Tax Update 2019 Year End Newsletter

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More New Tax Laws in 2019
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With one year complete under the new tax laws, you have a better idea of how all the changes impact your situation. Now, 2019 brings its own set of changes to consider.

Alimony rules change for new divorcees. Beginning in 2019, alimony is no longer a tax deduction for those paying it, nor income for those receiving it. This rule change does not impact prior year divorce documents, but it does apply to previous agreements that are revised in 2019.

Medical deduction threshold increases. The threshold to deduct medical expenses as an itemized deduction increases to 10 percent (up from 7.5 percent in 2018). This means that less of your medical expenses will be deducible in 2019.

Shared responsibility penalty is gone. The portion of the Affordable Care Act that requires you to have health insurance or pay a penalty is now suspended.You must still receive Form 1095 from your employer, but it's not required to avoid additional taxes for 2019.

In any other late law changes impact you, rest assured those changes will be communicated during the tax-filing season.


5 Year-End Tax Essentials

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Before 2019 comes to a close, take some time to review these essential items to ensure you are not missing something that could cause tax trouble when you file your tax return:

  • Take required minimum distributions (RMDs). If you are age 70.5 or older, you need to take RMDs from certain retirement accounts before Dec. 31 to avoid a 50 percent tax! This includes most IRAs (except Roth IRAs) and 401(k)s. Your annial RMD is calculated by dividing the prior Dec 31. balance to the life expectancy factor provided by IRS tables.
  • Watch for your IRS PIN. If you are a victim of IRS identity theft, you will be mailed a one-time use personal identification number (PIN) as added security. You can expect to receive it in the mail sometime in December. Save the PIN as it is required to file your tax return.
  • Contribute to retirement accounts. Making contributions to tax-advantage retirement accounts like a traditional IRA or 401(k) is a great way to lower your tax liability even if you don't plain to itemize your deductions!
  • Harvest gains & losses. If you expect to have capital gains from your investments, selling stocks in a loss position to offset the gains will lower your tax liability. In fact, you can claim excess losses of up to $3,000 to decrease your total taxable income! Timing matters with investment sales and income taxes, so having a year-end strategy can help lower your tax bill.
  • Make last-minute tax moves. Here are a few ideas worth considering:
    • Donate to charity to maximize itemized deductions
    • Make a tax efficient withdrawal from your retirement account if you are over age 59.5
    • Take advantage of the annual $15,000 gift-giving limit
    • Delay receipt of income or accelerate expenses for your small business

Understanding your current situation and having a plan will help maximize your tax savings.


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Big Changes for From W-4

Now is the time to review your tax withholdings
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Just when you thought you had a firm grasp on all the tax changes, the IRS is making a dramatic change to the way tax withholdings are calculated on your paycheck. Form W-4, used to calculate your paycheck withholdings, is getting a major overhaul, and the changes go into effect on Jan. 1. Here's what you need to know:

  • The withholding allowance system is gone. The previous form converted your tax situation into a number to determine the proper withholdings. You would take one allowance for yourself, your spouse and each dependent. The new form nixes the numeric allowance system, and instead asks you to provide estimates for income, deductions and credits. A new worksheet is included to help households with more than one job to calculate the amount to withhold.
  • More accurate paycheck withholdings. The goal of the new form is to help you anticipate your tax liability in the new income tax environment. If properly prepared, this new version should provide payroll processors with the information they need to more accurately calculate the tax withholdings from your paychecks. But to accomplish this, you will need to make calculations and fill out worksheets on the front end.
  • Required for withholding changes after December. You are not required to submit a new form for 2020, but any changes to your withholdings after Dec. 31 will have to be done using the new version of Form W-4. Old forms using the allowance system will no longer be allowed to update your withholdings.
  • Tax planning is more important than ever. Unless you have a very straightforward tax situation, you will now need to provide a basic tax forecast on the new Form W-4. Accounting for all income, deductions, credits and potential changes to your situation that may arise in the new year are key components to an accurate forecast. Running through the tax planning process now will get your tax withholdings started off right for 2020.


Retirement Savings Get a Boost

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For the first time in sex years, contribution limits for retirement savings are rising. Contribution maximums for 401(k) accounts and IRAs increase by $500 in 2019. Contributing the full amount allowable will maximize your tax savings and increase your future earnings potential. If age 50 or over, remember to take advantage of the additional catch-up contribution limits.


2018 Audit Rates

Don't get complacent...

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The IRS reports audit rates for individual tax returns is now .59 percent. This is a substantial decline versus the 1 percent audit rate ten years ago. But don't get complacent. A closer look at the IRS data release reveals some audit pitfalls you should know.

Observations

  • Fewer audit examinations obscure issues caught by the IRS's automated computer systems. While not as daunting as a full audit, you'll need to keep your records handy to address any problems.
  • Audit rates are still high on both ends of the income spectrum.
  • No-income taxpayers are targets for audits because the IRS is cracking down on fraud in refundable credits.
  • High-income taxpayers saw a big decline in audit rates. Still, taxpayers with over $500,000 in income have more than double the chance of being audited than lower income taxpayers.

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This publication provides summary information regarding the subject matter at a time of printing. Please call with any questions on how this information may impact your situation.