Are you ready? The IRS announced that tax season began on January 27, 2020. The tax agency is now accepting and processing 2019 tax year returns. The deadline to file 2019 individual tax returns and pay any tax owed is Wednesday, April 15, 2020.
For sole proprietorships and LLCs taxed as a disregarded entity: File Schedule C along with personal tax return by April 15, 2020. Partnerships: File IRS Form 1065 and Schedule K-1 (due from each partner) by March 16, 2020. Multi-member LLCs: File IRS Form 1065 and Schedule K-1 (due from each member) by March 16, 2020. S-corporations: File IRS Form 1120S and Schedule K-1 (due from each shareholder) by March 16, 2020. C-corporations: File IRS Form 1120 and Schedule K-1 (due from each shareholder) by April 15, 2020
Taxpayers are encouraged to file electronically and choosing direct deposit in order to get refunds as quickly as possible. Want to know when you might get your 2020 income tax refund? In general, the IRS states that returns with refunds are processed and payments issued within 21 days. However, several factors may impact when a taxpayer receives their return, including:
• How early they file;
• If the taxpayer is claiming certain credits (especially EITC and CTC); and
• Whether the taxpayer has existing debts to the federal government.
• If the taxpayer is claiming certain credits (especially EITC and CTC); and
• Whether the taxpayer has existing debts to the federal government.
What’s New For 2019 Tax Returns?
• Missed our article on the last minute Tax Extenders Bill? Second chance: https://www.fuoco.com/resources/tax-alerts/518-lawmakers-let-tax-extenders-live-
• If your itemize deductions, you can deduct the total qualified unreimbursed medical care expenses for the year paid for yourself, your spouse and dependents to the extent they exceed 7.5% of adjusted gross income. Beginning in 2020, the threshold amount increases to 10% of AGI. The itemized deduction for medical expenses is subject to the elevated 10% adjusted gross income floor for regular tax and alternative minimum tax (increased from 7.5% of adjusted gross income for tax year 2018). The change is less beneficial to taxpayers. However, many taxpayers are no longer itemizing deductions due to the increased standard deduction. Here is a list of what medical and dental expense is and is not “qualified:” https://www.irs.gov/pub/irs-pdf/p502.pdf
• If your itemize deductions, you can deduct the total qualified unreimbursed medical care expenses for the year paid for yourself, your spouse and dependents to the extent they exceed 7.5% of adjusted gross income. Beginning in 2020, the threshold amount increases to 10% of AGI. The itemized deduction for medical expenses is subject to the elevated 10% adjusted gross income floor for regular tax and alternative minimum tax (increased from 7.5% of adjusted gross income for tax year 2018). The change is less beneficial to taxpayers. However, many taxpayers are no longer itemizing deductions due to the increased standard deduction. Here is a list of what medical and dental expense is and is not “qualified:” https://www.irs.gov/pub/irs-pdf/p502.pdf
• Under the Tax Cuts and Jobs Act, you can no longer deduct miscellaneous employee business expenses subject to the 2% adjusted gross income threshold. Unreimbursed employee expenses are not deductible unless you fall into one of these categories:
o Armed Forces reservist
o Qualified performing artist o Fee-basis state or local government official
o Employee with impairment-related work expenses
o Qualified performing artist o Fee-basis state or local government official
o Employee with impairment-related work expenses
• Standard mileage rates for 2019 for the use of a car, van, pickup or panel truck are:
o 58 cents per mile for business miles driven (up from 54.5 cents in 2018)
o 20 cents per mile driven for medical or moving purposes (up from 18 cents in 2018)
o 14 cents per mile driven in service of charitable organizations (currently fixed by Congress)
o 20 cents per mile driven for medical or moving purposes (up from 18 cents in 2018)
o 14 cents per mile driven in service of charitable organizations (currently fixed by Congress)
• Alimony – Effective January 1, 2019, alimony is no longer deductible to the payer and is no longer taxable to the payee for divorce or separation instruments executed on or after that date. Since the deduction was often more valuable to the payer than the tax hit to the payee, this is generally a net negative for taxpayers. Instruments executed prior to 2019 but modified in 2019 or later may choose in the modification to be governed by the old or new rules.
