The Top 7 Estate Planning Objectives
The Top 7 Estate Planning Objectives We are excited to have a guest blogger for this week. Jeff Miller is a wonderful member of our private Facebook group and is…
February 24th, 2020
Did you know there a number of provisions that have been extended AND made retroactive via the Consolidated Appropriations Act, 2020, signed by the President on December 20, 2019? In the below video, Tom walks you through what these extenders entail and what they could mean for your tax clients.
You can watch by clicking the play button and/or you can read the full video transcript below.
by Tom O’Saben, EA
Another provision we had extended was the reduction in that 10% of AGI threshold for medical expenses. That has snapped back to 7.5%, as it was in years past, again, retroactive for 2018; also in effect for 19…in effect through 20. You know, a lot of what I’m going to talk about here, and I mentioned this when we did the Getting Ready for Filing Season webinar at the end of January, I think this is going to be the year of the amended return because that’s what we’re going to have to do for those returns that were filed. And maybe in my first analysis where we had debt forgiveness now includable as income; perhaps we had medical expenses in excess of that 10% threshold; now, 7.5% where amending those returns may make sense. And as far as I know, talking to you now towards the end of February 2020, amended returns cannot be electronically filed. So far we’ve got debt forgiveness made retroactive for principle residence reworking of mortgages for lack of a better term, the medical expense floor at 7.5%… Here’s the next one: mortgage insurance premiums, those PMI premiums. You saw those in the Form 1098 in 2018, then you went into your software, no place to put it in, because we didn’t get an extension. They’re extended now. And I believe in my software I was able to actually enter it. I’m not sure that the taxpayer benefited. I don’t have that return finished yet. But I’m going to look at it to see if the software has been brought up to date. But it may also be one where you might want to look at potentially going back and amending once the software is brought up to date. And maybe one of the indicators – a little planning tip for you might be – if that client has PMI, private mortgage insurance, remember that’s the insurance that insures the bank. This is not homeowners insurance. That’s because the client didn’t have 80% loan to value when they closed on their home so they need to insure the bank against default. A pretty good indicator that you might have it in ’18 is that you have it in ’19. So you may tell the client, this might be something you want to do after tax season to bring back in that 2018 information that you might want to go ahead and amend.
Our old friend, the tuition and fees deduction was brought back retroactively. None of the circumstances for the tuition fees deduction have been changed. Still, if we’re under $130,000, for that married couple filing jointly, we’re at a maximum of $4,000 as an adjustment to income. Between $130,000 and $160,000, we’re still at $2,000. And after that — gone. So we need to keep that in mind as well for the tuition and fees deduction. Again, as of this previous Monday, neither my old software nor my new software was doing anything with tuition and fees yet. May have to wait. I hate to be the bearer of bad news. But listen, ladies and gentlemen, I’m just a piano player just like you. So keep that in mind as well.
Our old friend the energy credits were retro actively extended. Still the $500 lifetime, this is what I’m really concerned about. Because remember that that’s $500 lifetime, going all the way back to 2006. And that’s for, you know, the high efficiency furnace, the water heaters, the new exterior windows and doors and insulation, all of those things we asked our taxpayers about. And I don’t know if you did, but last year, I kept a list of people who had these types of improvement but couldn’t do anything with it on the 2018 return because the law had not yet been extended. Well – now has been extended. And it appears to me in my new software that it’s picking it up. But I have one for example that I wanted to go to my old software to amend the 2018 return – not there yet, as of last Monday. Maybe that update will be coming once more guidance comes from IRS. So I want you to keep that one in mind too.
Another one I want to throw out to you that was in the extenders is the change, not really an extender, but a change. Remember that TCJA has kiddie tax pegged to estate and trust rates. That’s in effect for 2019 returns. However, you can elect to have the old kiddie tax rules, in other words, being taxed at the parents highest rate. That’s what the rule is now for 2019. But the change that came out of the bill the President signed in December says you can go back and amend 2018 returns if you wish to change how that kiddie tax is applied. In other words, if we had the estate and trust rates applicable to that child on the 2018 return, if we’d like to go back and have a tax at the parent’s maximum rate only because it would save money – maybe – you’ve got the option to do that.
So I want you to be aware that these extenders were, in fact retroactive. I’m seeing out there on our Facebook page that a lot of people are asking were these, in fact made retroactive, because the software is not doing anything? And again, the answer I’m getting from the vendor I used previously, and the vendor we use now is that they’re waiting for IRS releases/IRS guidance as to how to apply these changes. But they are in effect. 7.5% threshold on medical; the discharge of qualified principal residence indebtedness; those PMI premiums; the tuition and fees deduction; the energy credits; all of those items were made retroactive, and they’re also in effect through 2020. And let’s not forget you also have the option of going back and amending 2018 returns where you had kiddie tax, and were using the estate and trust rates and you can go back and use the parent’s highest rate like we did for years and years and years and years. So a little tidbit to help you get through the tax season.
Folks, you’re already into the last week of February. Time is going by really quick. I hope you take some time for yourself and I’ll continue these little tidbits as we go through tax season to help you make tax season less “taxing.” Tom O’Saben coming to you from the University of Illinois Tax School. We’re here for you ladies and gentlemen. And don’t forget our Facebook page out there: lots and lots of good information being exchanged by professionals just like you. Have a great day.
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