What is New - US 2019 Tax Season
Every year we update our clients on changes to expect for the 2019 tax season - so this year we thought we would share it with the world.
Changes to US Taxes for Individuals in 2019
- For 2019 you no longer need to either make a shared responsibility payment or file Form 8965 if you don't have minimum essential health care coverage for part or all of 2019. The “Full-year health care coverage or exempt” box has been removed from Form 1040.
- If, in 2019, you engaged in a transaction involving virtual currency you will need to file Schedule 1. See the instructions for Schedule 1 for more information
- The standard deduction for a single taxpayer (or a Married filing separately taxpayer) is now $12,200 up from $12,000 in 2018. A married filing jointly taxpayer has a deduction of $24,400. As a result, for many taxpayers, itemized deductions are no longer necessary.
- The itemized deductions (if you choose not to use the standard deduction) include.
- Medical expenses only need to exceed 7.5% of your income opposed to 10% previously.
- State and property tax deductions are available up to $10,000 ($5,000 if Married filing separately)
- Home Mortgage or HELOC interest is only deductible if the proceeds was used to purchase/renovate a home. Interest is only deductible on loans of up to $750,000 ($375,000 if married filing separately) that were entered in to after December 15, 2017. Previously it was $1,000,000 ($500,000).
- Charitable contributions can now be deducted up to 60% of your income opposed 50%.
- Various deductions were eliminated including: job-related expenses, union dues, tax preparation fees and investment expenses, safe deposit box fees. However, if you are filing state returns these may still be relevant.
- Moving expenses are no longer deductible for US taxes (except some specific exceptions). Reimbursements of moving expenses are now taxable.
- The Child Tax Credit (Social Security Number required) is now $2,000 opposed to $1,400 previously.
- Alimony payments are no longer deductible for agreements entered in to after December 31, 2018.
You may also be required to file one or more of the following information returns. Failure to file any of the required information returns may result in penalties of $10,000 USD per form. Please refer to the following website links for forms and instructions if these forms may apply to you:
- Statement of Specified Foreign Financial Assets - Form 8938 is required if you have certain foreign (non-US resident) financial assets including stocks, bank accounts, and interests in foreign financial contracts or instruments. Non-resident individuals are required to file if their aggregate foreign investments are over $200,000 as of December 31, 2019. US residents are required to file if their aggregate foreign investments are over $50,000 as of December 31, 2019.
- Report of Foreign Bank and Financial Accounts – Form FinCEN 114 is required if a US person has a financial interest in or signature authority over at least one financial account located outside the United States; and the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported. Please note that these forms must be filed electronically though the following site: http://bsaefiling.fincen.treas.gov/main.html. We recommend our clients prepare and submit these forms themselves. If you would like our office to prepare these forms on your behalf, please advise us in a timely manner. For your convenience, we have enclosed an excel sheet outlining the information we will require to prepare and file this form on your behalf. THIS FORM IS DUE APRIL 15th WITH AN AUTOMATIC EXTENSION AVAILABLE TO OCTOBER 15th.
- Information Return of US Persons with Respect to Certain Foreign Corporations – Form 5471 is required by a US person who is an officer, director or greater than 10% shareholder in certain non-US corporations. A separate form must be completed for each company.
We wish to bring to your attention common and important differences between Canadian and US taxes:
- Capital Dividends – Under US tax law the concept of capital dividends does not exist; these dividends are taxable just like any other dividend received. Please let us know if you received any capital dividends during the year.
- Tax Free Savings Accounts (TFSA) & Registered Education Savings Plan (RESP) – These accounts are considered foreign trusts and are subject to extensive reporting, as well, transactions inside a TFSA and RESP account are taxable for US tax purposes. Please provide us with records for any TFSA and RESP accounts you held during the year.
- Mutual Funds and Exchange Traded Funds investments – Due to significant reporting requirements by the IRS under their Passive Foreign Investment Corporation rules, we recommend that US clients generally avoid investments in non-US based Mutual Funds or ETF investments. If you hold any mutual funds with Canadian financial institutions, please provide us with copies of the Qualified Electing Fund (QEF) statements issued.
- Principal Residence Exemption – US tax rules limit the amount of a tax exemption on proceeds from the sale of your home. Please provide all information related to any 2019 sale of your principal residence.
- Mortgage Interest Deductibility – US filers may be able to deduct interest incurred on a qualified home mortgage. Please provide us your annual mortgage statement and/or any tax slips received indicating the amount of interest payments you will be claiming, if any. Please also let us know the original amount of the loan.
- Gift Tax – US filers are required pay a gift tax on gifts made during the year that are greater than $15,000 unless certain exemptions apply (i.e. gifts to US spouses are unlimited and up to $155,000 in gifts to non-US spouses are exempt from tax). Please let us know if you have made, or are planning to make, gifts that may attract US Gift Tax. A gift may include loaning funds to a child to help them purchase a home.
- Estate Tax – US filers that passed away in 2019 with estates greater than $11,400,000 are liable for estate taxes on the fair market value of the estate. Please let us know if you require assistance with estate returns or would like help planning for estate tax consequences.
- Lifetime Capital Gains Deduction – The US does not recognize the lifetime capital gains exemption available to Canadians who sell shares Qualified Small Business Corporations.
- Lottery and Gambling Winnings – Lottery and gambling winnings are fully taxable as ordinary income in the US. However, gambling losses may be able to offset winnings. Please provide us any relevant information.
- Alimony payments are not deductible if the divorce/separate agreement was entered in to after December 31, 2018.
- Child Tax Credit’s in the US require that the child have a US Social Security Number. Note that choosing not to register your child for a Social Security Number may not necessarily prevent them being considered a US taxpayer. Please ensure you perform proper consultations prior to taking a position that your child is not a US citizen.