Every four years comes around the Olympics, a presidential election, and a leap year. With Leap Day falling during tax season, we thought we would offer up some tax tips that might jump start your tax posture for 2020 and beyond:
Lower. The Tax Cuts and Jobs Act from 2017 established lower tax rates for businesses and individuals. The tax brackets are even indexed for inflation, so 2019 rates are slightly less than 2018, and taxpayers with similar incomes should see lower taxes.
Extenders. Late in 2019, Congress retroactively extended some tax provisions that had expired at the end of 2017. Thus, these provisions will be available in 2018, 2019, and 2020. For some of these changes, taxpayers may be eligible for tax relief by filing amended tax returns for 2018, and by claiming these on 2019 tax returns that are currently in process. A few of these extender items for individuals include: the exclusion from income for discharge of debt on their principal residence; mortgage insurance premiums treated as mortgage interest expense; deduction of qualified tuition expenses; and retaining the 7.5% of AGI threshold for medical deductions. There were also many extender items for businesses.
Schedule A. Many taxpayers are familiar with Schedule A to claim their itemized deductions (medical, interest, taxes, contributions, and others). But with a cap of $10,000 on state and local taxes, many taxpayers are instead benefitting by claiming the standard deduction. For 2019, this amount is $24,400 for a married couple filing jointly. In many cases, taxpayers may see a greater tax benefit by not itemizing, and without any receipts.
Phase-Outs. The tax law has several provisions subject to a phase out for certain taxpayers over specified income levels. Two phase-outs were changed by the TCJA, both to the taxpayer’s advantage. First, the child tax credit was bumped up from $1,000 to $2,000 per qualifying child beginning in 2018, but the point at which this credit begins to be phased out for a married couple leaped from $110,000 to $400,000. Further, the Alternative Minimum Tax (AMT) exemption was increased; and the point where the AMT exemption begins phasing out leaped to AMT income over $1,000,000 from $160,900.