 24% for $2,601-$9,300, 35% for $9,301-$12,750 and 37% for $12,751 and over).

(c) For California Taxpayers. The personal exemption increased for single, Married Filing Separately or Head of Household taxpayers to $122, for Married/RDP Filing Jointly or surviving spouses to $244. The dependent exemption credit increased to $378 per dependent.

7. Alimony Income. Is no longer taxable nor is it deductible for instruments executed after 12/31/2018.Therefore,it will no longer qualify as earned income for IRA contribution purposes, (California does not conform).

8. Federal Earned Income Tax Credit (EIC): 

For 2019 the amount of credit has increased. The maximum credit is $6,557 for taxpayers with three or more children and earned less than $50,162 ($55,952 if Married Filing Jointly) $5,828 for taxpayers with two children and earned less than $46,703 The maximum credit for taxpayers without children is $519 and earned less than $15,570

($21,370) if Married Filing Jointly). Taxpayers still get the credit even having investment income of $3,600 or less.

9. California Earned Income Tax Credit (Cal EITC): 

(a) The credit is (5.43%) $240 with maximum AGI of $16,750 without children, (6.33%) $1,605 with maximum income of $24,950 with one child, (4.20%) $2,651 with maximum income of $24,950 with Two children and (4.15%) $2,982 with maximum AGI of $24,950 with Three or more children.

(b) Effective 1/1/2017 and after, for the purposes of

CA EITC to include earning from Self-Employment. Accordingly, It is important to keep very good records for Self-Employer. The FTB may need bank statement and additional documentation to verify Income & Expenses.

(c) Rental Tax Credit:

None refundable $60 credit for single filers with an AGI less than $41,641 and $120 for Joint filers with AGI less than $83,282.

10. Qualified Senior Head of Household Credit: 

The credit is 2% of California taxable income, with a Maximum of California AGI of $76,082. The credit Maximum is 1,434.

11.  Reporting Foreign Accounts:

If you have Foreign Accounts or Trust, you must report them on your return if they are over $10,000 at any time during 2019. Foreign Bank Account Reporting (FBAR) (form 114) need to be filed electronically. The due date will be April 15 with an extension of 6 months. There are substantial penalties for failure to disclose these items. Also, U.S. taxpayers holding specified financial assets with an aggregate value exceeding $50,000 will report those assets to IRS on form 8938 along with their tax.

12. Foreign Income Exclusion: 

The 2018 exclusion amount is $104,100 and maximum housing exclusion is 30% of the $104,100 ($31,230)less the base housing cost of 14% of the maximum foreign earned income exclusion($14,574). 

It should be noticed that income in excess of the exclusion amount will be taxed at higher regular tax. 

IV. Standard Mileage, Meal Rates and Per Diem: (a) Standard Mileage:

In 2019, the standard mileage rate for business use of cars has been increased to 58 cents per mile.

The standard mileage rate for charitable contributions remained 14 cents per mile and for medical reasons & moving expenses has been increased to 20 cents per mile.

(b) Qualified Transportation fringe Benefits:

For 2019, An employee may exclude from taxable income up to $260 a month for qualified parking expenses, transit passes and commuter Highway.

(c) In high-cost locations, employees can get free of tax up to $287 per day and in other area is $195. The rates for meals, went up to $71 per day in high-cost area and $60 in other location.

V. Other Tax changes TO BE EFFECTIVE IN 2019:

1.   The New Tax Law Repealed Miscellaneous deduction including unreimbursed employee business expenses, job-related moving expenses, brokerage & IRA fees, preparation tax fees, the cost of a safe deposit box & Investment management fees.

2.  The TCJA, created a new deduction for Pass-through entities, such as Sole Proprietors, Partnerships, S­Corporation and owners of LLC They now get to deduct 20% of their Qualified Business Income, subject to limitations for Married filing Jointly increased to $321,000 and $160,700 for all others.

3.  Social Security (FICA) and Medicare Tax:

The Social Security benefits, will increase by 2.8% in 2019.

(a) For 2019, the Social Security wage base is increased from $128,400 to $132,900 in 2019 with Maximum social security Tax of $8,240. Self-employed $16,480 and Medicare Tax is still unlimited.

(b) The social security wages Tax rate remains at 6.2% and Medicare Tax remains 1.45% (total 7.65%) .the Medicare surtax also remains at .09% if wages exceed $250,000 for Married and $200,000 for Singles.

