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Business quarterly: Ready for tax season?

  • Larry Schwartz has opened a new VITA program site in Peterborough to offer free tax prep for those who meet a household income threshold of less than 60,000. Staff photo by Tim Goodwin

Published: 1/14/2020 1:31:40 PM
Modified: 1/14/2020 1:30:52 PM

For some people, the most challenging aspect of the upcoming tax season might actually be figuring out what to do with the new W-4 Form. We were all led to believe that the new tax law signed on Dec. 22, 2017 would make taxes more simple. The opposite is true and preparers can see it clearly.

During my lifetime, it was very simple for employers to figure withholding amounts because it was all based on how many exemptions the employee decided to claim. Using Publication 15 (Circular E), employers only had to go to the filing status page, look across the top row for the chosen number of exemptions and then go straight down to the income line and read the number. For 2020 withholding determination, the W-4 instruction form has forty-eight pages. And it took 2 years to get this. Good luck.

But 2019 is in the past and it is what it is, withholding-wise. So for most folks, the process will be the same as always: wait until you have all of your W-2 forms, all of your 1099 forms, and your 1095-A if you had ACA health insurance coverage. If you are self-employed, you are likely entitled to the Qualified Business Income Deduction (QBI). Watch for that.

As usual, the various numbers that affect us tend to increase a bit each year. So the new Standard Deduction for a single filer under 65 years of age is $12,200, up from $12,000. Child Tax Credit for children under 17 remains the same at $2,000 each, but only $1,400 is refundable. Earned Income Tax Credit numbers are increased slightly for 2019. Some of the ‘extenders’ snuck back in very late in the year – Dec. 19, 2019.

These are things that expired in 2017, but were brought back. This means that for some of you, it might pay to amend your 2018 return. Example:

■Mortgage Insurance Premiums (MIP) are again deductible

■Medical expenses above 7.5 percent are potentially deductible (if you itemize)

■If a married couple filed for divorce and it was finalized after Dec. 31, 2018, then alimony payments are no longer counted as income for the recipient and the payments are not deductible for the payer.

■Starting in 2019, the Individual Mandate for health insurance coverage is gone so no penalty of any kind for not having coverage. ACA is still available, however.

The extenders were attached to the Secure Act which was signed into law near the end of 2019. Big changes for older folks: if you reach 70 ½ in 2020 and were planning to take your RMD before April of 2021 for 2020, you do not have to because the new age for the RMD requirement is 72. But if you reached 70 ½ in 2019, you are bound by the old rules. Going forward, you will now be allowed to contribute to your Traditional IRA after age 70 ½ as long as you have earned income.

For those who are still able to itemize deductions, the medical mileage rate is up to $.20 per mile, but the charitable mileage rate is still $.14. A larger increase was approved for the business miles deduction. It is now $.58 per mile which is up from $.54 per mile. Good news for the self-employed.

Preparers and folks who actually study their returns will appreciate that we have more logical primary tax forms although still not like The Good Old 1040 that we used to have. We used to have a 2-page 1040 that had all the results clearly listed and we signed at the bottom of page 2. For 2018, we signed the first page of an abbreviated 1040 that had no data. To fully understand the results, we had additional Schedules 1,2,3,4,5, and 6. The 2019 version at least has some of the numbers on the 1040 signature page and the extra Schedules are now just 1, 2, and 3.

As always, you should be aware of the best and most economical ways to get your tax returns prepared. For low and moderate income individuals and families, there are many tax sites in New Hampshire that will prepare your return for free utilizing experienced IRS certified preparers. Check out the VITA or AARP site nearest to you.

Larry Schwartz is a tax expert who lives in Hancock.

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