Top Quick-Strike Strategies to Consider for Individuals and Businesses
2019 was both an interesting and challenging year in the tax world. Earlier this year, taxpayers filed hundreds of millions of 2018 returns, reflecting the first tax reporting year under the Tax Cuts and Jobs Act (TCJA) of 2017, the most sweeping tax legislation in more than 30 years. While tax compliance may have been simplified for many wage earners, it turned out executives, investors and entrepreneurs experienced greater complexities, thicker tax returns, new computations and new decisions, and more interactions with their tax lawyer or CPA.
Unprepared taxpayers were caught off guard for tax year 2018 due to increased complexity, additional tax reporting, increased limitations on deductions, new rules and last minute IRS interpretations of new provisions, whether or not favorable, inadequate income tax withholding, as well as missed opportunities. Prepared taxpayers, many of whom are our clients, were able to take advantage of new deductions, new provisions and new planning developments and strategies in both their personal and business tax and financial matters to “win” under tax reform. More on this in our “Introduction” section.
While the tax code is certainly complex in many respects and IRS and Treasury guidance and interpretation continues to evolve, there is still time to position yourself to take advantage of the opportunities presented by tax reform, including identification and execution of valuable strategies, before year-end to reduce your 2019 tax liability. Our annual Tax Planning Guide highlights select tax provisions and potential planning opportunities to consider and quickly execute for 2019, and in some cases, 2020 and beyond, based on current law and guidance.
With the split of the two houses of Congress and legislative priorities focused elsewhere, bipartisan agreement on future tax cuts at this time seems unlikely. While we entered the year expecting Congress to address the expired tax “extenders” and technical corrections to the TCJA, the political climate in Washington has prevented progress. The annual tax extenders, now largely expired since December 31, 2017, include such previous tax breaks as the exclusion of mortgage loan forgiveness from income, the mortgage insurance premium deduction and the residential energy property credit, among about 30 others. With each passing quarter, extension of these tax breaks becomes more unlikely, as the uncertainty of the extenders’ future hampers the ability of the extenders to influence behavior, and retroactive application seems more arbitrary.
Ironically, in May 2019, the House passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which featured bipartisan support and includes measures to enhance retirement savings by increasing access to tax advantaged accounts and preventing older U.S. citizens from outliving their assets during prolonged retirements and longer lifespans. For example, the SECURE Act would push the age that triggers required minimum distributions (RMDs) from 401(k) plans and traditional IRAs from 70½ to 72, which means you could let your retirement funds grow for an extra 1½ years before drawing from them. This could result in a significant boost to overall retirement savings for many seniors. However, buried in the SECURE Act is the elimination of the current rules that allow nonspouse IRA beneficiaries to "stretch" RMDs from an inherited account over his or her own lifetime and, therefore, allow the funds to continue to grow tax-free. Under the act, all monies from inherited IRAs (as well as inherited 401(k) accounts and defined contribution plans) generally would have to be distributed to nonspouse beneficiaries within 10 years of the IRA owner's death.
Interestingly, the Senate has showed little interest in taking up the bill before the end of the year as the GOP-led chamber looks to remain focused on judicial appointments for the balance of the year. One potential avenue to passage, which would not require any floor time, would be through a unanimous consent procedure, where if a bill enjoys the support of all senators, it can be passed without a floor debate. However, at this point, it appears that three senators – Cruz, Lee and Toomey – have concerns with the bill as written and are holding up passage.
Additionally, in June, the president signed into law the Taxpayer First Act, representing the only significant tax legislation of 2019 thus far, albeit of no benefit to taxpayers’ pocketbooks. This law focused on IRS and tax administration reforms and enjoyed bipartisan support in aiming to update IRS technology, address cybersecurity and make various improvements to customer service (which has been long overdue).
Although the Treasury and the IRS continue to issue regulatory guidance addressing questions remaining about the TCJA, we anticipate limited legislative changes on the horizon, especially as the congressional calendar provides limited opportunities for new tax legislation. Furthermore, with the focus shifting to political disputes and the 2020 election, we expect more gridlock than tax code progress.
As a result and with no scheduled changes in income tax rates for 2020, many of the tried-and-true tax planning strategies, in particular deferring income and accelerating deductions, with some exceptions, will continue to be an effective method of minimizing your tax obligations. As has been one of our longstanding philosophies, especially in light of the record-setting and volatile nature of the stock market, we recommend the prudent approach of year-round planning based on current law and revising those plans as the need arises. So, please check in with us and keep a watchful eye on our Alerts, which are published throughout the year and offer insights on tax developments and changes that may directly affect you, your family and your business.
In this 2019 Year-End Tax Planning Guide prepared by the Tax Accounting Group (TAG) of Duane Morris, we walk you through some of the quick-strike planning opportunities available to improve your personal and business federal income tax situation and identify actions needed before year-end and beyond to reduce your 2019 and future income tax liabilities.
This focus on personal and business federal income tax has been intentional. For anyone interested in state, local or sales tax planning, please feel free to connect with us. Our national state and local tax practitioners continue to monitor states’ reactions to the TCJA and the Supreme Court’s decision in Wayfair v. South Dakota along with the far-reaching expansion of sales tax and economic nexus rules. All of these developments could affect your tax reporting and obligations to other states and for other taxes.
From nonprofits, whether public charities or private foundations, to estates and trusts as well as international taxpayers, IRS and Treasury guidance and interpretation continue to evolve and bring clarity to changes enacted by the TCJA and tax planning strategies resulting therefrom. Our colleagues practicing in each of these disciplines would enjoy working with you, so please feel free to connect with us as your needs arise.
We hope you find this complimentary guide valuable and invite you to consult with us regarding any of the topics covered or your own unique situation. We will be pleased to help you sort through the options and determine the strategies that are most effective for you, your family and your business.