(c) Earned income ceilings for social security benefits for prior to normal retirement age now 66 or older is $17,640 in 2019 will be deducted for each $2 you earn above the $17,640.

(d) In the year you reach full retirement age in 2019, your benefits will be reduced $1 for every $3 you earn above $46,920 until the month you turn age 66.

(e) Optional methods for computing self-employment earnings is $5,440 and the earnings required for one quarter is $1,360.

(f) Self-Employment Tax rate is imposed on net earnings. The rate is 15.3%, (12.4% component for Social Security and 2.9% component for Medicare hospital insurance) ,but the 0.9% medicare surtax kicks in for singles with wages exceed $200,000; for Married filing Jointly earning above $250,000 and for Married Filing Separately above $125,000.

(g) The "Nanny" Tax Rules, require taxpayer to withhold social security and Medicare taxes for any household employee that earns $2,100 annually. This rules apply to baby sitters, house cleaners, yard workers, care givers and general labor that are not incorporated.

(h) The Medicare Part "B" and Part "D" premiums per month are based upon the Modified Adjusted Gross Income (MAGI). as follow:

IF YOU FILED AS

WITH MAGI OF

PART “B”

PART “D”

Single, Head of Household or Qualifying Widow (er) 

$85,001-$107,000

$54.10

$12.40

$107,001-$133,500

$135.40

$31.90

$133,501-$160,000

$ 216.70

$51.40

$160,001-$499,000

$ 297.00

$70.90

More than $499,000

$ 325.00

$ 77.40

Married filing Jointly

$170,001-$214,000

$54.10

$12.40

$214,001-$267,000

$ 135.40

$31.90

$267,001-$320,000

$ 216.70

$ 51.40

$320,001- $749,999

$ 297.90

$ 70.90

More than $749,999

$ 325.00

$ 77.40

Married filing Separately (Living Apart)

$85,001-$414,999

$ 297.00

$ 70.90

More than $414,999

$325.00

$77.40

4. Kiddies Tax and Credit Rules: 

a)Taxpayer who have qualifying children under 17 years old are entitled to claim a credit in the amount of $2,000 for each child subject to the AGI limitations, with refundable amount of $1,400.The Phase out begin in excess $400,000 for married filing Jointly and $200,000 for all others.(b) There is a new credit in the amount of $500 for each dependent who is not a qualifying child.

5. Higher Qualified education Expenses: 

(a) For the American Opportunity Credit (Hope Credit), the credit has been remained the same $2,500 a year for each eligible student, (100% of $2,000 plus 25% of the next $2,000). The phase-out of the credit between AGI in excess of $80,000-$90,000 ($160,000-$180,000 for joint filers). 40% of the credit of $2,500 is refundable up to $2,000, even if you owe no taxes.

(b) For Life-time learning, the credit has been remained the same, as $2,000 per family (20% of $10,000 of qualified tuition pnd related expenses paid), subject to the limitations of the AGI for Singles filers of $55,000 to $65,000 and $111,000 to $131,000 for joint filers.

(c) For Qualified Higher Education Expenses Deduction, it is above line tax deduction with a maximum of $4,000, subject to the limitations of the AGI for singles of $58,000 to $68,000 and $116,000 to $136,000 for joint filers).

(d) Student Loan Interest Deduction, has been remained the same at $2,500 with phase-out of $65,000-$80,000 for Single and Head of Household ($130,000-$160,000 for Joint Filers), and no deduction is allowed for Married Filing Separately.

6. Adoption Credit and Assistance Program:

The credit and exclusion for adoption of child with special needs have been increased to $14,080 of cost. The phase-out amounts begins when the AGI is between $211,160 to $251,160, and the credit will no longer refundable.

7. Long-Term Care Insurance Premium Limits:

For 2019,Taxpayers may deduct annual premiums of up to $420 if they are age 40 or younger $790 for age more than 41 to 50 $1,580 for age more than 51 to 60 $4,220 for age more than 60 to 70 and $5,270 if over age 70.

Also, the limit for tax free payout under such policies increased to $370 a day and $135,050 per year.

8. The IRA contributions and Pension Plan Limitation:

(a) The maximum annual contribution limit for IRAs is $6,000 in 2019,and $7,000 for individual who are age 50 and older by 12/31/2019.