• Affordable Care Act – The penalty for failure to obtain health insurance expired at the end of 2018, so there is no inquiry on the 2019 tax form about whether the taxpayer had health insurance or not. The associated form for claiming exemptions or paying the penalty, Form 8965, has been retired as well. Taxpayers will continue to receive Forms 1095-A, B and C containing information about insurance coverage, and should keep these forms with their records. Taxpayers who purchase insurance coverage through the marketplace will continue to receive Form 1095-A, Health Insurance Marketplace Statement, which provides information necessary to compute the Premium Tax Credit. The following elements of ACA are not changing:
• Affordable Care Act – The penalty for failure to obtain health insurance expired at the end of 2018, so there is no inquiry on the 2019 tax form about whether the taxpayer had health insurance or not. The associated form for claiming exemptions or paying the penalty, Form 8965, has been retired as well. Taxpayers will continue to receive Forms 1095-A, B and C containing information about insurance coverage, and should keep these forms with their records. Taxpayers who purchase insurance coverage through the marketplace will continue to receive Form 1095-A, Health Insurance Marketplace Statement, which provides information necessary to compute the Premium Tax Credit. The following elements of ACA are not changing:
o Employer mandate: Employers with over 50 employees are required to provide employees with healthcare coverage or face a penalty.
o Surtaxes on high-income taxpayers:
o 3.8% net investment income tax
o 0.9% additional Medicare tax
o Surtaxes on high-income taxpayers:
o 3.8% net investment income tax
o 0.9% additional Medicare tax
• Employer Credit For Family And Medical Leave – 2019 is also the last year for the employer credit for family and medical leave created by the Tax Cuts and Jobs Act.
• Qualified Opportunity Zones – 2019 is the last year in which a contribution to a Qualified Opportunity Fund may qualify for the maximum 15 percent increase in basis for forgiveness of a portion of the deferred gain. After 2019, the maximum forgiveness falls to 10 percent. In addition to Forms 8949 and 8996 with respect to Qualified Opportunity Zones, Form 8997 will be used as a report of initial and annual changes to Qualified Opportunity Fund investments.
• Qualified Opportunity Zones – 2019 is the last year in which a contribution to a Qualified Opportunity Fund may qualify for the maximum 15 percent increase in basis for forgiveness of a portion of the deferred gain. After 2019, the maximum forgiveness falls to 10 percent. In addition to Forms 8949 and 8996 with respect to Qualified Opportunity Zones, Form 8997 will be used as a report of initial and annual changes to Qualified Opportunity Fund investments.
Here Are Miscellaneous Deductions Worth Noting:
• Gambling Losses to the Extent of Gambling Winnings: Gambling losses include wagers plus expenses incurred in connection with the conduct of a gambling activity, such as travel.
• Casualty and Theft Losses on Income-Producing Property: Investment property includes stocks, notes, bonds, gold, silver, vacant lots and works of art.
• Federal Estate Tax on Income in Respect of a Decedent: This is gross income the decedent would have received if the death didn’t happen and was not properly included on the decedent’s final tax return.
• Home Office: You can take a home office deduction if you use part of your home regularly and exclusively for business purposes.
• Club Dues: The following organizations are not treated as clubs organized for business, pleasure, recreation or social purpose (unless one of the main purposes is for entertainment):
• Casualty and Theft Losses on Income-Producing Property: Investment property includes stocks, notes, bonds, gold, silver, vacant lots and works of art.
• Federal Estate Tax on Income in Respect of a Decedent: This is gross income the decedent would have received if the death didn’t happen and was not properly included on the decedent’s final tax return.
• Home Office: You can take a home office deduction if you use part of your home regularly and exclusively for business purposes.
• Club Dues: The following organizations are not treated as clubs organized for business, pleasure, recreation or social purpose (unless one of the main purposes is for entertainment):
o Boards of trade o Business leagues
o Chambers of commerce
o Civic or public service organizations
o Professional organizations
o Real estate boards
o Trade associations
o Chambers of commerce
o Civic or public service organizations
o Professional organizations
o Real estate boards
o Trade associations
• Losses from Ponzi-Type Investment Schemes: Deductible as theft losses from income-producing property.
Consider Claiming These Tax Deductions Even If You Don’t Itemize!
“Above-the-line” deductions have no income limits, so anybody can claim them. And in addition to the direct tax savings from these breaks—for taxpayers in the 24% tax bracket, for instance, every $1,000 in above-the-line deductions will lower your tax bill by $240—your lowered AGI could enable you to claim other tax breaks that have income limits.
• Contributing to a traditional individual retirement account (IRA) is a winning move that boosts your retirement savings while trimming your tax bill. The contribution limit is $6,000 ($7,000 if you’re 50 or older) for 2019. You may make 2019 IRA contributions up until April 15, 2020.
• Have a high deductible health care plan? You get an above-the-line deduction for contributions to an HSA, assuming you made them with after-tax money. If you contributed pretax funds through payroll deduction on the job, there’s no double-dipping—and no write off. You need to file a Form 8889 with your return. The maximum contribution for 2019 is $7,000 for family coverage and $3,500 if you’re an individual. If you’re 55 or over at any time in the year, you can contribute and deduct another $1,000.
