The 2019 federal income tax brackets are the same as the 2018 federal income tax brackets after the Tax Cuts and Jobs Act was passed by the Trump administration.
One of the best things about the current federal income tax brackets is that the marriage penalty tax doesn't kick in until each spouse makes more than $306,175 each. After such an income, the couple ends up paying 2% more on every dollar.
Check out the latest federal income tax brackets below for 2019.
The standard deduction has also increased for 2019, rising to $12,200 for single filers (up from $12,000 in 2018). Married joint filers will be eligible for a $24,400 standard deduction, an increase from $24,000 in 2018.
Meanwhile, heads of household — that is, filers who are single parents — are getting a $350 boost to their standard deduction. It will be $18,350 in 2019.
This standard deduction increase is important because of the $10,000 SALT deduction cap for singles and married couples. In high cost of living cities like San Francisco, New York, and LA, taxpayers regularly pay more than $10,000 in state income taxes and property taxes.
For example, a $200,000 income earning household in San Francisco who owns a $1.6M median priced home pays roughly $16,000 in state income taxes + $19,000 in property taxes for a total of $35,000. They used to be able to deduct it all, but now they can't. They will use the $24,400 standard deduction and lose out on $10,600 worth of deductions. If their effective tax rate is 25%, then they lose out on $2,650 in tax refund.
Personal exemptions, which were eliminated from 2018 through 2025 as part of the Tax Cuts and Jobs Act, will remain at zero.
For 2019, the lifetime gift and estate tax exemption will be $11.4 million per individual, up from $11.18 million in 2018. This means that a married couple can now bequeath $22.8 million tax free to their heirs. Not bad!
Finally, the annual gift exclusion — the amount that you can give to any other individual without having it count against your lifetime exemption — will remain at $15,000 per recipient for 2019.
Retirement Contribution Increases
The IRS boosted the employee contribution limit for 401(k), 403(b) and most 457 plans to $19,000, up from $18,500 in 2018. Savers age 50 and older can put away an additional $6,000. The total an employer and employee can contribute to a 401(k) is now $55,000.
If you have an IRA, you can put away $6,000 in annual contributions in 2019. That's up from $5,500. Catch-up contributions for savers age 50 and older remain at $1,000.
The best thing everyone can do is max out their 401(k) and/or IRA, reduce their taxable income, and build extra income streams.
If you can start a business, you can shield a lot of your income with business expenses. You should have to show that you're trying to make a profit, and actually make a profit after the third year, or else the IRS will likely start inquiring.
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About the Author: Sam started Financial Samurai in 2009 as a way to make sense of the financial crisis. He proceeded to spend the next 13 years after attending The College of William & Mary and UC Berkeley for b-school working at Goldman Sachs and Credit Suisse. He owns properties in San Francisco, Lake Tahoe, and Honolulu and has $810,000 invested in real estate crowdfunding. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $220,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies and writing online to help others achieve financial freedom.