Client Year End Tax Letter

Dear Friends and Valued Clients:

Hoping everyone had the Happiest of Holidays!  Congratulations to the Washington Nationals on their first World Series victory in Franchise history. As this is written, the country as a whole is going through some trying times but we will get through them. In the tax world, not too much has happened; mostly clarifications however the State of California is undergoing some large changes which we will discuss. 

Let’s talk taxes:

HEALTH INSURANCE:
For 2019, the President has ended the shared responsibility penalty which required all taxpayers to have health insurance…in ENGLISH NO PENALTY IN 2019 for not having health insurance; however, you may still have received the government subsidy helping to pay for your coverage.  IF so, you will received FORM 1095 A (usually page 9 of the health booklet).  I NEED THIS FORM to calculate if you need to pay back some of the subsidy you received. BEGINNING 1/1/2020, CALIFORNIA MANDATES HEALTH COVERAGE FOR ALL CALIFORNIA RESIDENTS.  The program is similar to the old Federal program except you need to exceed 600% or the poverty line rather than 400%.  There are penalties for not having coverage

STANDARD DEDUCTION:
$12,200 (Single); $24,400 (MFJ); $18,350 (HH)

ALTERNATIVE MINIMUM TAX:
This is just FYI: Only 78,000 taxpayers were subject to the AMT for the 2018 tax year with the government receiving an additional $967 million; in 2017 4 million taxpayers were subject to the tax and the AMT owed was $21.7 billion…Now that gets a “WHAT A DEAL”.

CHILD TAX CREDIT:
Children MUST have a Social Security number to be eligible.

MILEAGE REIMBURSEMENT FOR 2019:
58 cents. Charity: 14 cents; medical: 20 cents.

ENTERTAINMENT:
Your books (QuickBooks or whatever you are using) MUST break out entertainment from Meals. This is now required or you get nothing on audit.

RENTAL REAL ESTATE AND THE QBI DEDUCTION:
This area has been the “hot” topic for most of 2019.  The question…Does rental property qualify for the 20% QBI deduction?  Yes, BUT if the owner of the rental property, or agents, spend 250 or more of rental services on the enterprise.  A property you may own that is TRIPLE NET LEASE does NOT qualify. Here are the requirements, 1) Separate books and records must be maintained reflecting rental revenue and expense; 2) 250 or more hours of rental service must be performed with respect to EACH rental; 3) MUST keep contemporaneous records (waived for 2019); 4) Must attach a signed election statement to your return and 5) The requirements must be met annually.
Rental services that count towards the 250 requirement; advertising, negotiating leases, Verify information contained in applications, rent collection, daily operation payment of expenses, maintenance including supplies, management, and supervision. DRIVING TO AND FROM REAL ESTATE, although deductible is not part of the 250 hour requirement.

VIRTUAL CURRENCY:
IRS is issuing 1 of 3 letters when they believe you are trading in virtual currency.  If you have traded any virtual currency, you have to report it as like kind exchanges are no longer available. In addition, Coinbase has been subpoenaed to provide records of all holders of virtual currency.

OPPORTUNITY ZONES:
Taxpayers can now elect to defer all or a portion of their capital gain if:

• Proceeds from the sale of property to an unrelated party giving rise to the gain is reinvested in a qualified opportunity fund within 180 days; AND
• The capital gain arises from non opportunity zone assets before December  31, 2026 I this gain can be from any property including publicly traded stock; AND
• Capital gains from post acquisition gains in opportunity zone funds held for at least 10 years are permanently excluded from the taxpayer’s income.
• Applies to individuals, C and S Corporations, partnerships, trusts and estates.
• 180 days begins on the date the sale or exchange took place.
• The zone area is designated by the state in question

ORGANIZERS AND CHECKLISTS:
If you would like an organizer showing the previous year’s items, please call me and I will send you one. If you prefer a checklist, please go to www.censoprano.com. There you can find a generic organizer and the checklists.

DATELINE:
S Corporations are due March 15, C Corporations are due April 15; Partnerships are due March 15.

E_FILING:
Please let me know if you DO NOT want me to e-file your return. All states are requiring e-filing unless you have reasonable cause.

LATE FILING PENALTIES:
Please note that filing an extension is an extension of time to FILE your tax return; it is not an extension of time to PAY your taxes due. So if you owe money and file AFTER April 15, IRS will charge a penalty which is .5% of the tax due plus 6% interest. This is calculated on a monthly basis. You can only avoid the penalty if you pay your tax IN FULL by the due date.  Sometimes that is not possible because you have not received certain information such as a K1 schedule. Beginning in 2019, IRS is mandating that if you file your return subsequent to April 15 and have a balance due, the penalty and interest will be reflected on the bottom of the tax return.

EXTENSIONS:
I must have an email or phone call verification from you asking for an extension. This is due to the problems concerning identity theft. Please make sure you let us know you want an extension otherwise it will not be filed.

1099’s AND PENALTIES:
You MUST issue 1099’s by January 31. If you file these later, the penalty is $260 per return not filed.

PROCEDURE:
IF you are sending me your papers by email, please ask me for my portal “VERIFYLE”  I will send it to you and your information will be protected. The old email address is being shut down.

GIG ECONOMY:
In English, this is usually Uber and Lyft drivers; but could also reflect items sold on EBAY. Usually these gig entities do not send a 1099-MISC but rather a 1099-K. Please be aware of this.

UBER/LYFT:
I will be posting on the website the various deductions afforded to these drivers.

ALIMONY:
For divorce decrees finalized in 2019, alimony is not taxable to the recipient and not deductible by the payer.  Decrees prior to 2019, if you wish to follow the new rules, you must amend your decree in writing.

MEDICAL EXPENSES:
Must now exceed 10% of your adjusted income. A DNA collection kit (like 23 and me) is now deductible for health purposes; but any portion of DNA testing that is attributable to ancestry testing is NOT!

SOLAR:
If the solar was placed in service ion 2019, the credit is 30%; 2020 26%; 2021 22%

TESLA:
Reached its maximum number of cars sold. IF you took possession in the first half of 2019, your credit is $3750; in the second half you get $1,875.

CALIFORNIA LABORERS:
My musician friends are in a frenzy over this one! Beginning 1/1/2020, most workers will now be presumed to be an EMPLOYEE for purposes of the Labor code following a 3 factor test: A) The worker is free from control and direction of the hiring entity in connection  with the performance of the work, B) The worker performs work that is outside the usual course of the hiring entity business; C) The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.
There are numerous exemptions from this new rule which I will post on the website.

RETIREMENT:
Maximum IRA $6000 (you might not qualify); Maximum SEP: $56,000 based on a formula;401k maximum $19,000 under age 50; $25,000 50 and older.