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Will Independent Contractors Become Extinct?

Article Highlights:

  • New California Legislation
  • Employee or Independent Contractor
  • Dynamex
  • ABC Test
  • Impact on Employers
  • Impact on Workers
  • Safe Harbor

The California legislature recently passed landmark labor legislation that essentially makes it very difficult, if not impossible, to legally classify an employee as an independent contractor (self-employed). Governor Newsom was quick to sign it into law, and it generally became effective on January 1, 2020. Many believe this legislation will suppress entrepreneurship and innovation.

Although this issue currently pertains to California, other smaller states are sure to follow, and this will ultimately become an issue for employers nationwide.

Background

The distinction between employee and independent contractor is governed by both federal law and state law. It has always been a complicated issue at both the federal and state levels, and the state and federal guidelines often differ. However, because of the significant payroll tax revenues involved, the states are generally the most aggressive in classifying workers as employees.

In the California case, the legislation was prompted by a labor case that was ultimately settled by the California Supreme Court. In that case, Dynamex Operations West, a trucking company, was treating its drivers as employees. It started classifying them as independent contractors to reduce costs, which caught the eye of the California Employment Development Department and ultimately reached the California Supreme Court. The court determined the drivers were employees and not independent contractors. However, in making that decision, the California Supreme Court adopted the “ABC test” used by some other states to make their determination.

As a result of this decision, the California Legislature passed legislation (AB-5) codifying, with some exceptions, the ABC test for determining whether a worker is an independent contractor.

The ABC Test

Several states, including Massachusetts and New Jersey, have also adopted the “ABC” test. The test is a broad means of determining a worker’s status as either an employee or a contractor by considering three factors. If a worker passes all three, then he or she is an independent contractor:

(A) That the worker is free from the hirer’s control and direction, in connection with the performance of the work, both under the contract for the performance of such work and in fact;

(B) That the worker performs work outside the usual course of the hiring entity’s business; and

(C) That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

The objective of the ABC test is to create a more straightforward, clearer test for determining whether a worker is an employee or an independent contractor. It presumes that a worker hired by an entity is an employee and places the burden on the employer to establish that the worker meets the definition of an independent contractor. But California’s AB-5 legislation did not just adopt the ABC test; it also added numerous and complicated exceptions to using the ABC test, which will surely enrich California labor attorneys.

Impacts on Employers

Employers who have been treating a worker as an independent contractor but must treat him or her as an employee must pay at least minimum wage and provide sick time, meal and rest periods, and health insurance. The employer will also have to pay worker’s compensation benefits and health insurance. On top of that, California has severe monetary penalties for misclassifying workers. Impacts on Workers: The impacts on workers vary by occupation. Some workers incur significant amounts of expenses, and under the tax reform, they can no longer deduct employee business expenses on their tax returns. Thus, for example, an Uber driver who must provide the vehicle and pay for the gas, insurance, and upkeep would be unable to deduct these substantial costs of providing the service and would have to pay taxes on his or her gross income.

Large Employers Are Fighting Back

Some larger employers are fighting back and challenging AB-5. Uber and DoorDash have joined forces with some contract drivers to file a suit in the U.S. District Court for Central California, alleging that AB-5 violates individuals’ constitutional rights and unfairly discriminates against technology platforms. The California Trucking Association (CTA) successfully obtained a temporary injunction against AB-5 for CTA drivers by contending that AB-5 is in direct conflict with several federal laws related to motor carriers. Regardless of the outcomes of these cases, they will be appealed, and the ultimate outcome could be months, if not years, away.

This leaves few choices for smaller employers other than to carefully assess the provisions of AB-5 when treating a worker as an independent contractor. For those who are unsure, it might be wise to consult a labor attorney. The safe-harbor option is to treat all workers as employees until all of the legal challenges to AB-5 have run their course.

Please contact us if you have further questions.

Do I Have to File a Tax Return?

Article Highlights:

  • When You Are Required to File
  • Self-Employed Taxpayers
  • Filing Thresholds
  • Benefits of Filing Even When Not Required to File
  • Refundable Tax Credits

Around this time of year, taxpayers often find themselves wondering whether or not they have to file a tax return. Determining this can be quite complicated. To fully understand, we need to consider that there are times when individuals are required to file a tax return, and then there are times when it benefits individuals to file a return, even if they are not required to file.

When individuals are required to file:

  • Generally, individuals are required to file a return if their income exceeds their filing threshold, as shown in the table below. The filing thresholds are typically the same amount as the standard deduction for individual(s).
  • Taxpayers are required to file if they have net self-employment income above $400 since they are required to file self-employment taxes (the equivalent to payroll taxes for an employee) when their net self-employment income exceeds $400.
  • Taxpayers are also required to file when they are required to repay a credit or benefit. For example, taxpayers who underestimated their income when signing up for health insurance through a government Marketplace and received a higher advance premium tax credit (APTC) than they were entitled to, are required to repay part of it. Therefore, all individuals who received an APTC must file a return to reconcile the advance payments with the actual credit amount, even if their income is less than the filing threshold amount, and even if they don’t need to repay any of the advance credit.
  • Filing is also required when a taxpayer owes a penalty. For example, when a taxpayer has an IRA 6% early withdrawal penalty or the 50% penalty for not taking a required IRA distribution, they are still required to pay. 

2019 – Filing Thresholds

Filing Status Age Threshold
Single Under Age 65
Age 65 or Older
$12,200
$13,850
Married Filing Jointly Both Spouses Under 65
One Spouse 65 or Older
Both Spouses 65 or Older
$24,400
$25,700
$27,000
Married Filing Separate Any Age $5
Head of Household Under 65
65 or Older
$18,350
$20,000
Qualifying Widow(er)
with Dependent Child
Under 65
65 or Older
$24,400
$25,700

When it is beneficial for individuals to file:
There are a number of benefits available when filing a tax return that can produce refunds even for a taxpayer who is not required to file:

  • Withholding refund

    A substantial number of taxpayers fail to file their return even when the tax they owe is less than their prepayments, such as payroll withholding, estimates, or a prior overpayment. The only way to recover the excess is to file a return.

  • Earned Income Tax Credit (EITC)

    If you worked and did not make a lot of money, you may qualify for the EITC. The EITC is a refundable tax credit, which means you could qualify for a tax refund. The refund could be as high as several thousand dollars even when you are not required to file.

