We wanted to share a presentation we recently prepared for a company’s HR department about the 2020 W4 Form.
Go Go Government Extenders!
Yet another year end tax bill signed by the President on December 20, 2019. This provides full-year government funding through September 30, 2019.
Significant Retirement Plan Changes
- The bill increases the age for required minimum distributions (RMD)from individual retirement accounts to 72 (from 70½). This applies to distributions required to be made after December 31, 2019, with respect to individuals who attain age 70 ½ after such date.
- It would allow part-time workers to participate in 401(k) plans.
- It eliminates the so-called “stretch IRA”which allowed beneficiaries of IRAs and qualified plans to withdraw all money from inherited accounts over their lifetime, but now, distributions must be taken within ten years.
- It allows new parents to take early distributions from a 401(k), IRA or another qualified retirement plan within a year after a birth or adoption without incurring early withdrawal penalties (limited to $5,000).
- No age limit on IRA contributions although taxpayers may still be subject to other limitations (earned income and coverage by another retirement plan).
Other Sections of Note:
- The new kiddie tax included in the Tax Cuts and Jobs Act is repealed (old kiddie tax law is still in place).
- Qualified Expenses for Section 529 Plan distributions is the repayment of an education loan up to $10,000 maximum. Tracking of the expenses will be important.
Extenders through 2020 (retroactive to January 1, 2018)
- Excludes from gross income the discharge of qualified principal residence indebtedness income.
- The medical base remains at 7.5% instead of 10%.
- Deduction for mortgage insurance premiums as qualified residence interest.
- Deduction for tuition and related expenses.
- Non-business Energy Property Credit (i.e., insulation, storm windows, etc.)
MJW Editorial Comment: Although some of these extenders may help some taxpayers, and there are many, many more not listed above, we feel Congress and the President acted irresponsibly in retroactively extending many of the “extenders.” But this is not to say that there aren’t some beneficial changes with the “Further Consolidated Appropriations Act of 2020”. The purpose of many of these “extenders” is to give taxpayers a tax incentive to do something. Our concern is that by reinstating extenders retroactively to January 1, 2018, it doesn’t seem like a great way to “incentivize” anyone to do something in 2018 or most of 2019. It gives the illusion of providing tax benefits without the ability for taxpayers to take action of “tax breaks.”
Fourth Quarter Estimated Taxes
As the Fourth Quarter of 2019 winds to a close, we wanted to remind you that estimated taxes are due on or before January 15, 2020.
If you are required to pay estimates, we prepared and included pre-addressed envelopes and vouchers with the amounts due in the tax return packet we provided
If we keep your envelopes and vouchers here in our office, please make sure you come in with your checks prior to the due date so we can mail your estimates out before the deadline.
You also have the option to use EFTPS or IRS directPay for Federal estimated tax payments and TSC for the State.
Click here to be brought to the Federal site.
Click here to make CT online payments.
Federal estimates should be sent to:
Internal Revenue Service
P.O. Box 37007
Hartford, CT 06176-0007
CT Estimates should be sent to:
Department of Revenue Services
P.O. Box 5053
Hartford, CT 06102-5053
As always, we are here to answer any questions you may have.
2019 End of Year Letter to Our Amazing Clients
2019 is barreling towards its completion and we can sit idly by and not tell you all we’ve learned this year.
But we won’t.
With the new Tax Cut and Jobs Act of 2017, deductions are not as beneficial as in the past. There are more IRS proposed regulations in the pipeline and we will update you as soon as we get the information.
Brace yourselves.
End of Year To-Do’s:
- Review your stock portfolio. It takes time for stock transactions to process, so get your portfolio tax-deduction optimized well before the end of the year. Carefully structure your capital gains and losses to minimize your taxes.
