2019 was the
first year that we prepared tax returns under the multitude of changes enacted
by the GOP Tax Act.
As I said in
my review of the tax season, regardless of how long a person has been in “the
business” there is always the challenge of dealing with changes in tax law
resulting from new legislation, often illogical and inequitable and reflective
of the ignorance and agendas of those who actually write and pass tax law.
I had been
well-educated on the tax law changes during 2018. And last tax season when preparing my
clients’ 2017 tax returns, I calculated the tax on their income and deductions
using the new tax law and rates of the GOP Tax Act. However, it took a while to get used to the
flow of the ridiculous new “postcard 1040” and the accompanying new Schedules 1
through 6 (although I only used 1 - 5). The
idea of a tax return that fits on a postcard is a gimmick – and a gimmick
totally lacking in legitimacy and with no basis in reality. It is very literally impossible to have an
individual income tax return that fits on a postcard under our current Tax Code.
Otherwise the
2019 tax filing season ran smoothly.
There were no auto, computer, equipment, or weather issues. The season began, for me as always February 1st,
and ended on time, again for me the day before the statutory April 15th
filing deadline. I ended the season with
only 26 GDEs – the same as last year.
Although I actually prepared 16 less sets of returns by season-end than
last year.
As expected,
very few of my clients were able to itemize on their 2018 Form 1040, due to the
increased Standard Deduction and the limitations on and elimination of
allowable deductions. Since almost all
of my clients live in New Jersey or New York they were substantially affected
by the new $10,000 limit on the “SALT” deduction – some losing $10,000 -
$20,000 in allowable itemized deductions.
The few clients who could itemize were those with excessive medical
expenses, single filers with mortgages, and couples with recent new home
purchases.
On the NY
state income tax returns residents and non-residents were able to itemize using
the “old” pre-GOP Tax Act rules, and could itemize on the state return even if
they could not on the federal. So, in
some instances I still needed information on home equity loans and investment
and unreimbursed employee business expenses.
Last year I
had advised my clients of the importance of keeping separate track of
acquisition debt and home equity debt going back to their original purchase
mortgage, provided instructions and worksheets on how to do it, and offered to
do it for them during the year. No
client contacted me about this issue last year, and no client provided me with
information on the source of their 1098 interest when giving me their 2018
“stuff” this year. They totally ignored
this issue. Luckily because most clients
were not able to itemize this issue only applied to a handful of returns. For some, since I keep copies of every return
I have ever filed for current clients as well as some back-up documentation, I
was able to easily determine or estimate the amount of acquisition debt
interest.
This year the
Form 1098-T sent to college students by universities was finally no longer the
equivalent of tits on a bull. It
actually provided the information necessary to calculate the education tax
credits – “the total payments received by an eligible educational institution
in 2018 from any source for qualified tuition and related expenses less any
reimbursements or refunds made during 2018 that relate to those payments
received during 2018”. Previously
these forms only told us what the college billed, which was totally useless.
The biggest
issue of this tax season was the occasionally disastrous results of what I
called “the IRS withholding FU”. As I
explained to clients in my explanatory memo, last February the IRS revised the
federal withholding tables to reflect the reduced tax rates. But they did it too “liberally” – on purpose
I believe so it would look like the GOP Tax Act benefited taxpayers more than
it really did.
Almost every
taxpayer whose 2018 withholding was based on the federal tables – and not a
flat amount as with most IRA withdrawals and Social Security benefits – was
under-withheld. This was especially
disastrous with multiple sources of withholding – like two-income couples,
taxpayers with more than one job, and those receiving both pension and W-2
income. I had clients owing $4,000,
$9,000 and $20,000 because of the IRS withholding FU.
It was déjà
vu all over again. Once again, the
idiots in Congress reminded me why I call them “the idiots in Congress” by
waited until the very last minute to pass retroactive tax legislation. At the end of December, a temporary
retroactive extension of a laundry list of expired tax benefits and special
interest loopholes, the now infamous “extenders”, was included in the government
funding bill.
Constantly
and retroactively temporarily extending specialized tax benefits and loopholes
every year or every other year is totally ridiculous.
If the idiots in Congress think a tax benefit is appropriate it should
be included in permanent tax legislation.
But then – they are idiots who do what they are told by lobbyists and
Party leadership.
Also included
in the funding bill was “The Setting Every Community Up for Retirement
Enhancement (aka SECURE) Act of 2019” which made some big changes to retirement
savings account rules, most effective beginning with tax year 2020. These changes are, for the most part,
actually good and welcomed.
The only
other significant tax legislation passed in 2019 was the “Taxpayer First Act”,
which dealt with taxpayer protections and identity theft prevention.
In the fall
of 2019, the IRS issued a revised Form 1040 and corresponding numbered
supplemental schedules for 2019 and created a new 1040-SR for senior citizens,
which was mandated by the Bipartisan Budget Act of 2018. The new 1040 is a 2-sided form that is 2/3 of
a full 8½ x 11 sheet, instead of a ½ a full sheet like the ridiculous 2018
“postcard” version. The content of the
new 1040 and 1040-SR are exactly the same – line for line and word for
word. The only difference is that the
1040-SR has substantially bigger print and includes a Standard Deduction
Chart. The revised format is clearly
much better than the 2018 Form 1040, with a more logical flow of information.
The previous
6 supplemental schedules have been cut to 3 – Schedule 2 and 4 are combined in
the 2019 Schedule 2, Schedule 3 and 5 are combined in Schedule 3 for 2019, and
the information previously reported on Schedule 6 is now on the 1040. Reporting Schedule D income or loss has been
moved from Schedule 1 to a line on the 2019 Form 1040.
.
And the IRS
also issued a new Form W-4 effective for tax year 2020. The major change to this form is that the
concept of “withholding exemptions” no longer exists. The new form requires taxpayers to enter a
lot more information, and is now a full page instead of just coupon-sized. While it is more involved and perhaps complicated,
I believe it is actually “more better” than the old method of calculating
withholding considering the changes made by the GOP Tax Act, and fixes “the IRS
withholding FU”. I provided my advice on
filling out this new W-4 here. Unfortunately,
the FU was still in place for 2019 returns to be filed in 2020. I anticipate under-withholding for many
clients again on 2019 Form 1040s.
So, fellow
tax professionals, as I ask each year - did I miss anything important?
Let me end
with the same wish I had at the end of 2017 and 2018. Let us pray that the new year will bring the
removal of mentally unstable malignant narcissist Donald T Rump from the White
House, either via impeachment or the 2020 election.
TTFN
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