  • Child Tax Credit

    This is a $2,000 credit for each qualifying child, a portion of which may be refundable for lower-income taxpayers, and phases out for higher-income taxpayers.

  • American Opportunity Credit

    The maximum for this credit for college tuition paid per student is $2,500, and the first four years of postsecondary education qualify. Up to 40% of the credit is refundable when you have no tax liability, even if you are not required to file.

  • Premium Tax Credit

    Lower-income families are entitled to a refundable tax credit to supplement the cost of health insurance purchased through a government Marketplace. To the extent the credit is greater than the supplement provided by the Marketplace, it is refundable even if there is no other reason to file.

DON’T PROCRASTINATE! There is a three-year statute of limitations on refunds, and after it runs out, any refund due is forfeited. The statute is three years from the due date of the tax return. So, the refund period expires for 2019 returns, which were due in April of 2020, on April 15, 2023.

For more information about filing requirements and your eligibility to receive tax credits, please contact us.

Understanding Your Annual Social Security Letter

Article Highlights:

  • Medicare B Premiums
  • Medicare D Premiums
  • Modified AGI
  • 2020 Premiums Table
  • Effect of Recreational Gambling
  • Appealing the Social Security Administration’s Decision

If you are receiving Social Security, then you have just recently received your annual letter from the Social Security Administration letting you know that your Social Security benefits for 2020 have increased by 1.6 percent as a result of a rise in the cost of living. The letter also lets you know how much will be withheld from your monthly retirement benefit for Medicare Parts B (medical insurance) and D (Prescription Drug Plan).

Not everyone realizes their Part B and Part D benefits are based upon their modified adjusted gross income (MAGI) from two years prior. This means the premiums for 2020 are actually based on your MAGI for 2018. The MAGI for making the adjustment is the federal AGI plus the following:

  • Tax-exempt interest income
  • United States savings bonds interest used to pay higher-education tuition and fees, if the interest was excluded from income
  • Excluded foreign earned income and housing costs
  • Income derived from sources within Guam, American Samoa, or the Northern Mariana Islands
  • Income from sources within Puerto Rico

 

2020 MEDICARE PREMIUMS
TAXPAYER FILING STATUS Medicare Part B Monthly Premiums Medicare Part D**
Individual* Married Filing Joint MAGI Increase Total Surcharge
2018 MAGI less than or equal to $87,000 2018 MAGI less than or equal to $174,000 $0.00 $144.60 $0.00
2018 MAGI greater than $87,000 and up to $109,000 2018 MAGI greater than $174,000 and up to $218,000 $57.80 $202.40 $12.20
2018 MAGI greater than $109,000 and up to $136,000 2018 MAGI greater than $218,000 and up to $272,000 $144.60 $289.20 $31.50
2018 MAGI greater than $136,000 and up to $163,000 2018 MAGI greater than $272,000 and up to $326,000 $231.40 $376.00 $50.70
2018 MAGI greater than $163,000 and less than $500,000 2018 MAGI greater than $326,000 and less than $750,000 $318.10 $462.70 $70.00
2018 MAGI greater than or equal to $500,000 2018 MAGI greater than or equal to $7500,000 $347.00 $491.60 $76.40

 

*The increases for a married taxpayer who lived with his or her spouse at any time during the year and files a separate return are:

  • If 2018 MAGI was $87,000 or less: no surcharge for either Part B or Part D
  • If 2018 MAGI was $87,001 to $412,999: Part B $462.70 and Part D $70.00
  • If 2018 MAGI was $413,000 or above: Part B $491.60 and Part D $76.40

**The monthly Part D surcharge is in addition to the drug plan’s premium.

You might discover that even though your monthly Social Security benefits increased because of inflation, the net amount you receive may actually be less per month because of increases in Medicare Part B and D premiums. Such increases are attributable to increased MAGI in 2018, but one might encounter a hidden source of income. This applies to recreational gamblers whose winnings are included in their MAGI, but whose losses are an itemized deduction. Thus, even though the overall result may be a loss, the MAGI is increased by the full amount of the gambling winnings, therefore possibly causing increases in the Medicare Part B and D premiums.

On the other hand, if 2017 had been a high-income year and your income in 2018 was substantially less, your 2020 Medicare Part B and D premiums may be less than they were in 2019, resulting in a larger net monthly check.

The letter you received from the Social Security Administration does include an appeal process if you disagree with the Social Security Administration’s decision to increase your premiums. However, this appeal must generally be made within 60 days after receipt of the letter. Unfortunately, an increase in your 2018 MAGI that put you into the surcharge range for 2020 and was a result of capital gains due to a one-time sale of real property or stock, isn’t a valid reason for an appeal.

If you have questions related to your Social Security benefits and their taxation, please contact us. There are often planning strategies that may lessen the tax bite and premium costs.

The 1099-MISC Filing Date Is Just Around the Corner – Are You Ready?

Article Highlights: 

  • Independent Contractors
  • Non-employee Compensation
  • 1099 Filing Requirement
  • Due Dates
  • Penalties
  • Form W-9 and 1099 Worksheet

If your business engages the services of an independent contractor, and you pay them $600 or more for the calendar year, then you are required to issue that person a Form 1099-MISC to avoid penalties and the prospect of losing the deduction for his or her labor and expenses in an audit. Payments to independent contractors are referred to as non-employee compensation (NEC). 

Note: The IRS has cautioned taxpayers who are treating rental activities as a trade or business for purposes of claiming the 20% passthrough deduction, they are required to issue 1099-MISC forms to their services providers who meet the $600 test for those rental activities.

Because so many fraudulent tax returns are filed right after e-filing opens up in January, the IRS requires 1099-MISCs for NEC to be filed by January 31. The IRS will not release refunds for individual income tax returns that include the earned income tax credit until the NEC amounts can be verified. 

Thus, the due date for filing 2019 1099-MISC forms for NEC is January 31, 2020. This is also the same due date for mailing the recipient his or her copy of the 1099-MISC. 

It is not uncommon for a business or rental property owner to have a repairperson go out early in the year, pay him or her less than $600, use his or her services again later in the year, and have the total paid for the year be $600 or more. As a result, the business or landlord may have overlooked getting the needed information from the individual to file the 1099s for the year. Therefore, if you own a business or are a landlord, it is good practice always to have individuals who are not incorporated complete and sign an IRS Form W-9 the first time you engage them and before you pay them. Having a properly completed and signed Form W-9 for all independent contractors and service providers will eliminate any oversights and protect you against IRS penalties and conflicts. If you have been negligent in the past about having the W-9s completed, then it would be a good idea going forward to establish a procedure for getting each non-corporate independent contractor and service provider to fill out a W-9 and return it to you. 

