WASHINGTON — The Internal Revenue Service today issued guidance for taxpayers with certain deductible expenses to reflect changes resulting from the Tax Cuts and Jobs Act (TCJA).

Revenue Procedure 2019-46, posted today on IRS.gov, updates the rules for using the optional standard mileage rates in computing the deductible costs of operating an automobile for business, charitable, medical or moving expense purposes.

The guidance also provides rules to substantiate the amount of an employee's ordinary and necessary travel expenses reimbursed by an employer using the optional standard mileage rates. Taxpayers are not required to use a method described in this revenue procedure and may instead substantiate actual allowable expenses provided they maintain adequate records.

The TCJA suspended the miscellaneous itemized deduction for most employees with unreimbursed business expenses, including the costs of operating an automobile for business purposes. However, self-employed individuals and certain employees, such as Armed Forces reservists, qualifying state or local government officials, educators and performing artists, may continue to deduct unreimbursed business expenses during the suspension.

The TCJA also suspended the deduction for moving expenses. However, this suspension does not apply to a member of the Armed Forces on active duty who moves pursuant to a military order and incident to a permanent change of station. 

WASHINGTON — The Internal Revenue Service today announced the tax year 2020 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. Revenue Procedure 2019-44 provides details about these annual adjustments.

The tax law change covered in the revenue procedure was added by the Taxpayer First Act of 2019, which increased the failure to file penalty to $330 for returns due after the end of 2019. The new penalty will be adjusted for inflation beginning with tax year 2021.

The tax year 2020 adjustments generally are used on tax returns filed in 2021.

The tax items for tax year 2020 of greatest interest to most taxpayers include the following dollar amounts:

• The standard deduction for married filing jointly rises to $24,800 for tax year 2020, up $400 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,400 in for 2020, up $200, and for heads of households, the standard deduction will be $18,650 for tax year 2020, up $300.
• The personal exemption for tax year 2020 remains at 0, as it was for 2019, this elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
• Marginal Rates: For tax year 2020, the top tax rate
  remains 37% for individual single taxpayers with
  incomes greater than $518,400 ($622,050 for married
  couples filing jointly).
  The other rates are:
  35%, for incomes over $207,350
  ($414,700 for married couples
  filing jointly);
  32% for incomes over $163,300
  ($326,600 for married couples filing jointly);
  24% for incomes over $85,525 ($171,050 for married
  couples filing jointly);
  22% for incomes over $40,125 ($80,250 for married
  couples filing jointly);
  12% for incomes over $9,875
  ($19,750 for married couples filing jointly).
  The lowest rate is 10% for incomes of single individuals
  with incomes of $9,875 or less ($19,750 for married
  couples filing jointly).
• For 2020, as in 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
• The Alternative Minimum Tax exemption amount for tax year 2020 is $72,900 and begins to phase out at $518,400 ($113,400 for married couples filing jointly for whom the exemption begins to phase out at $1,036,800).The 2019 exemption amount was $71,700 and began to phase out at $510,300 ($111,700, for married couples filing jointly for whom the exemption began to phase out at $1,020,600).
• The tax year 2020 maximum Earned Income Credit amount is $6,660 for qualifying taxpayers who have three or more qualifying children, up from a total of $6,557 for tax year 2019. The revenue procedure contains a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
• For tax year 2020, the monthly limitation for the qualified transportation fringe benefit is $270, as is the monthly limitation for qualified parking, up from $265 for tax year 2019.
• For the taxable years beginning in 2020, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements is $2,750, up $50 from the limit for 2019.
• For tax year 2020, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,350, the same as for tax year 2019; but not more than $3,550, an increase of $50 from tax year 2019. For self-only coverage, the maximum out-of-pocket expense amount is $4,750, up $100 from 2019. For tax year 2020, participants with family coverage, the floor for the annual deductible is $4,750, up from $4,650 in 2019; however, the deductible cannot be more than $7,100, up $100 from the limit for tax year 2019. For family coverage, the out-of-pocket expense limit is $8,650 for tax year 2020, an increase of $100 from tax year 2019.
• For tax year 2020, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $118,000, up from $116,000 for tax year 2019.
• For tax year 2020, the foreign earned income exclusion is $107,600 up from $105,900 for tax year 2019.
• Estates of decedents who die during 2020 have a basic exclusion amount of $11,580,000, up from a total of $11,400,000 for estates of decedents who died in 2019.
• The annual exclusion for gifts is $15,000 for calendar year 2020, as it was for calendar year 2019.
• The maximum credit allowed for adoptions for tax year 2020 is the amount of qualified adoption expenses up to $14,300, up from $14,080 for 2019.

