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2019 Tax Update

Tax return due dates:

  • Individuals must file returns by April 15, 2020, for the 2019 tax year;
  • Partnerships must file returns by the 15th day of the third month following the close of the taxable year (March 15 for calendar-year taxpayers);
  • C corporation returns are generally due by the 15th day of the fourth month following the close of the taxable year (April 15 for calendar-year taxpayers);
  • S corporation returns will remain due by the 15th day of the third month of the taxable year (March 15 for calendar-year taxpayers); and
  • W-2s and 1099s must be filed by January 31, 2020, for the 2019 tax year.

Solar credits: The 30% credit for installing solar property on your personal use properties (primary residence, vacation home) is reduced to 26% for property installed after December 31, 2019. The credit drops to 22% for property installed after December 31, 2020, and no credit is available if the solar property is installed after December 31, 2021.

Solar property includes solar panels and can even include home batteries. Please keep these important dates in mind if you are considering installing these items on your personal use property.

Identity theft: Starting in 2019, the IRS permits residents of some states, including California, to obtain an Identity Protection Personal Identification Number (IP PIN) upon request. Taxpayers who are part of the IRS’s IP PIN program receive a letter from the IRS every January containing a special PIN number that prevents their income tax return from being filed without that taxpayer’s unique IP PIN.

Taxpayers must create an IRS account and request their own IP PIN. If you are interested in obtaining your own IP PIN, you can do so at:

www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin

Virtual currencies: Over the last couple years, the IRS has ramped up its enforcement of virtual currencies, such as Bitcoin. Most taxpayers who own virtual currencies fail to report their taxable transactions when filing their income tax returns. In 2019, the IRS started sending letters to taxpayers with known virtual currency accounts and now requires taxpayers, on their 2019 income tax return, to affirmatively declare whether they engaged in any virtual currency transactions during the year.

Intentionally failing to report taxable income can have severe consequences. Be sure to provide us with all information containing your virtual currency transactions during the year.

California introduced penalties for failure to carry health insurance: The federal government repealed the penalty for failure to maintain health insurance (referred to as the “individual mandate”) starting with the 2019 tax year. In response to the federal government’s repeal, the state of California will charge an individual who fails to secure coverage an annual penalty of $695 or more when they file their 2020 California tax return. The minimum penalty for families of four or more individuals is $2,085. The penalty can rise as high as 2.5% of household income, which can be many thousands of dollars. Be sure to maintain your health insurance coverage to avoid this costly California tax penalty.

Rental real estate: The Tax Cuts and Jobs Act (TCJA), the major tax reform bill that took effect in 2018, provides a deduction for up to 20% on business income (referred to as the qualified business income deduction, or IRC §199A deduction). In 2019, the IRS provided guidance for taxpayers to claim the 20% deduction on rental real estate, but certain requirements must be met, including strict documentation requirements.

Property transactions: Did you sell or refinance any real estate this year? Be sure to provide copies of escrow statements, as well as the Loan Estimate form, the Closing Disclosure form, and California Form 593, Real Estate Withholding Tax Statement. We need these documents to properly prepare your return. If you can get them to us as early as possible, we can make sure we have everything we need, and make sure that any state withholding documentation is correct.

1099s and K-1s: If you received 1099s or K-1s from investments in 2019, we may extend your return in case these documents are corrected after the original filing deadline. We are seeing increasing numbers of corrected information returns, which require taxpayers to amend their original tax returns to reflect the corrected amounts. In some cases, the amounts are vastly different and can create additional costs in amending the tax returns and potential penalty problems.

Foreign accounts: We must report overseas assets owned by businesses as well as individuals. So, the reporting requirements are increasing and the penalties for failure to report continue to be harsh. Not all foreign holdings must be reported. If, for example, you hold stock in a foreign company through a U.S. broker, those holdings do not have to be separately reported. However, if you hold any other types of foreign assets, including bank accounts and securities accounts, please let us know. If you have any doubt as to whether any of your assets are foreign, please discuss those assets with us. Again, this year we will need information on a business’ foreign holdings as well.

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As a reminder, the following are some items from the TCJA.

State and Local Income and Property Taxes. There is a $10,000 limit on the deduction for state and local income and property taxes. No deduction is allowed for foreign property taxes.

Mortgage Interest. The mortgage interest deduction on acquisition indebtedness (e.g., mortgages) was lowered from loans up to $1,000,000 to $750,000 .

Medical, Dental, and Vision Expenses. For 2019, you can deduct medical, dental, and vision expenses to the extent they exceed 7.5 percent of your adjusted gross income (AGI).  The percentage was scheduled to increase to 10% but the lower percentage was extended for 2019.

Casualty and Theft Losses. If you incurred a casualty loss in a presidentially declared disaster area, it may be deductible. Any other casualty loss, along with all theft losses, are not deductible.

Charitable Contributions. Whether it makes sense to take an itemized deduction for your charitable contributions depends on whether your total itemized deductions exceed your standard deduction. It’s also worth noting that a new change in the law increases the maximum contribution percentage limit from 50 percent of your contribution base to 60 percent for cash contributions to public charities.

Taxpayers 70 1/2 years old (72 for tax year 2020) and older who own an IRA are required to take minimum distributions from that account each year and include those amounts in taxable income. If you are in this category, a special rule allows you to make a charitable contribution directly from your IRA to a charity. This has several benefits. First, since charitable contributions deductions are usually only available to individuals who itemize, individuals who take the standard deduction instead can benefit from this rule. Second, making the contribution directly to a charity counts towards your required minimum distribution but that amount is not included in income and thus reduces your taxable income and adjusted gross income. A lower AGI is advantageous because it increases your ability to take medical expense deductions that you might not otherwise be able to take. For example, medical expenses are only deductible to the extent those expenses exceed 7.5 percent of your AGI and a lower AGI means you can deduct more medical expenses. In addition, as AGI increases, more of your social security income is subject to tax. Finally, the 3.8 percent net investment income tax applies to the extent your AGI exceeds a certain level.

Miscellaneous Itemized Expenses. The miscellaneous itemized expense deduction has been eliminated for tax years 2018 through 2025.

Education-Related Expenses. If you have any student loans outstanding, the interest you paid on those loans may be deductible. A deduction of up to $2,500 of interest paid on a qualified student loan is deductible in computing adjusted gross income. The deduction is phased out if your modified adjusted gross income is between $65,000 and $80,000 ($130,000 and $160,000 if filing a joint return).

If you are an educator and spend your own money on school supplies, up to $250 may be deductible from gross income.

Moving Expense Reimbursement. While taxpayers could previously deduct employment-relating moving expenses, this deduction is no longer available for moves taking place in years 2018-2025, unless the taxpayer is a member of the U.S. Armed Forces on active duty who moves pursuant to a military order to a permanent change of station.

Alternative Minimum Tax. If you were subject to the alternative minimum tax in prior years, you may get a break this year as the result of increases in the alternative minimum tax (AMT) exemption amounts as well as the increases in the income level at which the exemption is phased out.

Distributions from a 529 Plan. New for 2018, if you have a 529 Plan, you can use up to $10,000 in aggregate 529 distributions per year for elementary and secondary school tuition. Previously, 529 distributions could only be used for higher education expenses.