The government provides IRS Form W-9, Request for Taxpayer Identification Number and Certification, as a means for you to obtain the vendor’s data you’ll need to file the 1099s accurately. It also provides you with verification that you complied with the law, in case the vendor gave you incorrect information. We highly recommend that you have potential vendors complete a Form W-9 before engaging in business with them. The W-9 is for your use only. You do not submit this to the IRS. 

The penalty for failure to file a required information return due in 2020, such as the 1099-MISC, is $270 per information return. The penalty is reduced to $50 if a correct but late information return is filed no later than the 30th day after the required filing date of January 31, 2020, and it is reduced to $110 for returns filed after the 30th day but no later than August 1, 2020. If you are required to file 250 or more information returns, you must file them electronically. 

In order to avoid a penalty, copies of the 1099-MISCs you’ve issued for 2019 need to be sent to the IRS by January 31, 2020. The forms must be submitted on magnetic media or on optically scannable forms (OCR forms). 

Note: Form 1099-MISC is also used to report other types of payments, including rent and royalties. Payments to independent contractors are reported in box 7 of the 1099-MISC, and the dates mentioned in this article apply when box seven has been used. When the 1099-MISC is used to report income other than that in box 7, the due date to the form’s recipient is January 31, 2020, while the copy to the government is due by February 28, 2020. 

If you have any questions, please contact us. This firm prepares 1099s for submission to the IRS along with recipient copies and file copies for your records. 

Congress Passes Last-Minute Tax Changes

Article Highlights: 

  • Discharge of Qualified Principal Residence Indebtedness
  • Mortgage Insurance Premiums
  • Above-the-Line Deduction for Qualified Tuition and Related Expenses
  • Medical AGI Limits
  • Residential Energy (Efficient) Property Credit
  • Employer Credit for Paid Family and Medical Leave
  • Maximum Age Limit for Traditional IRA Contributions
  • Penalty-Free Pension Withdrawals in Case of Childbirth or Adoption
  • Increase in Age for Required Minimum Pension Distributions
  • Difficulty of Care Payments Qualifying for IRA Contributions
  • Expansion of Sec. 529 Plan Uses
  • Required Distributions Modified for Inherited IRAs and Retirement Plans
  • Increase in Penalty for Failure to File
  • Major Change to Kiddie Tax Rules

Congress, at almost the last minute, has passed a large number of tax changes, including retirement plan issues that will become effective in 2020, as well as extensions through 2020 of several tax provisions that had expired or were about to end. The list of changes is quite large, so we have only included those that are most likely to affect individual tax returns. Here is a run-down on some of the new tax provisions: 

TAX EXTENDERS 

The tax changes retroactively revive several provisions that had previously expired or were going to at the end of 2019 and extend them through 2020. So, review them carefully to see if any of them provide you with an opportunity to amend your return for a refund. 

Discharge of Qualified Principal Residence Indebtedness – When an individual loses his or her principal residence to foreclosure, abandonment, short sale, or has a portion of their loan forgiven under the HAMP mortgage-reduction plan, they will generally end up with cancellation-of-debt (COD) income. COD income is equal to the amount of debt on the home that is forgiven by the lender. To the extent that the mortgage debt becomes COD income, it is taxable income unless the taxpayer can exclude it based on specific provisions in the tax code. 

After the housing market crashed a few years back, Congress added the qualified principal residence COD exclusion. The COD exclusion allowed taxpayers to exclude up to $2 million ($1 million if married filing separately) of COD income, to the extent it was discharged debt used to acquire the home, termed acquisition debt. Equity debt was not eligible for the exclusion. However, equity debt is deemed to be released first, thus limiting the exclusion if both equity and acquisition debt is involved in the transaction. 

This COD exclusion that was temporarily added in 2007 was extended and then expired at the end of 2017. Under the current legislation, the exclusion for qualified principal residence indebtedness is retroactively extended through 2020. Thus, if you paid taxes on primary residence COD income in 2018, be sure to call attention to that fact so your return can be amended for a refund. 

Mortgage Insurance Premiums – For tax years 2007 through 2017, taxpayers could deduct the cost of premiums for mortgage insurance on a qualified personal residence as an itemized deduction. The premiums were deducted as home mortgage interest on Schedule A. To be deductible: 

  • The premiums must have been paid in connection with acquisition debt (note: acquisition debt includes refinanced acquisition debt).
  •  The mortgage insurance contract must have been issued after December 31, 2006.
  • It must be for a qualified residence (first and second homes).
  • The deductible amount of the premiums phases out ratably by 10% for each $1,000 by which the taxpayer’s adjusted gross income (AGI) exceeds $100,000 (10% for each $500 by which a married separate taxpayer’s AGI exceeds $50,000).
  • Qualified mortgage insurance means mortgage insurance provided by the: 
  • Dept. of Veterans Affairs (VA),
  • Federal Housing Administration (FHA)
  • Rural Housing Services (RHS)
  • Private mortgage insurance.

This deduction was previously allowed through 2017 and has retroactively been extended through 2020. 

Above-the-Line Deduction for Qualified Tuition and Related Expenses – An above-the-line deduction for qualified tuition and related expenses for higher education has been available since 2002 and was previously extended through 2017. For purposes of the higher education expense deduction, “qualified tuition and related expenses,” has the same definition as for the American Opportunity and Lifetime Learning credits for higher education expenses – that is, with certain exceptions, tuition, and fees paid for an eligible student (the taxpayer, the taxpayer’s spouse, or a dependent) at an eligible higher education institution. The deduction – up to $2,000 or $4,000, depending on AGI – is not allowed for joint filers with an AGI of $160,000 or more ($80,000 for other filing statuses), except no deduction is allowed for taxpayers using the married filing separate status. The phase-out amounts are not inflation-adjusted. The same expenses can’t be used for both an education credit and the tuition and fees deduction. 

This deduction was previously allowed through 2017 and has retroactively been extended through 2020. 

Medical AGI Limits – For 2017 and 2018, individuals could claim an itemized deduction for unreimbursed medical expenses, to the extent that such costs exceeded 7.5% of their AGI. For the post-2018 years, the percent of AGI increased to 10%. The provision retroactively extends the lower threshold of 7.5% through 2020. 