- Do you give money to your parents to assist them with their retirement or living expenses? How about children (specifically, children not subject to the kiddie tax)? If so, consider giving appreciated stock to your parents and your non-kiddie-tax children. Why? If the parents or children are in lower tax brackets than you are, you get a bigger bang for your buck by gifting them stock, having them sell the stock, and then having them pay taxes on the stock sale at their lower tax rates.
- Don’t forget to take your 2019 RMD (Required Minimum Distribution – see our previous blog regarding these). You can use the Qualified Charitable Distribution (donation) process for more tax benefits.
- This is a good time to:
- Update your beneficiaries in your retirement plan
- Contribute to your CHET 529 plan, and
- If you have a flexible spending account at work, find out the last date that you can use this account. Pay attention or you could lose it!
Your tax refund may take longer to process this year. The IRS has upwards of 200 fraud detection filters that every return goes through. Patience is a virtue when it comes to the reduction of identity theft. We, too, continue to upgrade our systems to protect our clients from identity theft and cyber thieves. Also, *Windows 7 is obsolete, and we don’t just say this in an elitist, make way for Artificial Intelligence kind of way – we want to encourage you that your personal data is at risk when your operating system is antiquated.
A new W4 form will be available in 2020. This is the form you fill out when you start a new job or want to change what’s going on with your paycheck in your current job. We will have it on our site once it is finalized and be available to answer any questions you may have about filling it out. This is much more complex than the current form. When filling out said W4, it is recommended that you utilize a handy-dandy Tax Withholding Estimator tool the IRS developed. We’ve added it to our site on the Helpful Links page.
EFTPS is the Electronic Federal Tax Payment System. The IRS is encouraging us (and we in turn are encouraging you) to utilize this system to make your tax payments. In the past we have advised you to use the IRS DirectPay site, but EFTPS allows you to see all payments made, which is helpful, especially considering the majority of notices our clients received were mostly about misapplied or forgotten payments. To register for EFTPS, click here to enroll, accept the terms of agreement and enter all the information required. You will then be mailed a PIN. You need to be on the lookout for it and keep it in a safe, warm place so that you know exactly where it is in order to utilize this system. We are asking our clients for printed back up for estimated payments this year specifically due to the number of notices we dealt with this year, so this is one stop shopping for you!
You can also request your federal tax transcript online. Click here and click “Get Transcript Online.” From there, you will have to create an account in order to gain access to your transcripts, but this is a secure and fast way to do so.
New Connecticut Provisions:
- Social Security income can be 100% deducted if the Federal AGI (Adjusted Gross Income) is less than $75,000 (for taxpayers who are single and/or married filing separately) or $100,000 (for joint files and heads of household). If your income is equal to or greater than the above, you can potentially deduct 75% of your Social Security income.
- You can deduct a portion of certain retirement income that is included in Federal gross income if your Federal AGI is below $75,000 for single filers, married taxpayers filing separately, and heads of households; or $100,000 for married taxpayers filing jointly. The deduction is equal to 14% of pension or annuity income for the 2019 taxable year and increases annually over the next 6 years.
- Military and railroad retirement that is included in federal gross income is fully deductible.
- An increase in the teacher retirement system income tax deduction from 25% to 50% remains delayed.
Under Federal Provisions:
- We have been told that Connecticut residents have been included in the Federal IP PIN program, which allows residents to request an identity protection PIN and use that when filing Federal income taxes as an added layer of security. If you elect to sign up for this program, you will be mailed a new IP PIN each year and will need to keep track of it. To sign up, visit IP PIN. This link provides you with an overview of the IP PIN program. At the bottom of the page is the button to request a PIN, but the program will not be available until January, 2020, so save this link and check back later.
Final tips and thoughts: Have The Talk with your college student – the tax talk. Your college student may make his/her own decision to file their own tax return to get a highly anticipated refund. It is so important to discuss with them beforehand WHO will be claiming the dependency exemption; it most often is a greater benefit to the parent(s). It is complex reversing the decision. Before your college student files a tax return, know the ramifications. Call our office!
