Updated Tax Laws

Keeping You Informed

No more Individual Shared Responsibility Penalty for not having medical insurance!

Starting with the 2019 tax year, the Trump Administration abolished the Shared Responsibility Penalty. Keep in mind, there are some states that have their own health insurance penalties. Arizona is not one of them. Therefore, if you live  and work in Arizona, and choose not to purchase health insurance, there is no penalty from 2019 forward.

Itemized or Standard Deduction

Many taxpayers won’t be able to itemize deductions (at the federal level) because of the higher standard deduction amounts. The standard deductions for federal income tax purposes are as follows: $25,900 for Married Filing Joint, $12,950 for Single Filers, and $19,400 for Head of Household Filers. If you are over 65 and/or blind, you will receive an even higher standard deduction than those listed above.

Reduced or abolished itemized deductions include a $10,000 limit on state and local taxes. Add up the amounts you paid in state withholdings and estimated taxes you paid in 2022, plus real estate taxes you paid on property you own (not including rentals), and your vehicle license tax. You will lose any amounts over the $10,000 limit for this deduction.

Medical expenses are deductible, but subject to 7.5% of your adjusted gross income (AGI). If your AGI is $100,000 the floor you must get above is $7,500. If your medical expenses add up to $2,550, you will not get any federal deduction because that number is under the $7,500 floor. If your out-of-pocket medical expenses are $7,501, you will get a $1 deduction (any amount over the $7,500 limit). Certain states, including Arizona, have no limit on the amount of medical you may deduct.

It is very common for Arizona residents to itemize on their state tax return but not the federal return because Arizona does not limit medical deductions.

Deductions that no longer exist include the following: individual income tax preparation fees and unreimbursed employee expenses (expenses for employment related to W2 recipients).

QBID – Qualified Business Income Deduction

If you are a sole proprietor or have an interest in a partnership or S-Corporation, you may qualify for a 20% Qualified Business Income Deduction. Many of you reaped the benefits of this deduction in 2018, the year QBID began.