Residential Energy (Efficient) Property Credit – This non-refundable credit has been available in one form or another since 2006 through 2017, with credit amounts varying from 10% to 30% and the maximum credit ranging from $500 to $1,500. Most recently, the credit percentage was 10%, with a lifetime credit amount limited to $500. This credit is best described as an energy-saving credit since it applies to improvements to the taxpayer’s existing primary home to make it more energy-efficient. Generally, it applies to insulation, storm windows and doors, certain types of energy-efficient roofing materials, energy-efficient central air-conditioning systems, water heaters, heat pumps, hot water systems, circulating fans, etc.

The recent legislation extends this credit through 2020, with a lifetime credit cap of $500. 

Caution: The lifetime credit extends to returns going back to 2006. 

Employer Credit for Paid Family and Medical Leave – This credit provides an employer with credit for paid family and medical leave, which permits eligible employers to claim an elective general business credit based on eligible wages paid to qualifying employees with respect to family and medical leave. The maximum amount of family and medical leave that may be taken into account for any qualifying employee is 12 weeks per taxable year. The credit is variable and only applies if the leave wages are at least 50% of the individual’s normal wages. The credit percentage is 12.5% and increases by 0.5%, up to a maximum of 25%, for each percentage point that the payment rate exceeds 50%. 

The credit was originally only for 2018 and 2019 but has been extended through 2020. 

RETIREMENT PLAN AND IRA CHANGES 

Maximum Age Limit for Traditional IRA Contributions – The legislation repeals the maximum age for making traditional IRA contributions, which prior to this legislation, prohibited traditional IRA contributions after an individual reached the age of 70½. The provision is effective for contributions made for taxable years beginning after December 31, 2019. 

Penalty-Free Pension Withdrawals in Case of Childbirth or Adoption – The legislation allows a penalty-free but taxable distribution of up to $5,000 from a qualified plan made within one year of birth. Or, in the case of a finalized adoption of an individual aged 18 or younger, or an individual who is physically or mentally incapable of self-support. You can repay distributions later to avoid the tax on the distribution. 

Increase in Age for RMDs – For decades, individuals were required to begin taking distributions from their traditional IRAs and qualified plans once they reached age 70½. These distributions, commonly referred to as a required minimum distribution or RMD, have never been adjusted to account for increases in life expectancy. The legislation changes the required beginning date for mandatory distributions to age 72, effective for distributions required to be made after December 31, 2019, with respect to individuals who attain the age of 72 after this date. 

Special Rule – Difficulty of Care Payments – Many home health-care workers do not have a taxable income because their only compensation comes from “difficulty of care” payments that are exempt from taxation under Code Section 131. Because such workers do not have taxable income, they cannot save for retirement in a defined contribution plan or IRA. This provision will allow home health-care workers to contribute to a qualified plan or IRA by amending the tax code so that tax-exempt difficulty of care payments are treated as compensation, for purposes of calculating the contribution limits to defined contribution plans and IRAs. This is effective for plan years after December 31, 2015, and IRA contributions after the act’s date of enactment (December 20, 2019). 

Sec. 529 Plan Modifications – Sec. 529 plans (also referred to as qualified state tuition plans) were originally created to allow tax-free accumulation saving accounts for a child’s education but generally limited the funds’ use to post-secondary education tuition and certain college fees. Since then, Congress has continued to expand the use of funds to include supplies, books, equipment, and reasonable room and board expenses for attending college. With the passage of the tax reform at the end of 2017, Congress allowed up to $10,000 a year to be used for elementary and secondary school tuition expenses. This new legislation adds the following to the list of qualified expenses: 

  • Qualified higher-education expenses associated with registered apprenticeship programs certified by the Secretary of Labor under Sec. 1 of the National Apprenticeship Act 
  • Payment of education loans, up to a maximum of $10,000 (reduced by the amount of distributions so treated for all prior taxable years), including those for siblings

These changes are effective for distributions made after December 31, 2018. 

RMDs for Designated Beneficiaries – The legislation modifies the required minimum distribution rules with respect to defined contribution plan and IRA balances upon the account owner’s death. Under the legislation, distributions to individuals other than the surviving spouse of the employee (or IRA owner), disabled or chronically ill individuals, individuals who are not more than ten years younger than the employee (or IRA owner), or a child of the employee (or IRA owner) who has not reached the age of majority must generally be distributed by the end of the tenth calendar year following the year of the employee’s or IRA owner’s death. A special rule for children requires any remaining undistributed funds to be distributed within ten years after they reach the age of maturity. 

This is a significant change since beneficiaries previously had options to take certain lifetime payouts. This will require careful planning to minimize the tax on the distributions. The change applies to distributions for employees or IRA owners who die after December 31, 2019.

Penalty for Failure to File – The legislation increased the minimum penalty for failure to file a tax return within 60 days of the return’s due date to $435, up from $330, for returns with a due date (including extensions) after December 31, 2019. Thus, the $435 penalty will apply to 2019 returns and will be inflation-adjusted for future years. 

Kiddie Tax – The tax reform enacted late in 2017 changed how the income of dependent children is taxed, causing a child’s unearned income to be taxed at fiduciary rates that very quickly reach the maximum tax rate of 37%. That change created an unintentional tax increase for survivors of service members and first responders who died in the line duty. This last-minute change reverts the kiddie tax computation to the pre-tax reform method for years beginning in 2020. It also allows taxpayers to choose whichever method provides the lowest tax for 2018 and 2019. Taxpayers can amend their 2018 return if doing so will provide a better outcome. 

The changes are extensive and, in many cases, open the door to amending prior years’ returns. If you have any questions or think any of these changes might benefit you for a prior year, please contact us

Did You Just Get an IRS Notice of Deficiency? Here’s What to Do Next

Nobody likes getting mail from the IRS, especially when it’s something you weren’t expecting. 

One minute, you’re minding your own business and aren’t even thinking about that return you filed months ago. The next minute you open your mailbox and see something called a “Notice of Deficiency” — and your anxiety immediately goes through the roof. 

At this point, the most important thing you can do is relax. Getting a Notice of Deficiency from the IRS in the mail doesn’t automatically mean you’re about to be audited, and in fact, it may not mean anything bad at all. It does, however, require you to keep a few key things in mind to make sure that you respond in the right way. 

What Is an IRS Notice of Deficiency? 

Formally known as the CP3219A notice, a Notice of Deficiency is exactly what it sounds like, an indication that the IRS has recently received information that is different from what you originally reported when you filed your tax return for the year in question. 