The penalty on individuals who fail to carry health insurance, part of the ACA, has been eliminated for 2019.
The annual gift tax exclusion for 2019 and 2020 is $15,000 per donee.
The 2019 IRA contribution can be made up until April 15, 2020. The 2019 SEP contribution can be made through April 15, 2020 or until the date of tax filing extension.
If you are going to make a donation to a charity, how about an appreciated stock rather than a cash donation? A donation of appreciated stock gives you more of a tax benefit: The fair market value of the stock gets deducted as a charitable donation and you don’t pay any of the taxes you would have if you had sold the stock. Example: You bought a publicly traded stock for $1,000, and it’s now worth $11,000. You give it to a 501(c)(3) charity. You get a tax deduction for $11,000, and you pay no taxes on the $10,000 profit.
We know – it’s a lot to digest, especially after all that turkey and pie – but forewarned is forearmed. As Sun Tzu said, “In the midst of chaos, there is also opportunity.” We hope to provide you with many opportunities to be victorious in the chaos that is tax season.
Game of Tomes
Year-end Small Business Letter, 2019
Winter is coming. In the realm of taxes and codes, business deductions weave their own magic. The more business deductions you claim, the less you pay in regular taxes. You have many paths from which to choose when plotting out strategies for tax deductions for your business. Choose wisely.
Path of the Dockmaster: Pay expenses in advance using the IRS Safe Harbor (for example, pay rent for the whole year of 2020 and you can claim the deduction in 2019, so long as you write the check in December). For a cash-basis taxpayer, qualifying expenses include, among others, lease payments on business vehicles, rent payments on offices and machinery, and business and malpractice insurance premiums.
Path of the Summoner: Stop billing customers, clients, and patients until after 12/31/2019. This way, you postpone getting taxed on income until 2020.
Path of the Smithy: Buy office equipment. With bonus depreciation now at 100% and increased limits for Section 179 expensing, buy your equipment or machinery and place it in service before December 31, and get a federal deduction for 100% of the cost in 2019. Qualifying bonus depreciation and Section 179 purchases include, among others, new and used personal property such as machinery, equipment, computers, desks, furniture, and chairs (and certain qualifying vehicles).
Path of the Merchant: Use your credit cards. The day you charge a purchase to your business or personal credit card is the day you deduct the expense. If you get reimbursed for a card you personally own, make sure the reimbursement is made before 12/31/19.
Path of the Temple of the Sun: Act fast to claim a 30% tax credit for solar panels. As a follow up to our recent blog, commercial solar credit differs from residential in that you can qualify for the tax credit when you commence construction and not when it is fully installed and operational.
Path of the Charioteer: Need a new vehicle? Buy one and place it in service before 12/31/19. There are options for new or used SUVs, pickups, cargo or passenger van or car (specifications at the end of this letter*).
Path of the Benevolent: Holiday bonuses are a great incentive for employees. Before you decide to hand them out, be sure you know the tax implications – to your business and your employees. Employee bonuses are always taxable to employees as wages. You should withhold federal and state income taxes and FICA taxes (Social Security and Medicare). Also, include bonus amounts in calculating unemployment taxes, the Social Security maximum, and the additional Medicare tax. When you calculate the amount of the bonus, treat the check as a regular paycheck for the purpose of withholding and deductions:
- Withhold federal and state income taxes from the bonus check
- Calculate and withhold FICA taxes (Social Security and Medicare) from the employee paycheck, and
- Pay your part of the FICA tax as the employer.
- Report the bonus along with other payments to employees on Form 941, the quarterly wage and tax report, and other quarterly and annual payroll reports.
