Here we go again.

In almost the last minutes of 2019, Congress passed a tax law.  It is basically made up of three parts:

·         Pension/retirement changes

·         Extenders

·         Miscellaneous items

Some of the pension and retirement changes are:

1.    Required minimum distributions.  Prior to the law change, everyone had to state withdrawing funds from their retirement account by April 1 in the year following the year they turned 70 ½.  So if I turned 70 in the first half of the year, I would turn 70 ½ by the end of the year. I would need to take my first distribution by April 1^st of the following year.  This rule still holds for anyone who was 70 ½ or older on December 31, 2019.  But if you are younger, then you can wait until you turn 72 to take your first distribution.

2.    In most cases, you can kiss the stretch IRA goodbye.  What is a stretch IRA?  I leave my IRA to my much younger granddaughter.  When I die, she begins to take the IRA over her life expectancy.  That could be 60 or 70 years.  With only a few exceptions, now the total IRA must be completely distributed by the 10th year following death.

There are some exceptions:

·         Those that are receiving distributions from a stretch IRA already.  They will be allowed to continue to do so.

·         The IRA is left to the decedent’s child.  They can take distributions over their life expectancy until they reach age 18.  Then they have 10 years to take out the rest.  This only works for children, not grandchildren.

·         The beneficiary is no more than 10 years younger than the decedent.

·         The beneficiary is disabled or chronically ill.

·         And of course, a surviving spouse can always roll an inherited IRA into his/her name.

3.    The law removed the maximum age on IRA contributions.  So now if you are 80 and are still working you can contribute to an IRA. 

4.    Sometime in the future, employers will be required to tell employees what their lifetime income from their retirement plan will be.  In other words, you have $100,000 in your 401k.  You are expected to live to 90.  Your employer will have to tell you how much you will receive each year for the rest of your expected life.

Some of the extends:

Not all of the expired provisions got extended.  Most of the provisions that did get extended are reinstated for 2018 through 2020.   Those that may be most interesting to you are:

1.    Exclusion from income of discharge of qualified principal residence indebtedness.  This is not a biggie here in Arizona because of the rules regarding this type of debt.

2.    The ability to treat mortgage insurance premiums as qualified home interest.

3.    Reduction in the medical deduction floor.  Medical expenses in excess of 7 ½% will be deductible for everyone if they itemize.

4.    You can again chose between taking a credit or deduction for qualified tuition and related expenses.

5.    Non business energy property credits.  These are those for energy efficient doors, windows, hot water heaters etc.

6.    Employer credit for paid family and medical leave.

You may be eligible to amend your 2018 return to take some of these, but if you have used a paid preparer, there may not be a cost benefit as the refund may not be very large.

Other Provisions

1.    The law changed the Kiddie Tax rules back to the way it was before TCJA retroactively.  That means that kids with unearned income will be taxed at their parents’ tax rate rather than trust rates. 

2.    Section 529 education plans can now be used to pay up to $10,000 of a student loan per person.  The plan can now also pay for fees, books, supplies and equipment required for participation in a registered apprenticeship.

3.    TCJA required that certain fringe benefits provided to employees be treated as taxable income to charities.  The big one was what has become known as the “parking lot tax.”  This was repealed.

What was NOT Repealed

And these are biggies. 

1.    The non-deductibility of parking lot expenses related to a for profit business.  Businesses that provide a parking lot primarily for the use of their employees still cannot deduct the cost of maintain it.

2.    The retail glitch.  Restaurants, retail stores will continue to have to depreciate improvements over 39 years instead of 15 years as was previously in the law before the TCJA. 

One last thought to share.  When you are dating a document for 2020, be sure to write the full 2020.  If you write just “20,” someone can easily change it by adding a prior year.  They can change “20” to “2019”!