To put it another way, something that you put on your return doesn’t match with a piece of information that a third party provided to the IRS. The discrepancy could be as simple as a difference between your self-reported income and income reported on a Form 1099. 

Now, despite how intimidating it may sound, this isn’t necessarily a bad thing. Depending on the situation, it could just as easily result in a decrease in the amount of tax that you owe as it could result in an increase. 

The note itself will explain exactly how the amount was calculated, so the first thing you’re going to want to do is read it to make sure that you understand.

Moving Beyond the Notice of Deficiency 

If you agree with the changes as outlined by the Notice of Deficiency, then this process is almost over. All you have to do is sign the enclosed form (which should be Form 5564) and mail it to the address that is printed on the notice itself. This is called the Notice of Deficiency Waiver, and it just means that you agree to either pay the new amount that you owe or, in a perfect world, agree that you would like the IRS to send you some money that you didn’t know you had coming. 

If you don’t agree with the changes, however, note that you do have the right to challenge them by filing a petition with the United States Tax Court, but you have to do so by absolutely no later than the date shown on the notice itself. The court will not consider your petition if you file beyond this deadline. 

If you don’t agree with the changes and you have additional information that can help clear up any confusion, mail all of the supplementary documentation along with the aforementioned Form 5564 to the address on the notice. But keep in mind that doing this does not extend the amount of time you have to file your petition. 

You should also be aware that if the mistake is something that happened because of identity theft that you suffered, there are additional options available to you. The most immediate involves filling out Form 14039, otherwise known as the Identity Theft Affidavit. You should then call the IRS, speak to a representative, explain your situation and get advice about what they want you to do next. 

You could also contact the third party that gave the IRS the information that triggered the discrepancy in the first place. If the mistake is theirs, you can ask them to correct it or provide you with more information to help you make your case. 

If the mistake was a legitimate one on your end, you’ll also probably want to go over any other returns that you filed to make sure they don’t have the same issue, thus causing even more tax problems down the road. At the very least, you’ll want to file an amended tax return to include any additional information that you received (like more 1099s) after you filed your original one earlier in the year. 

If you owe additional taxes and can’t afford to pay right now, don’t worry. You could always set up a payment plan or make other arrangements with the IRS. Depending on the situation, you could also make an Offer in Compromise and settle your bill for far less than you originally owed. 

Resolving a Notice of Deficiency can be very overwhelming, and if not handled properly, you could end up with an even larger problem than you started with. For more assistance and to get help with your CP3219A notice, contact us today. 

Tax Benefits for People with Disabilities

Individuals with disabilities as well as parents of disabled children are eligible for a number of income tax benefits. This article explains some of these tax breaks. 

ABLE Accounts – A federal law allows states to offer specially designed, tax-favored ABLE accounts to people with disabilities. Qualified ABLE programs provide the means for individuals and families to contribute and save to support individuals who became blind or severely disabled before turning age 26 in maintaining their health, independence, and quality of life. The 2017 tax reform, known as the Tax Cuts and Jobs Act (TCJA), added some additional features to the ABLE accounts. 

The states run the ABLE programs authorized by the federal tax statute. A state that has established an ABLE account program can offer its residents the option of setting up one of these accounts or contract with another state that offers ABLE accounts. Contributions totaling up to the annual gift tax exclusion amount, currently $15,000, can be made to an ABLE account each year.  Furthermore, distributions are tax-free if used to pay qualified disability expenses. 

Beginning in 2018 and through 2025, a TCJA provision allows the beneficiary of the ABLE account (i.e., the disabled person) to contribute a maximum additional amount each year, equal to the lesser of: 

  • The beneficiary’s taxable compensation for the year, or

  • The prior year’s poverty level ($12,140 for 2019) for a one-person household.

However, the extra contribution isn’t allowed if the beneficiary’s employer contributes to a qualified retirement plan on the beneficiary’s behalf. 

The beneficiary’s additional contribution qualifies for the non-refundable saver’s tax credit, which, depending on the beneficiary’s actual income, can be 10%, 20%, or even as much as 50% of up to the first $2,000 contributed, for a maximum credit of $1,000. 

Disabled Spouse or Dependent Care Credit – A tax credit is available to individuals who incur childcare expenses for children under the age of 13 at the time the care is provided. This credit is also available for the care of the taxpayer’s spouse or of a dependent who is physically or mentally unable to care for him/herself, and has lived with the taxpayer for more than half the year. This is also true for individuals who would have been dependents except for the fact that they earned $4,200 or more (2019) or filed a joint return with their spouse. The credit ranges from 20% to 35%, with lower-income taxpayers benefiting from the higher percentage and those with an adjusted gross income of $43,000 or more receiving only 20%. The care expenses qualifying for the credit are limited to $3,000 for one and $6,000 for two or more qualifying individuals. 

Medical Expense Deductions – In addition to the “normal” medical expenses, individuals with disabilities can incur other unusual deductible expenses. However, to gain a tax benefit, an eligible taxpayer must itemize his or her deductions on Schedule A, and the taxpayer’s total medical expenses must exceed 10% of his or her adjusted gross income. Eligible expenses include: 

  • Prostheses

  • Vision Aids – Contact lenses and eyeglasses

  • Hearing Aids – Including the costs and repair of special telephone equipment for people who are deaf or hard of hearing

  • Wheelchair – Costs and maintenance

  • Service Dog – Costs and care of a guide dog or service animal

  • Transportation – Modifications or special equipment added to vehicles to accommodate a disability

  • Impairment-Related Capital Expenses – Amounts paid for special equipment installed in the home or for improvements may be included as medical expenses if their main purpose is medical care for the taxpayer, the spouse, or a dependent. The costs of permanent improvements that increase the property’s value may be partly included as a medical expense. The costs of the improvement are reduced by the increase in the property’s value. The difference is a medical expense. If the improvement does not increase the property’s value, the entire cost is included as a medical expense. Certain improvements made to accommodate a home to a taxpayer’s disabled condition, or to that of the spouse or dependents who live with the taxpayer, do not usually increase the home’s value, so the costs can be included in full as medical expenses. A few examples of full-cost medical expenses include constructing entrance or exit ramps for the home; widening entrance and exit doorways, hallways, and interior doorways; installing railings, support bars, or other modifications; and adding handrails or grab bars.

