14 Time February 3, 2020
As yeT AnoTher TAx-filing deAd-
line approaches, taxpayers who want
to maximize their return (or minimize
how much they owe Uncle Sam) would
be wise to get familiar with a handful of
key changes taking effect this year.
The good news is the tax code didn’t
undergo a massive overhaul in 2019.
Moreover, some of the changes that
were passed could end up saving you
money. “While changes in tax laws are
nowhere near as major as they were two
years ago, there are still important new
tax considerations,” says April Walker,
lead manager for taxation at the Asso-
ciation of International Certified Profes-
sional Accountants.
Here are some of the biggest changes
to understand before you start gathering
your W-2s and 1040s.
New year,
new tax rules
By Kevin Kelleher
TheBrief Finance
Revived tax breaks
In December, Congress revived a handful of
recently expired tax breaks, many of which
were intended to be temporary because
they addressed a short-term need or
lawmakers disagreed on financing them.
Under the new laws, for example, victims
of hurricanes, wildfires or major floods may
benefit from tax breaks such as employer
credits and waivers for early withdrawals
from their retirement plans.
Furthermore, while the IRS typically
considers canceled debt as taxable
income, it’s now making an exception
for canceled mortgage debt used to buy
a principal residence. Other provisions
allow deductions on mortgage- insurance
premiums. Some families will also be
eligible for a deduction of $2,000 to
$4,000 for college tuition.
No tax penalty for the uninsured
Under the Affordable Care Act,
Americans without health insurance
faced a tax penalty of up to 2.5% of
a household’s taxable income. The
Tax Cuts and Jobs Act of 2017 reduced
that penalty to zero for 2019. So if you
were uninsured last year, you won’t face
a tax penalty.
New rules for IRAs
People often bequeath their individual
retirement accounts (IRAs) to loved
ones. To avoid penalties, IRS rules re-
quire people who inherit an IRA to with-
draw a minimum amount each year, tied
to life expectancy. But starting in 2020,
inherited IRAs will need to be drained
within 10 years.
While that extra income may be wel-
come, it could push some into a higher
tax bracket. And people who were plan-
ning on using inherited IRAs for their
retirement savings may now have to
speed up their timetables, forcing some
to pay taxes on distributions sooner
than expected. “This is going to push up
taxes for people who inherit IRAs,” says
Cathy Curtis, founder of Curtis Finan-
cial Planning in Oakland, Calif.
Meanwhile, other IRA rules are being
relaxed. Taxpayers used to be barred
from making new contributions to
these accounts after they reached the
age of 70½. But beginning this tax year,
Americans can keep contributing to a
traditional IRA beyond that point. That
may be a welcome change for many, as
more Americans than ever before are
now planning on working into their
golden years.Higher savings limits and deductions
In tax year 2019, prudent savers can
sock away more money tax-free than ever
before. If your employer has a 401(k) or
403(b) plan, you can invest up to $19,500.
And if you’re over 50, you can contribute
up to $6,500 more. Both figures are $
higher than before.
Families with high doctor bills are also
getting a reprieve: if your medical expenses
were more than 7.5% of your adjusted
gross income, you can begin deducting
those expenses. (That threshold had been
set to increase to 10%.)
The IRS also raised the standard
deduction to $12,400 for individuals (from
$12,200) and to $24,800 for married
joint filers (from $24,400). The standard
deduction has become more important
than ever since 2018, when it rose to a high
enough level that many taxpayers chose to
stop itemizing.
Walker says you can still benefit from
itemizing if you plan ahead. “By bunching
deductions such as charitable contributions
or medical expenses, you might be able to
itemize in one year and take the standard
deduction in another year,” she says.
Beyond that, experts say, the best way to
benefit from recent tax changes may be
to maximize all the tax-free retirement
savings you can. □