Newsletter: What’s Taxing You?

Late Tax Law Changes…AGAIN!

What you need to know:

In what is becoming a habit, Congress and the Executive office have once again changed tax laws in the final days of the tax year.

The Problem:

Beyond the additional billions added to the national debt, this habit creates numerous problems. It requires scrambling from:

  • The Treasury Department and the IRS. They still need to change the code and their processing software, all while providing tax code clarity to all of us. This must be done without changing tax filing due dates.
  • Software providers. Tax software must now be updated, tested and distributed within the next few weeks. This cannot be completed until the IRS clarifies the changes it plans to make.
  • Professionals. The tax changes are mingled into a 1,700 plus page bill. Armies of tax pros are now drifting through the information to try to make sense out of what is actually changed in the tax code to ensure tax filings are done properly this season.
  • YOU. Tax changes with little time to act mean very little time to plan. This creates filing complexity and often delays receiving refunds.

2019 Tax Rule Changes:

The most pressing information you need to know revolves around tax law changes that impact 2019. The following tax rules are now active and extended for the 2019 and 2020 tax years.

  • Tuition and fees deduction.  This educational tax benefit is now available once again after expiring at the end of 2017. Add this potential $4,000 deduction to your tax planning along with the American Opportunity Credit and the Lifetime Learning Credit.
  • Mortgage insurance premiums. This insurance expense is available once again as an itemized deduction.
  • 7.5% Medical expense deduction threshold.  Qualified medical expenses that exceed 7.5% of your adjusted gross income may be used as an itemized deduction. The 10% threshold is now officially rolled back to last year’s rules.
  • Mortgage forgiveness, not income. If a bank forgives mortgage indebtedness, it is typically income to you. Now qualified principal residence indebtedness that is forgiven may be excluded from income with the reactivation of this tax law.
  • Automatic 60-day filing extension in disaster areas. This new law eliminates the need for IRS announcements and automates a 60-day filing extension for taxpayers affected by a federally declared disaster.

Other Changes:

There are a number of other law changes that impact 2020 and beyond. Many of them have to do with retirement accounts. These include:

  • Moving Required Minimum Distribution (RMD) to age 72 for qualified individual retirement accounts. This is an increase from age 70 ½.
  • Allowing part-time workers access to employer 401(k) plans.
  • Eliminating the contribution age limit for traditional IRAs. You can keep putting money aside after age 70 ½.
  • Eliminating stretch IRA rules. Beneficiaries of IRAs and qualified plans must now take distributions within 10 years. Former rules allowed distribution over the lifetime of the beneficiary.
  • Rolling back of the kiddie tax rules. It looks like the estate and trust tax tables used as part of the Tax Cuts and Jobs Act are rolling back to the parent’s tax rate.
  • New penalty-free distributions from qualified retirement plans. Up to $5,000 may be withdrawn from qualified retirement plans to help cover the costs of a new birth or adoption. These disbursements must be made within a year after the birth or adoption. There is also a special tax-favored withdrawal provision for those in qualified disaster areas during 2018 and 2019.

This is a quick first look at the major changes affecting most individual taxpayers. As the rules are clarified, more information on how you can take advantage of these changes will be provided to you. In the meantime, please call if you have any questions on how these late-breaking rule changes impact your situation.