  • Learning Disability – Tuition fees paid to a special needs school for a child who has severe learning disabilities caused by mental or physical impairments, including nervous system disorders, can be included as medical expenses. A doctor must recommend that the child attend a special needs school. Fees for tutoring recommended by a doctor from a teacher who is specially trained and qualified to work with children with severe learning disabilities may also be included.

  • Special Schooling – Medical care includes the costs of attending a special school designed to compensate for or overcome a physical handicap in order to qualify the individual for future normal education or for normal living. This includes a school that teaches braille or lip reading. The principal reason for attending the school must be its special resources for alleviating the student’s handicap. The tuition for ordinary education that is incidental to the special services provided at the school as well as the costs of meals and lodging supplied by the school are also included as medical expenses.

  • Nursing Services – Wages and other amounts paid for nursing services can be included as medical expenses. Services need not be performed by a nurse as long as the services are of a kind generally performed by a nurse. This includes services connected with caring for the patient’s condition, such as giving medication, changing dressings, and bathing/grooming the patient. These services can be provided in the home or another care facility. Generally, only the amount spent for nursing services is a medical expense. If the attendant also provides personal and household services, these amounts must be divided between the time spent performing household and personal services and the time spent on nursing services.

If you have questions about any of the disability-related tax benefits discussed in this article, or if you have questions concerning potential medical expenses not discussed above, please contact us.

Cofounder Conflict Could Be One of the Biggest Threats to Your New Business

If you asked brand-new entrepreneurs to make a list of everything they think might one day pose a threat to their startup, you’d probably hear a variety of answers with similar themes. 

Some might be (rightfully) worried about ultimately developing a product in search of a marketplace. Others may be worried about how they’re going to overcome the cash flow issues they’ll likely face. Others still might be worried about getting “taken for a ride” by the venture capital people they’re putting so much of their faith in. 

While all of these are understandable concerns, none of them should be at the top of that list. The fact of the matter is, the number-one threat to your business isn’t an external factor at all. 

It’s the people you’ve cofounded that business with. 

While it’s absolutely true that founding a business with at least one other person increases your chances of becoming a success, it’s equally true that about 50% of cofounder relationships fail, and most of those failures are ugly. 

This is because cofounder conflict is very real and far more common than many people prefer to assume. But by taking the time to learn as much about it as you can, you put yourself (and your colleagues) in the best position to mitigate risk from these issues as much as possible — before it’s too late. 

Why Cofounder Conflict Happens 

Cofounder conflict can ultimately happen for a myriad of reasons, and not all of them are going to be immediately obvious. 

Sometimes when you start a business with someone else, you don’t realize just how incompatible your managerial styles are because you’ve never had the chance to put them on display. But once your startup is up on its feet and real decisions are being made on a daily basis, you might discover that you and your cofounder have two very different working styles. 

Other times it comes down to the fact that roles and responsibilities among cofounders are not clearly defined. Who is actually supposed to be doing what? What is your specific job description and how does it overlap with that of your cofounders? What boundaries are in place that give each of you your necessary space, but that also allow you to truly collaborate with one another in the way you need in order to run a successful business? 

Another issue could be the absence of stipulations on how “significant future changes will affect the management and control of the business.” Without a buy-sell agreement and succession plan in place, your business is at risk if any major event — like your partner’s death, divorce, or bankruptcy — may occur. 

Finally, one of the biggest causes of cofounder conflict is that entrepreneurs make the mistake of taking any conflict as a warning sign that something sinister is afoot. 

The truth is that running a business is hard and there are times where you will have arguments and disagreements with the people around you. This is true regardless of how similar your backgrounds are or how closely your visions align. 

If you go through life assuming that conflict is something you can totally avoid, you’re in for a number of surprises and almost none of them are good. The key to a successful, long-term relationship with your cofounders involves not running from that conflict but embracing it. Have the argument, talk through your differences, hash things out and come to a solution together.  Every moment may not be as fun as you’d hoped, but you will absolutely come out better for it. 

Mitigating Cofounder Conflict: Breaking Things Down 

Here’s the good news: once you’ve taken steps to learn about what cofounder conflict actually is and why it happens, you put yourself in the best position to avoid it in your own efforts — at least as much as possible. 

By far, the key to at least relieving some of this conflict involves first identifying why it is happening with your particular startup. Are you having frequent arguments with your cofounders because of significant personality changes? Is it because your work ethics differ a great deal? Do you come from different backgrounds? Do you have totally contrasting management styles? 

When left unchecked, these differences can form a major chasm that can be difficult to overcome. But, if you identify them in your early days as an entrepreneur, you may be able to find a way to meet your cofounders “in the middle,” so to speak, to avoid bigger issues later on. 

Remember that being an entrepreneur and founding a business with someone else ultimately requires a fair amount of give and take. Your startup does not belong exclusively to you and it would be unfair of you to act that way. Therefore, once you start to see conflict develop, don’t be afraid to address it head-on… but also understand that you must be willing to make compromises, too. Don’t just spend time identifying problems with someone else — offer up solutions of your own. 

In terms of mitigating some of these potential risks, a buy-sell agreement can be very effective (and should be viewed as a necessity). This legally-binding document “anticipates the intent and needs of the owners, as well as the potential conflicts that may arise among them if one or more wishes to sell his/her interest in the business, or is forced to dispose of such interest.” 

If you acknowledge your startup for what it really is — a collaboration between two or more people — you stand the best possible chance at ending the lion’s share of these cofounder conflicts before they’ve ever had a chance to start. At that point, the proverbial runway will be clear and there really is no limit to what you can accomplish together.

Consulting with a tax and accounting professional during the process of negotiating a buy-sell agreement can be very beneficial for all parties involved. Contact us for more information. 

Holiday Gifting with a Tax Twist

Some holiday gifts you provide to members of your family, employees, and others may also yield tax benefits. Here are some examples: 

Employee Gifts – It is common practice this time of year for employers to give employees gifts. Although gifts are generally excluded from the recipient’s gross income, an employee cannot exclude gifts from his or her employer as a gift. 

However, if the gift is infrequently offered and has a fair market value so low that it would be impractical and unreasonable to account for it, the gift’s value would be treated as a de minimis fringe benefit. As such, it would be tax-free to the employee and tax-deductible by the employer. 

A gift of cash, regardless of the amount, is considered additional wages and is subject to employment taxes (FICA) and withholding taxes. 

Caution: When a gift recipient is a W-2 employee, the employer must not issue them a 1099-MISC for a holiday gift of cash; the amount must be treated as W-2 income. This is a common error made by employers.