The phase-out for joint filers is between $193,000 and $203,000, for Single & Head of Household is between $122,000 and $137,000, and for Married Filing Separately is between $0 and $10,000.

However, taxpayers still will be able to take an IRA deduction even they covered by a retirement plan at work as long as the MAGI is between $64,000 - 74,000 for Single & Head of house hold and between $103,000 - $123,000 for Married Filing Jointly or qualifying Window (er) .

(b) For an IRA contributor who is not covered by a work place retirement plan and is married to someone who is covered the deduction is phased out if the couple's income is between $193,000 and $203,000.

(c) Taxpayers may make non-deductible contributions to Roth IRA, subject to IRAcontributions limitation. The maximum annual contribution that can be made to a Roth IRA is phased-out for taxpayers with MAGI between $193,000- $203,000 for Filing Jointly, between $122,000-$137,000 for Single & Head of Household filers and between $0-$10,000 for Married Filing Separately.

(d) For 2019, an individual is allowed a maximum annual deductible of Health Plan contribution (HSA) of $3,350 for Single coverage and $6,750 for family coverage. HSA owners who reach age 55 by 12/31/2017 can increase their annual contribution by $1,000.

(e) For the Define Contribution Pension Plan and Simplified Employee Pensions (SEPs) have been increased to a maximum of $56,000 for each employee. 2019) 

(f) For Simple Plans, the amount remains the same at $12,500 and $15,500 for those aged 50 or over.

(g) For the Defined Benefit Pension Plan, the Maximum annual retirement benefit has been remained the same $225,000 and the a~nual compensation limit is increased to $280,000.

(h) For 401(k), 403(b) 457(e) contribution, has been remained the same at $19,000 and$25,000 for those aged 50 and older by 12/31/2019.

(i) Medical saving Accounts (MSA):

For self only coverage is $2,350-$3,500 deductible For family coverage is $4,650-$7,000 deductible.

(j)Health saving Accounts (HSA):

For self only coverage, at least $1,350 Minimum deductible.

For Family coverage at least $2,700 minimum deductible.

9. Alternative Minimum Tax (AMT) and exemtion Amoount:

(a) For 2019, the AMT Federal exemption for Married Filing Jointly is $111,700; for Single & Head of Household is $71,700,and for Married Filing Separately is $55,850 and for Estate & Trusts are $25,000.

(b) The rate for The Alternative Minimum Tax Income is 26% on the first $194,800 for single & file Married Jointly, then 28% rate tax bracket for Head of house hold kicks above $194,800.

10.  U.S. Citizen Living Aboard:

U.S. citizens working and residing abroad are required to file and report on their worldwide income. Also, they must report their foreign bank and financial accounts (FBAR) on forms 8938 & 114 to avoid the penalty of 50% of the balance of the unreported accounts per year, beside the criminal charges.

11.  Back-Up Withholding Rate Drops:

For 2019, The Back-up Withholding rate decreased from 28% to 24% for those people who either refuse to sign or give an incorrect taxpayer identification number in completing form W - 9, (Code sec. 3406).

12.  Tesla Credit in 2019 phased out:

(a) for taxpayers that took delivery between 1/1- 6/30/2019,are eligible for a credit in the amount of $3,750.

(b) for the taxpayers that took delivery between 7/1 to 12/31/2019 are eligible for a credit in the amount of $1,875 only.

(c) No credit for any new Tesla bought after 2019.

By the way, California did not confirm with the Federal. However there is a rebate ranges from $900 to $5000.

13.  Starting year 2020, the 1099-Misc will be longer used for Non-employee compensation. Instead, form 1099-NEC will be used.

14. For 2019 the SUV Maximum Section 179 is $25,500.

For an appointment or further information, please call us at: (310) 326-6888 or e-mail us at:abits@aol.com.

Also, you can visit us on line at: www.abits.org.

As always, we will do our best to justify your faith in us and in our ability to serve you well.

Pass out my business card, recommend us to your friends, or better yet, bring one with you (just let us know in advance). A friendly smile and a cup of tea await you.

Sincerely,       

Dr. Ahmed Abdelnaby, EA.,MST.,JD.

Doctor of Jurisprudence

Master of Science Degree in Taxation

Enrolled to practice before the IRS

IRS Certified Acceptance Agent

America's Tax Expert