In the tax world, we spent this year trying to understand how to interpret all sorts of provisions of the Tax Cuts and Jobs Act that was passed at the last minute of 2017. The IRS has released hundreds of pages of explanations and clarifications – and I have read practically all of them. Yet, many provisions eluded even me, which is why I take classes from teams who know more than I do.
The good news is, we got little or no new legislation related to your tax return this year. Not even extenders. However, we are about to get a major new law signed, hopefully this week.
Tax Pro, Jim Faucett just sent me a note about the SECURE Act – Setting Every Community Up for Retirement Enhancement ACT. The House has passed this bill – apparently the Senate has also passed it – and the President will sign it. https://www.congress.gov/bill/116th-congress/house-bill/1994 (not yet updated with the latest passage and signature). But it does have an excellent summary of the provisions of the Bill.
Uncle Bill Porter, EA found the Senate version of the Bill for us – the “Further Consolidated Appropriations Act, 2020” (see “Division O”, and Division Q has the tax-extenders). https://www.congress.gov/bill/116th-congress/house-bill/1865
When this is signed, I will let you know the details. Just know, that this will have a major impact on your ability to set money aside for retirement – and to delay when you are forced to withdraw it, among other things.
As some of you know, I have been working on a major update to Small Business Taxes Made Easy. The 4th edition was done, and off to editing. But if the Senate and President get this bill passed and signed this year, I will have time to include it in the book. Regardless, you will get the updates here, at TaxMama.com .
Back to this year and this month. What to do? Here are some ideas.
- Update your withholding – file a new Form W-4 by January 1st – https://www.irs.gov/pub/irs-pdf/fw4.pdf
The IRS has created a totally different Form W-4. It’s confusing as all heck. But they have tools for employees to use and for employers to use. Even employees with self-employment income.
- Seniors age 70 1/2 – remember to withdraw your Required Minimum Distribution from your retirement accounts – https://www.irs.gov/newsroom/dec-31-deadline-for-most-retirees-to-take-required-minimum-distributions 50% penalty if you don’t – but you may have the draw sent directly to your favorite charity to avoid taxation.
- Make charitable contributions – now deductible up to 60% of income, instead of 50% – and start getting copies of receipts right now – https://www.irs.gov/taxtopics/tc506– Also a great time for the annual “clear out the clutter” effort to donate clothing, toys and other household effects in good condition to charities. The IRS has some tips about deductions for charity, medical, and military moving.
- Review your investment portfolio – If you have capital gains this year, sell some losers to offset the gains. If you’re in the two lowest tax brackets (10% – 12%), your capital gains rate is -0-! As long as your capital gains don’t take your income beyond those brackets. For people collecting Social Security (SS) benefits – watch the increased income carefully, so 85% of your SS benefits don’t become taxable, suddenly.
- Maximize your Retirement contributions– one of the best ways to reduce your taxes and build up savings – up to $19,000 for employee 401ks – http://www.401khelpcenter.com/2020_401k_plan_limits.html
- Make your January mortgage paymentin the last week of December to get the maximum interest deduction early (or to even out 2019, if you used this strategy in 2018).
- Generate enough medical expenses by 12/31 to get reimbursed for your Flexible Spending account funds withheld from your pacheck https://www.irs.gov/publications/p969#en_US_2018_publink1000204176
- Roth Conversion, anyone? If you’re in a low enough tax bracket, it may be worthwhile moving money from a regular IRA to a Roth IRA
- ITINs – since the PATH Act of 2015, Congress set up a system where ITINs expire in a 3-year cycle. This year is the last year of that cycle. So if you haven’t renewed your ITIN in the last three years, or haven’t filed a US tax return in the last 3 years, you may have already lost your ITIN – for yourself and your family. Start working on updated it RIGHT NOW! https://www.irs.gov/individuals/individual-taxpayer-identification-number
- And employees with high business expenses – you really should re-negotiate your situation with your employer. Were you shocked at losing all your deductions when you tried to prepare your 2018 tax returns? Nasty! If you haven’t re-negotiated your situation in 2019, the same thing will happen this year. To fix that for 2020, sign up for TaxMama’s Special Trump Update on-demand webinar to get the tools and template to make this negotiation work. http://iTaxMama.com/TrumpTax_Planning
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, free. Where? Where else? At www.TaxMama.com.
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