If an employer gives gift certificates, debit cards, or similar items that are convertible to cash, their value is considered additional wages, regardless of the amount.

If, as a means of promoting goodwill, an employer makes a general distribution of hams and turkeys to employees, they would not be taxable to the employee and would be deductible by the employer. That also goes for a coupon that is nontransferable and convertible only into a turkey, ham, or gift basket at a particular establishment. However, if that coupon can be converted into cash, then the value would be treated as employee wages. 

A Gift of College Tuition – An interesting quirk to the gift tax laws is that an individual can pay a student’s tuition directly to a qualified school, college, or university, and it will be exempt from gift tax and gift tax reporting. What student wouldn’t love to have part of his or her tuition paid? It would make a great gift. 

As an aside, college tuition generally qualifies for a tax credit. Another quirk in the tax laws says that the education credit goes to the individual who claims the child as a dependent, resulting in another gift from the individual who pays the tuition.

Example: Whitney is attending college and is the dependent of her mother and father. Whitney’s grandfather makes a tuition payment directly to the college; since it was made directly to the school, Whitney’s grandfather does not have any gift tax issues. Since Whitney is a dependent of her parents, her parents would claim any available tuition credit. Thus, by paying the tuition, Grandpa made a gift of tuition to his granddaughter and a gift of the tuition credit to her parents.

College Student’s Supplies – If you have a spouse or child attending college, the costs of certain course materials qualify for the American Opportunity Tax Credit (AOTC) if the course materials are needed as a condition of enrollment and attendance. Thus, for example, if a computer is needed as a condition of enrollment and attendance at the college, the computer’s cost would qualify for the AOTC of the individual who claims the student as a dependent if the individual otherwise qualifies for the credit. 

Electric Car Credit – If you purchase an electric car as a holiday gift for your spouse or even yourself, you will find that most electric cars come with a tax credit. To qualify to claim the credit on your 2019 tax return, the car will have to be “placed in service” by December 31, 2019. So merely ordering the vehicle, even if payment for it is made at the time when the order is placed, won’t be enough – you will need to receive the car and start using it before New Year’s Day. Before you leap, you should know that the credit is non-refundable, meaning it can only offset your actual tax liability and that any excess credit over your tax liability will be lost. However, there is an exception when the electric vehicle is partially used for business, in which case the portion of the credit allocated to business use will become a general business credit that is first applied to the tax in the credit year. Any remaining credit will be carried back one year, and then if not all of it is used still, the rest will be carried forward. 

Work Equipment – If your spouse is self-employed and you purchase tools or electronics used in the spouse’s business, the costs of these items will qualify as a business tax deduction on the return for the year when the equipment is put into service. 

Solar Electric Credit – If you and your spouse or another resident of the home decide to gift a home solar system to each other, you will qualify for a non-refundable tax credit equal to 30% of the cost of the home solar property (note that the credit will drop to 26% in 2020). If your tax liability is less than the credit, then the excess credit can be carried over to a future year. The solar credit is available to all residents of the home, even if they do not have an ownership interest in the home. Example: A mother and son live together in a home owned by the mother. The son purchases a solar system; as a result, the son will get the tax credit since he resides in the home. Caution: To claim a credit for the system’s costs on your 2019 return, the installation must be completed by December 31, 2019. 

Charitable Gifts – Of course, contributions to qualified charitable organizations can be deducted, provided you itemize your deductions. If you are over age 70.5 and have not taken your required minimum distribution (RMD) from your IRA account for 2019, you might consider making direct transfers to the charities of your liking, thereby satisfying your RMD requirement while avoiding taxation of the distribution. Contact your IRA custodian or trustee to arrange the transfer, which would need to be completed by December 31, 2019, to count for 2019. It’s best not to wait until the last minute to initiate the transfer. 

Some words of caution about charitable contributions during the holiday season: When you are shopping at a mall and drop cash into the holiday kettle, you won’t get a receipt for your contribution, and a cash charitable contribution cannot be claimed as an itemized deduction without documentation. The same goes for buying and then giving new, unused toys to holiday toys-for-kids drives, which have become very popular. Tip: Save the purchase receipt for the toys and request verification of the contribution from the sponsoring organization. If the drop point is unmanned and it is not possible to obtain a contribution verification from the organization, the IRS will allow a deduction of up to $249, provided you document the purchase of what you’ve donated. 

Also, during the holiday season, all of the scammers will climb out from under their rocks and do their best to trick you out of your well-intended contribution dollars. Be cautious, and make sure your contributions are going to legitimate charities. 

If you have questions about how any of these suggestions might impact your tax situation, please contact us.

Tax Changes For 2019

As the end of the year approaches, it is a good time to review the various changes that impact 2019 tax returns. Some of the changes are likely to apply to your tax situation. In addition, be aware that various tax-related bills currently in Congress may or may not pass this year. If any of them do pass, we will quickly get the details to you. 

Medical Threshold – Medical expenses are deductible as itemized deductions only if the total medical expenses for the tax year exceed a specified percentage of a taxpayer’s income. After dropping to 7.5% for 2017 and 2018, this threshold reverts to 10% for 2019. As a result, any medical expenses from 2019 are deductible only to the extent that they exceed 10% of a taxpayer’s adjusted gross income for the year. 

Electric Vehicle Credit Phaseout – As an incentive to get taxpayers to move away from conventional-fuel (gasoline or diesel) vehicles, Congress has provided tax credits of up to $7,500 for the purchase of plug-in electric vehicles. However, Congress’s rules limit the full credit to the first 200,000 vehicles sold by a given manufacturer. Once a company sells 200,000 qualifying vehicles, the credit begins to phase out for that company. Tesla, Chevrolet, and Cadillac have all reached the phaseout point. The table below shows the credits available depending upon the quarter when the vehicle is purchased. 

Vehicles Beginning Phaseout out 2019
Date Acquired

>>>

Vehicle

Before 2019 Jan – Mar 2019 Apr – June 2019 July – Sept 2019 Oct – Dec 2019 Jan – Mar 2020 After Mar 2020
Tesla* $7,500 $3,750 $3,750 $1,875 $1,875 $0 $0
Chevrolet* $7,500 $7,500 $3,750 $3,750 $1,875 $1,875 $0
Cadillac* $7,500 $7,500 $3,750 $3,750 $1,875 $1,875 $0

*All qualifying models

If a qualifying vehicle is used partiality for business, the credit is proportionally allocated between personal and business tax credits. The personal portion can only offset the individual’s current-year tax liability; any excess is lost. The business portion can be carried back for one year and then forward up to 20 years until it is used up; any credit remaining after the 20th year is lost. As a tip, please note that the credit limit is per vehicle, not per taxpayer, so individuals who make multiple purchases can receive multiple credits. 

