Tax Talk 2020 #1
/Tax Talk 2020
It was a mid-January Friday morning, and I had the pleasure of sitting down and interviewing, well, myself. Over the course of a cup of coffee, I answered some frequently asked questions regarding the recent tax changes and updates for 2019. It was a delightful morning, I must say.
Here is what I had to say:
So…what happened last year?
Everyone was affected in some way by the Tax Cuts & Jobs Act in 2018, which significantly changed the structure of the personal 1040 that had remained fairly consistent for many years. Major changes included an increased standard deduction and the elimination of the personal exemption.
A new Form W-4 (remember that form you fill out with HR when you hire in with a new employer?) has been released to adjust for the major changes in the standard deduction and the elimination of the personal exemption. If you were significantly impacted on last year’s tax return, I recommend filling out a new W-4 with your employer(s). Many employers are requiring them to be filled out as well, and you’ll see that the new form accounts for individuals and families having more than one job or source of income.
Please note filling this out now will only impact 2020 and future tax years. Also this is just the federal form, each state is different and will have its own method for calculating income tax withholding.
Can I still deduct my business expenses?
Short answer: yes
If you receive freelance/1099 income, it still gets reported on Schedule C, along with your deductible business expenses. This form and process has not changed in recent years. I think a lot of confusion has come from the term “itemized deductions” which were affected by the Tax Cuts & Jobs Act and are reported on Schedule A. These are completely different than “business deductions" which are reported on Schedule C.
Long answer: yes and no
The TCJA made it so you can no longer deduct unreimbursed employee expenses related to W-2 work (things like union dues, uniforms, etc. in prior years). However, with the increase of the standard deduction, these expenses would have to be a very significant amount in order to have made an impact for 2018 and beyond.
A route that many people are taking is to incorporate as a business by forming an LLC or Corporation and being taxed as an LLC/Sole Proprietorship or S Corporation. Employers would then pay your company instead of you as an individual, similar to being an independent contractor with no taxes withheld or paid on your behalf. This does allow for you to deduct those business expenses against business income, and potentially save on taxes. However, forming and running a company comes with new administrative expenses that need to be taken into account in order to determine if the tax savings is worth it in the long run.
What’s up with Healthcare?
The penalty for not having health insurance was eliminated for the 2019 tax year. So if you didn’t have insurance for certain months or at all during 2019, it will not affect your taxes.
However, if you had a plan through the Health Insurance Marketplace for any part of 2019, you’ll still receive Form 1095-A in order to complete your tax return. This form is needed to complete Form 8962, which reconciles your monthly subsidy from the Marketplace to your annual income and determines if you have a balance due or if you should receive a tax credit as a result.
What are the dates/deadlines I should be aware of in 2020?
01/27/2020 - IRS E-filing opens for individual returns
01/31/2020 - Forms W-2 and 1099-MISC are due to recipients
03/16/2020 - Due date for Partnership and S Corp returns, with up to a 6-month extension
04/15/2020 - Due date for C Corporation returns, with up to a 6-month extension
04/15/2020 - Due date* to file 2019 personal return, 6-month extension, and/or to make a tax payment for 2019 to avoid late payment penalties/interest
05/15/2020 - Due date for nonprofit returns, with up to a 6-month extension
*Note that if you do not owe tax, there is no rush to file by 4/15 if you need more time to prepare (you have up to three years to file without penalty)
Any other questions?
I had to leave to get to a haircut appointment, but I must say, I was quite a delight to chat with.
Feel free to leave any other questions in the comments, and I’ll be sure to answer them! Or email me if you have a question that’s specific to your situation, and we can chat further.
Happy Filing!