Most payroll processors will give you the option of calculating your bonus checks as a net amount. This allows your employees to receive a net check of a round amount. The total taxable wages will be calculated by grossing up that amount to account for tax withholdings. If you decide to give your employees a bonus in December, or anytime, you must give them the opportunity to change their withholding authorization (on Form W-4) for that paycheck, and change it back for subsequent paychecks. Many employees like to change their bonus check withholding, so they receive more of the bonus. They still must pay tax on the bonus; it’s a matter of perception. Bonuses are a deductible business expense, as long as you follow the rules discussed above. If you have some cash and expect to make a profit this year, it’s a good time to pay bonuses to employees. In addition to receiving a tax deduction for these benefit expenses, you also receive much goodwill from employees, especially around the holidays.
Path of the Laborer: Don’t miss the deadline for filing your 1099’s! What is Form 1099-MISC? 1099-MISC is the version of Form 1099 that is used to tell the IRS that you’ve paid an independent contractor $600 or more in fees, compensation, rents, prizes, awards, or any other kind of income. (That’s $600 or more over the course of the entire year.) Do you need to file a 1099-MISC this year? This will depend on whether you hired any independent contractors this year, and how much you paid them.
What is an independent contractor? An independent contractor is anyone you hire on a contract basis to complete a particular project or assignment. By definition, an independent contractor is not an employee. Common examples include graphic designers, landlords, attorneys, accountants, landscaping and general contractors. If you paid an independent contractor less than $600 over the course of the financial year, you don’t need to submit Form 1099-MISC for them. Keep in mind that if you’re an independent contractor, you still need to report all of your income; even if you did less than $600 of work for a client and never received a 1099.
If you did pay a contractor more than $600 for services, rent, or for any other type of miscellaneous income payment (including a barter), you need to file a 1099. There are exceptions to this rule. It’s rare, but sometimes an independent contractor will be registered as a C corporation or S corporation. You don’t need to file Form 1099 for a contractor registered as a corporation.
What is a Form W9? You can see whether a contractor is incorporated based on the information on their Form W-9. Businesses use the name, address, and Social Security number or tax identification number contractors provide on Form W-9 to complete a 1099. Request one from any contractor as soon as you hire them. Also keep in mind that corporation names are typically appended with “, inc.”
The deadline to file with the IRS and the State and send a copy of Form 1099 to your contractors is Friday, January 31, 2020.
Finally, words to the wise:
Mind your scribe-work: You should never stop documenting your deductions, and you should always claim all your rightful deductions. Don’t forget if you maintain an inventory to take physical count on 12/31/2019 and price it out. If you decide to close your business, you must close it everywhere – Secretary of State, CT DRS, CT DOL, etc. If not, the IRS could consider it open and assess you taxes based on previous years. If your business deductions exceed your business income, you have a tax loss for the year. This is called a Net Operating Loss (NOL). Newly started businesses may have NOLs. This is okay!
Winter is coming and you must choose a side: will you be House Speckless, with your dragons in a row and all your scrolls in order? Or will it be House Disarray?
*Specifications for vehicle purchases:
- For SUVs or crossover vehicles that the manufacturer classifies as a truck and has a gross vehicle weight of 6,001llbs or more, you are afforded the ability to:
- Elect bonus depreciation of 100%
- Select Section 179 expensing of up to $25,500
- For pickups, with a GVWR of more than 6,000lbs and a bed of at least 6 feet and not easily accessible from the passenger compartment you can:
- Elect a bonus depreciation of 100%
- Select Section 179 expensing up to $1,020,000
- For cargo vans with a GVWR of more than 6,000lbs that fully enclose the driver compartment and load-carrying area, have no seating behind the driver’s seat and have no body section that protrudes more than 30” ahead of the leading edge of the windshield, you can:
- Elect a bonus depreciation of 100%
- Select Section 179 expensing up to $1,020,000
- For passenger vans, you must have a GVWR of more than 6,000lbs and seat more than 9 people behind the driver’s seat in order to choose to:
- Elect a bonus depreciation of 100%
- Select Section 179 expensing up to $1,020,000
- For a car, you can:
- Elect bonus depreciation up to $8,000
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