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Tax planning

Tax Strategy: What’s new for 2019 tax returns

ByMark A. Luscombe
September 3, 2019 2:40 PM

As we try to finish up the 2018 tax return filing season, it might be of some comfort to think that 2019 tax returns will not involve too much new that we did not encounter in 2018.

In general, that is true, although we still have some uncertainty even at this point hanging over 2018 tax returns, such as expired provisions and technical corrections to the Tax Cuts and Jobs Act that Congress is still looking at, which could affect both 2018 and 2019.

There might even be some hope that, as the Internal Revenue Service looks at problems encountered with the filing of 2018 tax returns, additional guidance may be forthcoming to help resolve some of those issues before 2019 tax returns are due. Still, there are a number of tax law changes and IRS changes that we know at this point will be new issues for 2019 tax returns.

1. The Form 1040

Form 1040-SR
Cohn, Michael
The IRS has come out with its draft 2019 Form 1040, which is substantially different from the generally reviled 2018 Form 1040. Half of the new schedules that were added in 2018 have been dropped or combined with other schedules, with Schedules 2 and 4 combined, Schedules 3 and 5 combined, and Schedule 6 moved to the 1040 itself. The 2019 1040 looks more like the 2017 1040 than the 2018 1040, except that they tried to hold the line count closer to the 2018 1040.

The signature section is once again at the end of the form. It appears that the IRS decided that, unlike 2018, it might be a good idea to have the taxpayer signing on the same page on which the final tax numbers appear.

2. Health insurance mandate

Demonstrators outside the Supreme Court in advance of the court's rulling that the ACA was constitutional
A demonstrator in support of U.S. President Barack Obama's health-care law, the Affordable Care Act (ACA), holds up a "ACA is Here to Stay" sign after the U.S. Supreme Court ruled 6-3 to save Obamacare tax subsidies outside the Supreme Court in Washington, D.C., U.S., on Thursday, June 25, 2015. The U.S. Supreme Court upheld the nationwide tax subsidies that are a core component of President Barack Obama's health-care law rejecting a challenge that had threatened to gut the measure and undercut his legacy. Photographer: Andrew Harrer/Bloomberg
Andrew Harrer/Bloomberg
The penalty for failure to obtain health insurance expired at the end of 2018, so there is no inquiry on the 2019 tax form about whether the taxpayer had health insurance or not. Keep in mind that, as of this writing, the Affordable Care Act is otherwise still in effect. Although a district court in Texas has ruled that the Affordable Care Act must fall if the individual mandate was eliminated, the force of that ruling has been suspended during the appeal process. The associated form for claiming exemptions or paying the penalty, Form 8965, has been retired as well.

3. Medical expense deduction

Medical expenses surgery
Stack of one hundred dollar bills on surgery table. Concept photo.
Sherry Yates Young/Sherry Young - Fotolia
The medical expense deduction threshold, which was reduced to 7.5 percent for 2017 and 2018, has reverted back to a 10 percent threshold for 2019. Congress may try to restore the 7.5 percent threshold, but that has not happened yet.

4. Alimony

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Paper couple and broken dollar heart - divorce or money trouble concept
zimmytws - Fotolia
Effective starting Jan. 1, 2019, alimony is no longer deductible to the payer and is no longer taxable to the payee for divorce or separation instruments executed on or after that date. Since the deduction was often more valuable to the payer than the tax hit to the payee, this is generally a net negative for taxpayers.

Instruments executed prior to 2019 but modified in 2019 or later may choose in the modification to be governed by the old or new rules.

5. Qualified Opportunity Zones

2019 is the last year in which a contribution to a Qualified Opportunity Fund may qualify for the maximum 15 percent increase in basis for forgiveness of a portion of the deferred gain. After 2019, the maximum forgiveness falls to 10 percent.

6. Employer credit for family and medical leave

Internal Revenue Code books sit during a House Ways and Means Committee markup hearing in Washington, D.C.
The Tax Code at a House Ways and Means Committee hearing on the Tax Cuts and Jobs Act.
Andrew Harrer/Bloomberg
2019 is also the last year for the employer credit for family and medical leave created by the Tax Cuts and Jobs Act.

7. Tax breaks for beer, wine and distilled spirits

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There were about half a dozen tax breaks in the Tax Cuts and Jobs Act related to beer, wine and distilled spirits that expire at the end of 2019.

8. Other new tax forms

1040 forms
The IRS is also issuing a number of new tax forms for 2019:

* 1040-SR: Congress mandated a new tax form for seniors. It is easier to read and includes a standard deduction chart.

* 8995 and 8995-A: These forms are to be used for calculating the qualified business income deduction, with 8995 being the simplified version and 8995-A for more complicated situations.

* 965-C, 965-D, and 965-E: These forms relate to various aspects of the taxation of unrepatriated foreign income.

* 8978: This form is designed to address a partner’s payment of a portion of the partnership’s imputed unpaid audit liability under Code Sec. 6226.

* 8985: The IRS has indicated that it plans to issue a new form titled “Pass-Through Statement.”

* 8997: In addition to Forms 8949 and 8996 with respect to Qualified Opportunity Zones, Form 8997 will be used as a report of initial and annual changes to Qualified Opportunity Fund investments.

9. Inflation adjustments

As is the case every year, a number of tax provisions are subject to inflation adjustments from the prior year. There are also a few provisions that had new amounts under the Tax Cuts and Jobs Act, such as Code Sec. 179 expensing and Alternative Minimum Tax exemption amounts, where the inflation adjustments start for the first time in 2019.

10. Form W-4

Form W-4 for 2020 draft
Cohn, Michael
After pulling back from a major revision to Form W-4 for 2019, the IRS is once again trying for a major revision to the form for 2020, hoping that the lead time is enough for payroll processors to adjust.

There were a number of complaints about underwithholding for 2018 resulting in additional taxpayers owing tax who were accustomed to receiving refunds. The draft form, which the IRS hopes to finalize by the end of the summer of 2019, eliminates the concept of allowances since allowances were tied to the personal exemption, which has been eliminated. The IRS has stated that use of the new form by current employees is encouraged but not required.

Summary

Tax preparers should find fewer problems during the 2019 tax return filing season than they may have experienced for 2018 tax returns. The new issues that came up for 2018 returns will generally still be there for 2019, but hopefully additional guidance on problem areas will help address those issues.

We still must stay tuned for additional action by Congress on expired provisions, technical corrections, and a few other tax bills trying to work their way through as well, but it is at least helpful to remind clients of those changes that we do know about coming for 2019 tax returns.
Mark A. Luscombe
Principal Federal Tax Analyst, Wolters Kluwer Tax & Accounting
Tax planning Tax returns Tax credits ACA reporting Tax breaks
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