Today TaxMama® wants to give you some very big news about tax law changes. On December 20th President Trump signed into law the Further Consolidated Appropriations Act. Those 715 pages included two major tax bills – the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) and the Taxpayer Certainty and Disaster Tax Relief Act (TCDTRA) of 2019.
Why is this new set of laws important to you https://www.congress.gov/bill/116th-congress/house-bill/1865/text – other than the fact that it includes a budget bill to keep the government in operation?
Well, the TCDTRA includes extenders to tax laws that had previously expired. In fact, many of those extenders go back to January 1, 2018 – which may give you an opportunity to amend those 2018 tax returns – if you choose to do so.
The SECURE Act gives you some major benefits regarding your retirement savings and distributions.
Seeing this information will give you an idea about why the IRS will undoubtedly delay the start of the efiling season. Both the IRS and all the tax software companies must rapidly re-write a significant part of their tax software to accommodate these changes – which have been waiting since June or July to be passed. No one expected them to pass at the last minute like this.
Let me give you a brief overview of provisions that will affect you directly.
Key TCDTRA Extenders *Division Q” – affecting 2018 to 2020:
- Mortgage Insurance Premiums (PMI) are deductible
- Medical expenses are reduced by 7.5% instead of 10%
- Principal residence debt cancellation is not taxable.
- $4,000 tuition and fees deduction is restored
- $500 lifetime non-business energy credit is back.
- Qualified Fuel Cell Motor Vehicles Credit is restored
- 2-Wheeled plug-in electric vehicle credit is back.
- Employer tax credit for paid family leave gets an extra year
Remember, you can amend your 2018 return if these changes make a significant difference for you. But if the affect is minor, don’t. Expect these amended returns to take many months to process, since the IRS will be flooded.
How will the SECURE Act affect you? Let me count the ways.
- New $500 employer tax credit for setting up a retirement plan (or adding to current plan) for employees, where they are automatically enrolled – employees must opt out of these plans. (This is in addition to the tax credit for new retirement plans)
- Part-time employees may qualify for 401(k) participation
- Certain fellowships and stipend payments are considered earned income to allow recipients to make IRA contributions.
- Payments to home healthcare workers, which are excluded from income qualify to allow them to make IRA contributions
- The IRA contribution age limit of 70.5 has been removed – you can contribute as long as you have earned income
- The age for required minimum distributions (RMDs) from IRAs and retirement plans has risen from 70.5 to age 72
- Money drawn from IRAs and retirement plans for adoptions will avoid the 10% early withdrawal penalty.
- Funds may be withdrawn from Section 529 plans to cover up to $10,000 of student loan principal and interest – once in a lifetime
- Inherited IRAs and qualified plans must now be distributed over 10 years, instead of the actuarial of the beneficiary or the deceased (except for spouses)
- Kiddie tax rates are back at the parents’ rate instead of the higher trust rates (optional) – this is effective for 2018, in case you want to amend
There are many more provisions. To get more details, please sign up for my 2 tax update courses at CCH CPE Link https://www.cchcpelink.com/teamtaxmama. I am in the process of updating those courses (including the California course), as well as the 2020 edition of Small Business Taxes Made Easy.
Incidentally, I don’t know if you know – TaxMama.com® is a free resource for people to get answers to tax questions BEFORE they make major, costly moves.
And remember, you can find answers to all kinds of questions about taxes and business issues, and Enrolled Agent tax education free. Where? Where else? At www.TaxMama.com.
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