On March 20, 2020, the U.S. treasury secretary announced the decision to grant a 90-day extension to both the filing and tax payments. Individuals and other non-corporate taxpayers can defer up to $1 million in federal income tax payments until July 15.
So the good news is twofold, one being that we have more time to prepare our taxes and two, the changes to the tax code for the 2019 filing season were relatively minor, with most of the changes from the Tax Cuts and Jobs Act of 2017 having taken effect in 2018. However, there are still changes to be aware of as you file your return. Pay attention to these eight changes affecting your 2019 tax return:
1. Divorce is now tax-neutral. For divorces settled after 2018, alimony payments are not deductible for the payer and not reportable as income for the recipient. Divorces settled prior to 2019 are grandfathered in and are not affected.
2. The health insurance penalty is going away. The “shared responsibility payment,” better known as the penalty for not having health insurance, has been eliminated at the federal level. However, California, Massachusetts, New Jersey, Rhode Island and Washington DC retained their own penalties for those who did not have health insurance coverage in 2019.
3. Victims of federally declared natural disasters may qualify for relief. Victims may benefit from certain tax breaks, including employer credits and waivers for early withdrawals from retirement plans.
4. Retirement account contribution limits have been increased. 401(k) and IRA base contributions were raised by $500 in 2019, to $19,000 and $6,000 respectively. While the window is closed to contribute to your 2019 401(k), you may still contribute to your 2019 IRA until the tax filing deadline.
5. The standard deduction is higher. The standard deduction increased to $24,800 for married couples filing jointly and to $12,400 for single filers.
6. Crypto currency must be reported. On Schedule 1 of Form 1040 for 2019, the IRS asks taxpayers, “At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?” As a result of this significant change, 150 million taxpayers will need to answer this question under penalty of perjury.
7. Mortgage insurance premiums are now deductible for amounts above $600. Mortgage insurance premiums are fees paid by borrowers who make less than a 20% down payment on their home. Mortgage premiums can also be retroactively applied to 2018.
8. IRAs are affected by several changes, under the SECURE Act.
- For those who turn 70 ½ years old after 2019, required minimum distributions will begin at age 72. However, for those who turned 70 ½ years old prior to 2019, age 70 ½ will still apply for the required minimum distribution.
- Those still working after age 70 ½ are now able to continue funding a traditional IRA.
- Those who inherit an IRA from a non-spouse will need to withdraw the total balance of the account within 10 years
Now is the time to consult with your tax advisors about the 2020 tax changes to determine which changes will affect your 2019 return. Proper tax planning will save you from difficulties at the end of the year, so it is better to be proactive and understand your situation to potentially limit your tax liability. Find a CFP® professional in your community to learn more.