A 2019 outlook on taxes
With the tax filing season complete, it’s time to push tax matters to the back burner. Right? Not so fast. In Washington, tax proposals, policies, and procedures are always top of mind. While not as significant and comprehensive as the Tax Cuts and Jobs Act (TCJA), there are still several tax bills brewing now in Congress.
Each of these bills is different, and each has its own group of interested parties closely monitoring to see what happens. Among the proposed legislation circulating in Congress now, the following tax bills will receive much attention this year and have a good chance at being enacted:
- Retirement Provisions
- IRS Reforms
- Tax Extender Provisions
- Technical Correction Items from TCJA
Here is a brief overview of each of these four bills and the prospects for passage this year.
One major area in the tax law that was left out of TCJA was any significant changes in retirement plans. While there were a few items, there was no wholesale reform. In 2018, there was a bi-partisan effort to make several tax changes with retirement plans. This effort had support in both the House and Senate, but leadership ran out of time at the end of the year; hence, the measure was pushed over to 2019.
With a new Congress in session, the retirement legislation was re-introduced as the “Setting Every Community Up for Retirement Enhancement” (SECURE) Act of 2019, which passed through the House Ways and Means Committee and then the full House. The bill has widespread support and similar bi-partisan legislation is likely in the Senate. The House and Senate leadership will then try to work out any differences in their respective bills.
As there are few bills that receive significant bi-partisan support, look for this retirement bill to eventually be enacted into law this year (possibly this summer or fall). Here are some of the key proposals in this House retirement bill:
- Repeal of the maximum age of 70½ for traditional IRA contributions (beginning for tax years in 2020)
- Revised rules concerning election of “safe harbor” Section 401(k) status
- Penalty-free withdrawals from retirement plans for individuals in case of birth of a child or an adoption (can avoid 10% penalty)
- Increase in age for the required beginning date for mandatory distributions from 70½ to 72 (effective in 2020)
- Modifications of required minimum distribution (“RMD”) rules for designated beneficiaries – a new ten-year distribution payout period on death of IRA owner
- Retirement plan adopted by filing due date for year may be treated as effective as of close of year – the current rule is the plan must be set up by end of plan year
There are many taxpayer-friendly changes in this retirement proposal, but keep in mind nothing is final yet. A description of this legislation from the Staff of the Joint Committee on Taxation in Congress can be found here.
Also omitted in TCJA were changes in the IRS and how it operates. There was a bi-partisan effort in Congress to make some major IRS reforms, but this too failed to get adopted in 2018, and carried over to 2019.
Earlier this year, the IRS reform bill, the “Taxpayer First Act of 2019,” navigated through the House, again with bi-partisan backing. There is also currently strong support for IRS reform in the Senate, so this legislation is likely to be adopted and signed into law probably later this year. But again, nothing is finalized yet. Here are a few of the key reform measures:
- Comprehensive customer service strategy by the IRS with taxpayers
- A “public-private partnership” to address identity theft tax refund fraud, along with a single point of contact for tax-related identity theft victims
- A prohibition on the rehiring of any IRS employee who was involuntarily separated from service for misconduct
There are a variety of changes in this IRS reform bill. Please click here for a description of this proposed legislation by the Staff of the Joint Committee on Taxation in Congress.
You may recall that over the past number of years there has been an odd collection of tax provisions that have a short “shelf-life” (a useful life of one to two years). Congress must deal with these provisions on an annual basis, usually occurring late in the year. These items are often referred to as the “extender items,” as Congress annually addresses whether these measures should be extended for another year, or allowed to lapse. Many times, these items are extended retroactively. The latest batch of extenders expired at the end of 2017.
There is strong support in the Senate to move these extenders in 2019 (and to do this sooner rather than later), but only lukewarm backing in the House. If they are once again extended retroactively for 2018, taxpayers may need to go back and amend their 2018 tax returns to claim an extender item (say, a tax credit or other incentive) if they have already filed. It is uncertain whether any extender legislation will move in 2019, and if so when. Click here for a summary prepared earlier this year regarding the various extender items.
Technical Correction Items from TCJA
There are several provisions from the TCJA that were inadvertently miswritten when the legislation was drafted. There is generally agreement in Congress that there were drafting errors with these items, but there is no agreement on how to fix it. Congress must still pass a bill to remedy the item, and the fix needs bi-partisan support.
One of the major technical correction items that impacts businesses of all sizes and all industries deals with the “Qualified Improvement Property” (QIP). QIP was supposed to be entitled to 100% bonus depreciation under TCJA and thus would permit full write-offs in the year of improvement. However, the QIP drafting error results instead in a 39-year write-off. Here is a link to a description on a technical corrections proposal from earlier this year. These corrections may eventually get resolved by Congress later this year, but there could be several other unrelated tax provisions, not part of TCJA, included in the fix just to get it passed.
There are other tax proposals that have been offered. Many of these will fall by the wayside, but some may move forward and perhaps be added to one of the proposed bills above. We will continue to monitor the latest tax developments from Washington. Please consult your Sikich tax advisor with any questions.