• If you work for yourself, you have to pay both the employer and the employee share of Social Security and Medicare taxes—15.3% of net self-employment income. But at least you get to write off half of what you pay as an adjustment to income. You can also deduct contributions to a self-directed retirement plan such as a SEP or SIMPLE plan.
• Have a high deductible health care plan? You get an above-the-line deduction for contributions to an HSA, assuming you made them with after-tax money. If you contributed pretax funds through payroll deduction on the job, there’s no double-dipping—and no write off. You need to file a Form 8889 with your return. The maximum contribution for 2019 is $7,000 for family coverage and $3,500 if you’re an individual. If you’re 55 or over at any time in the year, you can contribute and deduct another $1,000.
• If you work for yourself, you have to pay both the employer and the employee share of Social Security and Medicare taxes—15.3% of net self-employment income. But at least you get to write off half of what you pay as an adjustment to income. You can also deduct contributions to a self-directed retirement plan such as a SEP or SIMPLE plan.
New Tax Forms for 2019
• Form 1040-SR: Congress mandated a new tax form for seniors. It is easier to read and includes a standard deduction chart.
Form 8995, Qualified Business Income Deduction Simplified Computation (instead of Form 1040 worksheet).
• Form 8995-A, Qualified Business Income Deduction (instead of Publication 535, Business Expenses, worksheets).
Form 8995, Qualified Business Income Deduction Simplified Computation (instead of Form 1040 worksheet).
• Form 8995-A, Qualified Business Income Deduction (instead of Publication 535, Business Expenses, worksheets).
Changes to Tax Forms
• Form 1040: Condensed to Schedules 1, 2 and 3; Schedules 4, 5 and 6 are eliminated. Revised 2019 Form 1040 includes virtual currency questions. Taxpayers will use fewer schedules to supplement the base Form 1040 as six schedules were consolidated into three numbered schedules.
• Virtual currency is a priority for the IRS, and for 2019, taxpayers who engaged in a transaction involving virtual currency will need to file Schedule 1, Additional Income and Adjustments To Income. Virtual currency such as Bitcoin is considered property for federal tax purposes; it is recognized as a capital gain or loss on the sale. If virtual currency is received for performing services, taxpayers would recognize ordinary income equal to the fair market value of the virtual currency. Taxpayers must maintain records that support the information provided on tax returns, for example, records documenting receipts, sales, exchanges or other dispositions of virtual currency and the fair market value of the virtual currency.
• Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc.: Regarding the Qualified Business Income (QBI) deduction, each trade or business is reported separately, and income and deductions comprising QBI are broken out for S corporations.
• Virtual currency is a priority for the IRS, and for 2019, taxpayers who engaged in a transaction involving virtual currency will need to file Schedule 1, Additional Income and Adjustments To Income. Virtual currency such as Bitcoin is considered property for federal tax purposes; it is recognized as a capital gain or loss on the sale. If virtual currency is received for performing services, taxpayers would recognize ordinary income equal to the fair market value of the virtual currency. Taxpayers must maintain records that support the information provided on tax returns, for example, records documenting receipts, sales, exchanges or other dispositions of virtual currency and the fair market value of the virtual currency.
• Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc.: Regarding the Qualified Business Income (QBI) deduction, each trade or business is reported separately, and income and deductions comprising QBI are broken out for S corporations.
Questions to consider this tax season to put yourself in the best position possible:
1. What’s changed in your business or personal life over the last 12 months?
2. Have you done a withholding check-up?
3. Looked at beneficiary designations lately?
4. Considered cryptocurrency transactions and offshore accounts?
5. Reviewed estate planning documents? Insurance needs?
6. What challenges do you predict for your business over the next 3-5 years? What are your growth plans? Have a succession plan in place?
7. Do you expect any significant changes in your income in the next five years?
8. Do you have any financial concerns? Are you satisfied with the amount you have available for savings or investments?
2. Have you done a withholding check-up?
3. Looked at beneficiary designations lately?
4. Considered cryptocurrency transactions and offshore accounts?
5. Reviewed estate planning documents? Insurance needs?
6. What challenges do you predict for your business over the next 3-5 years? What are your growth plans? Have a succession plan in place?
7. Do you expect any significant changes in your income in the next five years?
8. Do you have any financial concerns? Are you satisfied with the amount you have available for savings or investments?
Contact Us: Tax deadlines are right around the corner, so it is important not to procrastinate. It is never too early to get organized, and begin to gather gather your documentation. Remember your Fuoco Group CPA is a resource when it comes to navigating tax regulations and the recent changes in the federal income tax codes. Should a problem arise with your tax returns, our financial experts are on hand to assist you in dealing with the IRS. A long-term relationship with our accountants will help you optimize your tax situation over time as your financial situation changes. Call toll free for an appointment today: 855-534-2727.
