The Tax Cuts & Jobs Act passed in 2017, brought about various tax changes that affected most individual tax payers. Following are various changes to consider as we reach the end of the year.
Withholdings & Estimates
Withholdings and estimated taxes should be verified before year end, as the IRS withholding tables have been unclear since the tax law changes. Employees should check their withholdings before year end and make any necessary adjustments. Quarterly payments made by business owners and 1099 taxpayers should be caught up and revised.
Most taxpayers must pay 90% of their income and self-employment taxes by year end or face penalties. This past tax season, the IRS forgave these penalties for some taxpayers, but intends to enforce them this year.
Of the various changes that came about by the new tax rules, itemized deductions affected essentially all taxpayers. Over 25 million taxpayers opted to replace itemized deductions with a standardized deduction. The increase in the standard deduction to $12,200 for single filers and $24,400 for married couples simplified the deduction quandary for many taxpayers. Simply taking the standard deduction fulfilled and exceeded itemized deductions for many, with no need for receipts or documentation to back up submitted expenses.
Retirement Savings Deadlines
IRAs and Roth IRAs for tax year 2019 can be opened and funded up to April 15, 2020.
Self employed earners may have up to October 15, 2020, to set up and fund a SEP IRA if filing an extension for the business return. Solo, or one person, 401k plans must be set up before December 31, 2019, but may be funded thereafter depending on the details of the plan.
Required Minimum Distributions
IRA owners over the age of 70.5 are required to take a minimum distribution, also known as a RMD, before December 31, 2019. Congress is currently considering increasing the RMD age to 72, but it hasn’t been signed into legislation yet.
A single RMD may be taken for multiple IRAs, but an RMD must be taken from each individual 401k account if more than one exists. This is starting to affect more taxpayers since more retirees are leaving retirement plan balances in their 401k plans.
Sources: Tax Policy Center, Tax Foundation, IRS