The world of tax seminars is going crazy this year and I can see why. The full affect of the law passed by Congress one year ago, the Tax Cut & Jobs Act (TCJA), is finally becoming a reality. The amount of changes stuffed into one year is quite unprecedented. I and 135 of my closest tax professional friends spent all day and half of the night last Friday listening to high quality instructors dissect the latest information available. Allow me to pass on a couple of items talked about before I discuss the world of Individual Retirement Accounts. First, the Internal Revenue Service has announced that, in its analysis of returns to be filed this coming tax season, up to 21% or about 30 million taxpayers will have a balance due on their tax returns. That’s a substantially higher figure than last year. This goes against popular thoughts concerning the TCJA. Everyone was supposed to receive a tax cut and, therefore, would receive a larger refund or at least have a smaller balance due. The fly in the ointment is that last February, the IRS changed the federal withholding tables to give everyone some extra take home pay. Some extra take home pay should be a good thing. Should be. And it would be, too, except for the fact that the IRS miscalculated and the tables, in some instances, lowered withholding by too much. The net result is that even though average middle-income taxpayers will receive a $930 tax cut, their income withholding may have decreased even more. The bad news is that we tax preparers may be the bearer of bad news more often than we are used to. That’s not fair to the taxpayers or to us but, as the saying goes, that’s life in the big city. We will deal with it and will have a stack of blank W-4s on our desks. Second, there will be another tax law passed in 2019 that will affect 2018 tax returns. The TCJA had several provisions that are in need of technical corrections. These are the type of corrections that only Congress can fix. The IRS can only go so far and then Congress has to step up and fix its errors. Of course, Congress isn’t big on taking responsibility these days. For example, the TCJA was supposed to allow improvements to non-residential commercial real property to be written off over 15 years. Unfortunately, the TCJA writers mistakenly wrote 39 years into the law instead of 15 years. That little fix has a big bearing on almost every non-residential commercial real property tax return we will be preparing. We are staying tuned to see if this gets fixed. Third, finally, almost every taxpayer who has expenses for work that are not reimbursed is probably not going to be happy when we finish the return. It is to be expected that tax professionals will be explaining the rules that go with an accountable reimbursement plan. An accountable reimbursement plan is a plan set up by an employer to reimburse employee expenses. The employee accounts to the employer for out of pocket expenses and the employer reimburses those expenses. The reimbursement may result in a deduction for the employer and it is not taxable to the employee. It might be advantageous for every employee who has work expenses that are not reimbursed to discuss setting up an accountable plan with his/her employer.
Let’s begin talking about Individual Retirement Accounts (IRAs). There are actually multiple types of IRAs including Traditional IRAs, Roth IRAs, SEP IRAs, and Simple IRAs. Traditional and Roth IRAs have a maximum contribution limit of $5,500 for taxpayers under the age of 50 and $6,500 for those age 50 and older. Contributions can be made for any year in which the taxpayer has compensation and is under age 70 ½ at the end of the year. A married taxpayer can use the compensation of a spouse to qualify to contribute. Contributions can be made until the due date of tax returns, usually April 15. There is no extension of this deadline. There are income phase-out rules that may limit the deduction of the taxpayer. There are potential penalties for taking distributions earlier than age 59 ½. I will expand on these topics in the next couple of weeks and will do my best to keep you informed about where we all stand for the 2019 tax filing season. This is Jerry Coon signing off.
Jerry Coon is an Enrolled Agent.
He owns Action Tax Service on Northland Dr in Rockford.
Contact Jerry at www.actiontaxservice.com