While most taxpayers have previously filed their tax returns under the law known as the Tax Cuts and Jobs Act (TCJA), the majority received an unwelcome surprise that they won’t repeated for their 2019 tax returns. That surprise came in the form of reduced tax refunds or, in some cases, tax payments due. Although this was due to multiple factors, the most notable was the failure of individuals to adjust their payroll withholding deductions. While individual taxpayers were realizing the benefit of the reduced tax rates under the TCJA in their paycheck, because of changes to the employer withholding tax table, many individuals didn’t adjust their withholdings for the decrease.
With the tax filing season about to kick off, are you ready for Year 2 of TCJA? Now is the time to make sure you are ready. A priority for 2019 yearend tax planning is ensuring that the amount of payroll taxes being withheld from your wages in 2019, or the amount of estimated payments being made for 2019, will cover your 2019 tax liability. In addition, here are several tax tips and strategies under Year 2 of TCJA for you to consider:
December 31 is the last day to take action that will impact your 2019 tax return. For individual taxpayers who plan to itemize deductions, you should know that charitable contributions are deductible in the year they are made. Donations charged to a credit card before the end of 2019 count for the 2019 tax year even if the bill isn’t paid until 2020.
Taxpayers who are over 70 ½ are generally required to take required minimum distributions (RMD) from their individual retirement accounts and workplace retirement plans by the end of 2019. However, a special rule allows those who reached 70 ½ in 2019 to wait until April 1, 2020 to receive them.
Bunching Deductions in Alternate Years
With the increase of the standard deduction and the $10,000 limitation placed on state and local tax (SALT) deductions, many individuals are not getting as great of a benefit from itemizing deductions as they have in the past. One strategy to consider is bunching certain itemized deductions into alternate tax years. This means, to the extent practical, paying medical and charitable contribution expenses in alternate years so that, along with a taxpayer’s annual mortgage interest and SALT deductions, total itemized deductions exceed the standard deductions thus giving the taxpayer a greater deduction based on those expenses. Bellow are the standard deductions available for 2019 tax filing:
- $12,200 for single taxpayers and for married filing separately
- $18,350 for head of household
- $24,400 for married filing jointly and for surviving spouse
Schedule C (Profit or Loss from Business)
Although the TCJA suspended the miscellaneous itemized expense deductions on Schedule A through 2025, and thus the ability for employees to deduct home office expenses, the home office deduction is still available for Schedule C taxpayers, if eligible.
Retirement Plan Contributions
It is a great opportunity to save for retirement. In some cases, the money socked away in a qualified retirement plan can substantially reduce taxable income. For 2019, employee can defer up to $19,000 of income into a 401(K), plus $6,000 of catch-up contributions for taxpayers ages 50 or older.
The Eleventh Hour
The Internal Revenue Service reminds taxpayers that there are things they should do now before the tax filing season begins:
- Update Address. Taxpayers who moved during 2019 should inform the US Postal Service, notify employers, and notify the IRS by mailing in Form 8822
- Name Change Due to Marriage or Divorce. Taxpayers need to notify the Social Security Administration so that your new name will match IRS and SSA records. Also, notify the SSA if a dependent’s name has changed. A mismatch between the name shown on a tax return and SSÁ records often cause refund delays
- ITINs. Taxpayers with expiring Individual Taxpayer Identification Numbers must get them renewed quickly to avoid refund delays
- Identity Theft continues to be a priority for the IRS and your tax professional. Your tax professional should implement security measures in their tax software and in the exchange of documents
- Recordkeeping. Taxpayers must have copies of 2018 tax returns to make it easier to prepare 2019 tax returns. The 2018 Adjusted Gross Income amount (AGI) will be needed for filing 2019 returns electronically
Finally. The tax professional’s goal is to maximize taxpayer benefits. The rest is in the taxpayer’s hands. Get ready by gathering every supporting document to assist your tax professional in maximizing your benefit.