2019 year-end tax planning guidance for individuals, businesses
December 12, 2019
Honkamp Krueger has released its annual year-end tax planning guidance for individuals and businesses. For questions/assistance or to set up a meeting, call 888-556-0123.
- Consider accelerating income and delaying deductions. Rates are not anticipated to get any lower in the near future and, if anything, will increase. Members of Congress are pushing to restore the top rate to 39.6% immediately.
- Bunch itemized deductions if possible. While the SALT limit is still $10,000, bunching charitable contributions and medical expenses may prove advantageous especially if the taxpayer is just under the standard deduction ($24,400 MFJ, $18,350 single).
- Maximize education credits by paying next semester’s tuition before Dec. 31, 2019. Payments made for terms beginning prior to April 1 are eligible to be used in calculating credits for the 2019 tax year.
- Alimony is no longer deductible by the payor nor includible in income of the payee for agreements entered into after Dec. 31, 2018.
- The floor for deducting qualifying medical expenses in 2019 is now 10% vs. 7.5%.
- Opportunity zones can be a good way to defer capital gains tax.
- If a taxpayer is over 70½, consider a qualified charitable distribution.
- The IRS confirmed that taxpayers taking advantage of the increased basic exclusion amount (BEA) for estate tax in effect from 2018 to 2025 will not be adversely affected after 2025 when the exclusion amount is set to decrease to pre-2018 levels. The regulations apply to estates of decedents dying on and after Nov. 26, 2019.
- QBI – While not new for 2019, be cognizant of:
- QBI losses carried over from 2018
- Entities classified as SSTBs
- Aggregation rules
- Rentals – The IRS released additional guidance in the form of FAQs. If you have specific questions on if a rental is or is not eligible for the QBID, please reach out to your account manager.
- Self-rental rules
- Wages – Consider paying wages to family members if the taxpayer would be limited in taking the full QBID due to low wages paid to employees.
- Federal Sec. 179 limit is $1.02 million.
- Bonus depreciation for federal is 100%.
- Qualified Improvement Property (QIP) still has a 39-year life and therefore no bonus but is eligible for 179 expensing. QIP is:
- Any improvement to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service.
- Does not include:
- Enlargement of a building
- Elevators or escalators
- Internal structural framework of the building
- Accounting method changes for taxpayers with average annual gross revenue (AAGR) under $25 million. This allows for automatic method changes for the following:
- Accrual to cash
- Eliminating the 263A UNICAP capitalization requirement
- Eliminating the requirement to capitalize inventory
- Switching from the percentage of completion method (PCM) for long-term contracts to another acceptable method
- Family Leave Credit – Not new for 2019 but is available for employers who make qualifying family leave payments to employees. This credit is scheduled to expire after 2019.
- State nexus – If the business expanded operations into new and different states, state nexus comes into play. Due to the Wayfair decision, states have become more aware of collecting revenue, both sales tax and income tax, from foreign entities. If the business has been subject to state taxes for a few years and have not been filing, HK’s SALT team can help file voluntary disclosure agreements. These agreements will allow the business to become compliant and may reduce the amount of penalties and interest the state will assess.
- Miscellaneous itemized deductions are not allowed, which is the same as the federal law, and they are not limited by AGI.
- 179 is limited to $100,000 (will follow federal amounts in 2020).
- No DPAD, but 25% of the federal QBI deduction is allowed.
- For 2019, Iowa can elect Section 1031 treatment or follow federal rules for personal property like kind exchanges.
- 2019 Section 529 plan limit per beneficiary is $3,387.
- If moving a business out of Wisconsin or the U.S., expenses to do so are an addback to Wisconsin income.
- In addition to the typical moving expenses, this also includes consulting fees, brokerage commissions, architecture and remodeling expenses, expenses paid to sell property, lease cancellation fees, professional fees, legal services, and payroll expenses connected with the move.
- AMT no longer applies.
- Pass-through entity level taxation available for partnerships (S-corps were eligible in 2018).
- The purpose is to provide a federal tax benefit due to FTCJA SALT limitation of $10,000.
- Practitioners/taxpayers are taking the position that these taxes are deductible as business expenses if paid by an entity (not subject to the $10,000 limitation for individuals).
- Follows federal rate for sec 179 but offers no bonus.
- Did not adopt the following federal TCJA provisions:
- Business interest expense limitation
- Changes to meals and entertainment expense limitations
- NOL deduction limited to 80% of taxable income
- QBI (but manufacturing and ag credit is 7.5% of qualified production income)
- Limit on business losses for noncorporate taxpayers
- Has 5-year adjustment for depreciation/amortization ended in 2018
- Offers college savings contribution subtraction of $3,280 per beneficiary – Wisconsin accounts only
- Offers college tuition subtraction of $6,974 per student
- Has private school tuition deduction (not limited to Wisconsin schools)
- Offers 30% capital gain exclusion for sale of farm assets
- Offers 100% capital gain exclusion for sale of farm or business assets to relative (must be an individual cannot be an LLC)
Additional TCJA guidance
The Treasury Department has indicated a number of proposed and final regulations related to the TCJA are expected to be released by the end of January 2020. Many of these will be narrow in focus (e.g. carried interest and business interest limitation) but could nonetheless have an impact on a certain number of businesses. HK is monitoring this issue.