Social Security – Looking forward to 2020
The social security wage base for 2020 is $137,700, an increase of $4,800. The social security tax rate stays at 6.2%, meaning an employee’s first $137,700 of wages are subject to 6.2% social security tax. However, the 1.45% Medicare tax on compensation is not capped. High-earners will also pay an additional 0.9% Medicare surtax on wages and self-employment income over $200,000 for single filers and $250,000 for married couples. The surtax does not apply to employers.
MILEAGE RATES & VEHICLE DEDUCTION CLAIMS
Note: At the time of writing, mileage rates for the 2020 tax year have not been approved and released by the IRS.
If you are going to claim vehicle deductions, you are required to keep a detailed and accurate log of all business trips for each vehicle. Examples of information to be logged include the date of the trip, beginning and ending odometer readings, mileage driven, destination, specific business purpose for the trip, and other expenses incurred (e.g., parking and tolls). IRS rules dictate such a log must be maintained in a timely fashion. Also, vehicles for which drivers claim the IRS’s standard mileage rate are not eligible for depreciation expense.
ANOTHER YEAR, ANOTHER NEW 1040
In 2018, the government attempted to “simplify” the tax-filing process by drastically shortening Form 1040. The result was six new schedules that created a lot of confusion. Now the IRS is attempting to ease some of that pain by revising the form and removing some schedules. Here is what you need to know:
More information on the main form: To make it easier for the IRS to match pertinent information across related tax returns, new fields have been added to the main Form 1040.
Three schedules are gone: Schedules 4, 5, and 6 are now history. While those schedules will no longer exist, those lines (and many others) have found a new home on either Schedules 1, 2, or 3. Therefore, the amount of information is the same, but the amount of paperwork has decreased.
You can keep your pennies: For the first time, the IRS is eliminating the decimal spaces for all fields. While reporting round numbers has been common practice for a while, it is now required.
Additional changes on the way: The current versions of Form 1040 and Schedules 1, 2 and 3 are in draft form and awaiting comments on the changes. Because of the importance of Form 1040, the IRS is expecting to make at least a few updates in the coming weeks before it is considered final.
QUALIFIED CHARITABLE DISTRIBUTIONS
With far fewer taxpayers itemizing their deductions under the Tax Cuts and Jobs Act of 2017, a little-known tax provision may help certain taxpayers receive deductions for their charitable contributions without having to itemize. Qualified charitable distributions are otherwise taxable distributions from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70 ½ or older that is paid directly from the IRA to a qualified charity.
Qualified charitable distributions can satisfy all or part of the amount of a taxpayer’s required minimum distribution (RMD) from an IRA. However, if the amount of the qualified charitable distribution is less than the RMD, the taxpayer must receive the balance of the RMD and treat it as income.