The Tax Man Cometh, are you ready?

A desk with a calculator, money, papers, and a persons hand writing the words Tax Planning on a pad.

 

It is hard to believe that in just a few days, we will mark the end of another decade. Which leads me to wonder, will the ‘20s of this century be as roaring as the ‘20s of the last century? I guess that only time will tell.

But before we completely forget about 2019, there are a few tax changes that may affect as you close out your books and prepare to file with the IRS.

Family and Medical Leave Credit – The employer credit for family and medical leave, which was created in the 2017 tax reform, ends after 2019. This two-year program provides employers with a tax credit equal to 12.5% of the wages they paid to qualifying employees during any period when those employees were on family and medical leave, provided that the rate of the leave payments are at least 50% of the employees’ normal wages. The credit can be claimed for a maximum of 12 weeks of leave for any employee during the tax year. For each percentage point for which the leave payments exceed 50% of normal wages, this credit increases by 0.25 percentage points (up to a maximum of 25%). Participation in this credit program is optional.

Inflation Adjustments – Just about every tax-related value is adjusted for inflation. Some values are adjusted for any level of change, but others are adjusted only if the change reaches at least a specific dollar amount (so these values may not change every year). The table below includes the actual 2019 inflation adjustments and the projected 2020 adjustments for some of the most frequently encountered values.

Year 2018 2019 2020
Standard Deduction
Single or Married Filing Separately 12,000 12,200 12,400
Head of Household 18,000 18,350 18,650
Married Filing Jointly 24,000 24,400 24,800
Additional Standard Deduction (Age 65+ or Blind)
Unmarried 1,600 1,650 1,650
Married 1,300 1,300 1,300
Other Values
Annual Gift-Tax Exclusion 15,000 15,000 15,000
Foreign Earned-Income Exclusion 103,900 105,900 107,600
IRA Contribution Limit 5,500 6,000 6,000
IRA Contribution Limit (Age 50+) 6,500 7,000 7,000
401(k) Contribution Limit 18,500 19,000 *
401(k) Contribution Limit (Age 50+) 24,500 25,000 *

All values are in U.S. dollars.
* Value not available as of publication

Form W-4 Revision – During the previous tax season, many people received a smaller federal tax refund than normal or actually owed taxes despite usually getting a refund. In most cases, this was due to the last-minute passage of the tax-reform law at the end of 2017, which did not give the IRS not sufficient time to adjust the W-4 form and related computation tables for the 2018 tax year so as to account for all of the new law’s changes. The planned major revision to the W-4 for the 2019 tax year has since been delayed until 2020, so all taxpayers should make sure that their 2019 withholding is adequate.

If you are familiar with tax terminology, you can use the IRS’s newly updated withholding estimator. This tool helps taxpayers to determine whether their employers are withholding the right amount of tax from their paychecks. However, please note that the results are only as good as the information that is put into the estimator. Users need to properly estimate their other income for the year from various sources.

Seniors Get a Special Tax Form – Lawmakers have long sought to provide taxpayers who are age 65 and older with a simplified tax form in place of the Form 1040. In the 2018 budget bill, Congress finally included a requirement that the IRS create such a form. As a result, the IRS will introduce Form 1040-SR, which will look a lot like the old form looked before the 2018 tax reform instituted its (politically motivated) division of the Form 1040 into multiple postcard-size schedules. It is unclear how much simpler the Form 1040-SR will be, but it will be available for 2019 returns. Form 1040-SR will be optional.

Penalty for Not Being Insured – The Tax Cuts and Jobs Act (tax-reform) that was enacted at the end of 2017 eliminated the Obamacare shared-responsibility payment, effective starting in 2019. Congress didn’t actually repeal this penalty; instead, it effectively repealed it by tweaking by setting zero values for both the percentage of household income used in the calculation and the flat dollar amount of the penalty. As a result, the amount of the penalty is always zero. However, keep in mind that the penalty could be restored in the future if the direction that the political winds are blowing changes. In addition, beginning in 2020, some states may pick up where the federal government left off and charge a penalty to residents without qualified health insurance coverage.

Cryptocurrency—If you own cryptocurrency, you need to know that the IRS has you in its sights. Most owners of cryptocurrency are not reporting or paying taxes on their cryptocurrency transactions. In fact, the IRS is so focused on this issue that it recently issued warning letters to over 10,000 taxpayers it suspects might have an under-reporting problem.

One of the significant issues of cryptocurrency is how it is treated for tax purposes. The IRS says that it is property, so that every time it is traded, sold or used as money in a transaction, it is treated much the same way as a stock transaction would be, meaning the gain or loss over the amount of its original purchase cost must be determined and reported on the owner’s income tax return. That treatment applies for each transaction every time it is sold or used as money in a transaction.

Cryptocurrency is generally treated as a capital asset, so any gain is a capital gain. If the gain is held for more than a year and a day, any gain will be taxed at the more favorable long-term capital gains rates. If the cryptocurrency is being held as an investment and the sale results in a loss, then the loss may be deductible. Capital losses first offset capital gains during the year. If a loss remains, taxpayers are allowed a $3,000-per-year loss deduction against other income, with a carryover to the succeeding year(s) if the net loss exceeds $3,000.

When cryptocurrency is used as payment to an employee, the usual payroll withholding and reporting still apply. If used to make payments to an independent contractor, 1099 form reporting is still required. If the individual receiving payment in cryptocurrency is subject to backup withholding, the payer is required to withhold the required amount. In all reporting and withholding instances, the amounts must be in U.S. dollars.

Taxpayers who do not properly report the income tax consequences of virtual currency transactions are liable for the tax, penalties, and interest. In some cases, taxpayers could be subject to criminal prosecution.

Note: Business Finance Corporation is not an attorney firm or Certified Tax Preparer; the above information is presented for information purposes only.

At Business Finance Corporation, our goal is to help you avoid cash flow problems that might lead to tax consequences. If you have questions about Accounts Receivable Factoring, call David Cabral at 702-947-3800 or send an email to David@bfc.vegas.