Changes for the 2019 filing year are here and some are troubling to say the least.
Hi. I’m Ted. I don’t talk much because my brother Who is typically the one who does the talking. Yet, once and a while something news worthy comes by my paws and I feel almost obligated to give a response.
As a tax professional I like to go to tax conferences because it’s important to know of all upcoming changes to the law. After attending this years NATP (National Association of Tax Preparers) conference I came away a little disturbed by some of the updates. Here are some that you should be aware of.
- SECURE ACT:
Encompassing a number of changes The SECURE Act is the biggest law change. Employers are now required to provide 401k benefits to employees of 3 consecutive years with at least 500 hours of 1 year and 1000 hours.
- Areas named a disaster taxpayers can withdraw from their 401k for relief and pay it back in 3 years no penalties.
- Child Tax Credit – You have to be a resident in order to claim. Typically someone with an ITIN (Individual Taxpayer Identification Number) can claim the Child Tax Credit (ITIN holders are not eligible for EIC or the Earned Income Credit), but they can longer take the credit.
- Previously state and local taxes of more than $10,000 were not deductible. Not anymore.
- No Alimony. You are not required to report Alimony you pay or receive. You can still self report but it is not required. Last year only 19% of people required to report did so.
- Due Diligence Audits: If you are a tax preparer you may be asked to submit your due diligence reports. The IRS will ask for 10 random taxes and if they find one is missing due diligence forms then they will ask for another 10 taxes. If they find another missing due diligence form then they will pull every single client you do taxes for to be audited.
- The government specifically Conservatives are desperate to eliminate Social Security Benefits and pushing everyone into stocks. Long Term inherited stocks are no longer to subject to tax.
- Long term capital gains (pofits up to $78,000 for Married filing Joint or up to $38,000 for single) are NON TAXABLE. Yes, if you are single and make up to $38,000 in long term capital gains (stocks) that profit is not taxable.
- If you hire an outside contractor or Non employee and pay them for $600 or more YOU MUST issue them a 1099-MISC. This has always been the rule but now it is being strictly enforced.
- If you file taxes but never paid in 3 years you can do a bankruptcy and take it off.
- If you fail to file for 2 years and owe more than $1000 it is now a criminal offense and you are subject to JAIL TIME.
- How long should you keep your taxes? According to the IRS it is 3 years, 6 months, and a day. After that you must delete because the IRS will automatically delete your taxes from their system after that time.
- 529 Plan: Siblings can take out of their IRA to pay for education.
- The IRS has increased ALL penalties especially Failure to File.
- US Customs and Boarder Patrol has been merged into Homeland Security which means IRS is now required to share all return information with them. “Supposedly” it is a “response” to the Road Tax truckers incur who are leaving or entering the US from Mexico or Canada. Customs can now hold you from travel if you have a debt or even prevent you from entering the country.
- If you had a cancellation of debt from previous years it is now again curable through the 982 form. Preparers should ask their clients if they had a CoD in 2018 when the 982 fix was taken away and due an amended tax.
- Residential Energy Credits are back.
- Education Credits are back but the form has not been updated yet. Be sure to always update your software to stay up to date with any law changes.
- Remind your clients to have a beneficiary for their IRA because they can not longer inherit your IRA. And it will be subject to tax.
Those are just some of the major changes that stand out and as you can see a lot of them (most of them) are eyebrow raising. If you have been paying attention to the political landscape then you may be able to read between the lines and see who these changes actually benefit and who they are actually targeting. Immigrants and low income minorities are gonna have another tough year while the upper income filers will be getting more tax breaks. With Social Security under fire conservatives want people to pay for their own medical, education and needs with stocks and their retirement benefits and savings rather than government benefits. This about who has stocks and who benefits from stocks.
Also you have to wonder why would they take off alimony? Why would they erase your IRS records after such a specific amount of time? Why are they allowing people who pay $10k in property taxes to now be able to take it off? Why are they tying immigration to if you have paid your taxes?
Another thing to note is that the Disaster Act which is what many of these changes are part of was passed two days after President Trump’s Impeachment Articles were filed. While everyone was busy worrying about the impeachment, Conservatives and the IRS passed all these laws that seem to benefit Trump and his high income supporters.
There are still many details in the SECURE Act that I have not mentioned. For a full rundown of the bill check out Investopedia with their breakdown of the SECURE Act. A definite must read for tax preparers and tax clients. Stay informed.