As I write this piece, it is a few weeks from Christmas and I’m thinking about the Holidays. Lurking on the other side of the festivities is another tax season. This is the life a tax professional. Not much different from the mass exodus of patients during the holidays only to face the caravan of returning patients afterwards.
Are there new rules to consider?
This is the second year after tax reform and surprisingly, refreshingly, and incredibly, there are no big surprises barring any efforts of congress to pass something last minute which is unlikely to happen.
There are a few things to watch as we go into a new year.
End of year planning:
- If you are a serious retirement saver, plan your employer-based retirement contributions to reach your goals before the end of the year OR set aside the amount you want to contribute to your individual IRA by 4/15/20
- Set aside enough to contribute to any 529 plans you participate in to reach your annual target
- If you have significant itemized deductions, consider making that end of year donation to take advantage of any addition tax savings
- If you know you owe the IRS, state or municipality, make your payment before 1/15/20 to help reduce or avoid any underpayment penalties
- Make sure all your employers and financial institutions have your current mailing or electronic address. You do not want to file your return only to discover that you missed an important document
- New W4s – W4s are the forms that you complete when you start a job or wish to change the amount of tax payments that are withheld from your paycheck. For many years, It has asked for your marital status and the number allowances you are claiming. These forms have changed and the next one you fill out will look very different – like one of those new documents you have to learn with you start a new assignment, only this is the IRS, mind you. The new forms will be hard to understand as they will ask a LOT of questions about all your jobs and deductions. The shortcut? Just fill out your filing status and check the like box just above the midline that says, “multiple jobs”. Ignore the rest 😊
- Smaller refunds – The goal of the new W4s is to reduce the amount of refunds and amounts due. Basically, to make filing a tax return something closer to an end of the year statement than a bonus check.
- More aggressive states – States have taken audits and reviews into their own hands and not waiting for the IRS to start the process. We fielded more state inquiries than ever during the 2019 filing season.
- Politicians pontificating about taxes. An election year would not be the same without wide eyed promises to put more money in your pocket or socking it to the rich. Look for more practical proposals instead of the impossible.
Last minute tax bills buried in appropriations bill
In my last article I had waited till the last-minute hoping Congress would not pull another end of the year change to the tax law, but ……… despite my confidence, it happened after I sent the article
Changes to note
1) Mortgage Insurance Premiums treated as interest. This provision ended with the 2017 tax year but has been renewed RETROACTIVE to the 2018 tax year through the 2020 tax year. Lots of amended returns!
2) Discharge of Principal Residence Indebtedness: This ended in 2017 and is now retroactive and extended through 2020 as well
3) Medical expense itemized deduction: Has now reverted to the 7.5% threshold of AGI through 2020. This is also retroactive
4) Tuition and Fees Deduction: This ended in 2017 as well but is back until 2020. When you cannot use the American Opportunity Tax Credit or the Lifetime Learning Credit, you can possibly use this deduction. It allows up to 4K of tuition and fees to be deducted. The income limitation is higher than the previous credits mentioned.
These items were not originally deductible on the 2018 tax return and now are with amended returns. Some taxpayers can amend now, BUT each state will now have to decided whether to follow these changes. So, it may be best to wait a few months before amending to see if your home state is agreeable.
Other items to note
1) You can now withdraw 5K from your IRA penalty free for the birth or adoption of a child
2) Starting in 2020, If you inherit an IRA, you now must withdraw all the amounts and pay the taxes within 10 years vs the life expectancy of the beneficiary.
3) The age limit for IRA contributions has been repealed
4) You can now use 10K of 529 Plan balances to pay off student loans and pay for the cost of apprentice programs. The student loan provision is a per child, per lifetime. In other words, the student can only use 10K in their entire lifetime and it only applies to loan principal, not interest
5) You are no longer required to withdraw from IRAs will age 72
We hope you have a great 2020!
Do you have questions regarding your tax home? Travel Nursing: What is a Tax Home? is a great resource for travel nurses.