Alimony – One delayed effect of the 2017 tax reform is that the treatment of alimony changes for some individuals starting in 2019. 

For divorces or separations entered into before 2019, alimony payments continue to be deductible for the payer and taxable for the recipient. These payments also still qualify as earned income for purposes of the recipient’s qualification for an IRA deduction. For divorces or separations that occurred after December 31, 2018, alimony payments are no longer deductible for the payer. Also, for the recipient, they are no longer taxable income and do not count as earned income IRA deduction. 

Divorces or separations entered into before 2019 continue to follow the pre-2019 rules unless they have been modified after December 31, 2018. In that case, the alimony payments are subject to the post-2018 rules if the modification expressly provides for this. 

Finalization of State- and Local-Tax Deduction Limitation – The 2017 tax reform limited the itemized deduction for state and local taxes (SALT) to $10,000 (or $5,000 for married individuals filing separately). This has adversely impacted taxpayers in high-tax states such as California, Connecticut, New Jersey, and New York. Elected officials in several states have attempted to work around this restriction by establishing (or proposing to establish) state charities. The idea is that taxpayers would make deductible contributions that, in return, would give them tax credits against their SALT equal to most of the value of the charitable contributions. Unfortunately, these officials have overlooked the 1986 U.S. Supreme Court ruling that, if a taxpayer receives something in return for a donation (i.e., a quid pro quo), the contribution is not deductible.

The final regulations generally reduce the charitable contribution deduction by the amount of any SALT credit received. However, as an exception, if the credit does not exceed 15% of the contribution, the entire contribution is deductible.

Penalty for Not Being Insured – The Tax Cuts and Jobs Act (tax reform) that was enacted at the end of 2017 eliminated the Obamacare shared-responsibility payment, effective starting in 2019. Congress didn’t actually repeal this penalty; instead, it effectively abolished it by setting zero values for both the percentage of household income used in the calculation and the flat dollar amount of the penalty. As a result, the amount of the penalty is always zero. However, keep in mind that the penalty could be restored in the future if the direction of the political winds changes. In addition, beginning in 2020, some states may pick up where the federal government left off and charge a penalty to residents without qualified health insurance coverage.

Qualified Opportunity Funds – Taxpayers who receive capital gains on the sale or exchange of property (if the other party is unrelated) may elect to defer – and, potentially, partially exclude – those gains from their gross income if they are reinvested in a qualified opportunity fund (QOF) within 180 days of the sale or exchange. The amount of the gain (not the amount of the proceeds, as in Sec. 1031 deferrals) needs to be reinvested to defer the gain. The deferral period ends when the QOF investment ends or on December 31, 2026 – whichever is sooner. At that time, taxes must be paid on the deferred gain.

However, 10% of the deferred gains are forgiven QOF investments that have been held for at least five years, and 15% of the gains are forgiven when those investments have been held for at least seven years. Note that, with the deferral end date of December 31, 2026, qualifying for the 15% forgiveness requires a QOF investment on or before December 31, 2019.

Seniors Get a Special Tax Form – Lawmakers have long sought to provide taxpayers who are age 65 and older with a simplified tax form in place of the Form 1040. In the 2018 budget bill, Congress finally included a requirement that the IRS create such a form. As a result, the IRS will introduce Form 1040-SR, which will look a lot like the old form before the 2018 tax reform instituted its division of the Form 1040 into multiple postcard-size schedules. It is unclear how much simpler the Form 1040-SR will be, but it will be available for 2019 returns. Note: Form 1040-SR will be optional.

Family and Medical Leave Credit – The employer credit for family and medical leave, which was created in the 2017 tax reform, ends after 2019. This two-year program provides employers with a tax credit equal to 12.5% of the wages they paid to qualifying employees during any period when those employees were on family and medical leave, provided that the rate of the leave payments are at least 50% of the employees’ regular wages. The credit can be claimed for a maximum of 12 weeks of leave for any employee during the tax year. For each percentage point for which the leave payments exceed 50% of regular wages, this credit increases by 0.25 percentage points (up to a maximum of 25%). Participation in this credit program is optional.

Inflation Adjustments – Just about every tax-related value is adjusted for inflation. Some values are adjusted for any level of change, but others are adjusted only if the change reaches a specific dollar amount (so these values may not change every year). The table below includes the actual 2019 inflation adjustments and the projected 2020 adjustments for some of the most frequently encountered values.

 

Year 2018 2019 2020
Standard Deduction
Single or Married Filing Separately 12,000 12,200 12,400
Head of Household 18,000 18,350 18,650
Married Filing Jointly 24,000 24,400 24,800
Additional Standard Deduction (Age 65+ or Blind)
Unmarried 1,600 1,650 1,650
Married 1,300 1,300 1,300
Other Values
Annual Gift-Tax Exclusion 15,000 15,000 15,000
Foreign Earned-Income Exclusion 103,900 105,900 107,600
IRA Contribution Limit 5,500 6,000 6,000
IRA Contribution Limit (Age 50+) 6,500 7,000 7,000
401(k) Contribution Limit 18,500 19,000 *
401(k) Contribution Limit (Age 50+) 24,500 25,000 *

All values are in U.S. dollars. 

* Value not available as of publication

Form W-4 Revision – During the previous tax season, many people received a smaller federal tax refund than normal, or actually owed taxes despite usually getting a refund. In most cases, this was due to the last-minute passage of the tax-reform law at the end of 2017, which did not give the IRS sufficient time to adjust the W-4 form and related computation tables for the 2018 tax year so as to account for all of the new law’s changes. The planned major revision to the W-4 for the 2019 tax year has since been delayed until 2020, so all taxpayers should make sure that their 2019 withholding is adequate. 

If you are conversant with tax terminology, you can use the IRS’s newly updated withholding estimator. This tool helps taxpayers to determine whether their employers are withholding the right amount of tax from their paychecks. However, please note that the results are only as good as the information that is put into the estimator. Users need to properly estimate their other income for the year from various sources. 

If you have questions related to any of the subjects discussed in this article, please contact us.