WASHINGTON — The Internal Revenue Service today announced that employees in 401(k) plans will be able to contribute up to $19,500 next year.

The IRS announced this and other changes in Notice 2019-59, posted today on IRS.gov. This guidance provides cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2020.

Highlights of changes for 2020

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $19,000 to $19,500.

The catch-up contribution limit for employees aged 50 and over who participate in these plans is increased from $6,000 to $6,500.

The limitation regarding SIMPLE retirement accounts for 2020 is increased to $13,500, up from $13,000 for 2019.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2020.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2020:

• For single taxpayers covered by a workplace retirement plan, the phase-out range is $65,000 to $75,000, up from $64,000 to $74,000.
• For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $104,000 to $124,000, up from $103,000 to $123,000.
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $196,000 and $206,000, up from $193,000 and $203,000.
• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income phase-out range for taxpayers making contributions to a Roth IRA is $124,000 to $139,000 for singles and heads of household, up from $122,000 to $137,000. For married couples filing jointly, the income phase-out range is $196,000 to $206,000, up from $193,000 to $203,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000.

Key limit remains unchanged

The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

Details on these and other retirement-related cost-of-living adjustments for 2020 are in Notice 2019-59, available on IRS.gov.

WASHINGTON — The Internal Revenue Service today released a new set of tax gap estimates on tax years 2011, 2012 and 2013. The results show the nation's tax compliance rate is substantially unchanged from prior years.
 
The gross tax gap is the difference between true tax liability for a given period and the amount of tax that is paid on time.
 
"Voluntary compliance is the bedrock of our tax system, and it’s important it is holding steady," said IRS Commissioner Chuck Rettig. "Tax gap estimates help policy makers and the IRS in identifying where noncompliance is most prevalent. The results also underscore that both solid taxpayer service and effective enforcement are needed for the best possible tax administration.”
 
The average gross tax gap was estimated at $441 billion per year based on data from tax years 2011, 2012 and 2013. After late payments and enforcement efforts were factored in, the net tax gap was estimated at $381 billion.
 
The tax gap estimates translate to about 83.6%, of taxes paid voluntarily and on time, which is in line with recent levels. The new estimate is essentially unchanged from a revised Tax Year 2008-2010 estimate of 83.8%.  After enforcement efforts are taken into account, the estimated share of taxes eventually paid is 85.8% for both periods.  And it is line with the TY 2001 estimate of 83.7% and the TY 2006 estimate of 82.3%.
 
The IRS will continue to vigorously pursue those that are not compliant. The IRS currently collects more than $3 trillion annually in taxes, penalties, interest and user fees.
 
The voluntary compliance rate of the U.S. tax system is vitally important for our nation. A one-percentage-point increase in voluntary compliance would bring in about $30 billion in additional tax receipts.

Tax Gap studies through the years have consistently demonstrated that third-party reporting significantly raises voluntary compliance. And compliance rises even higher when income payments are also subject to withholding. The IRS also has an array of other programs aimed at supporting accurate tax filing and helping address the tax gap. These range from working with businesses and partner groups to a variety of education and outreach efforts.

The tax gap estimates are a helpful guide to the historical scale of tax compliance and to the persisting sources of low compliance.

“Maintaining the highest possible voluntary compliance rate also helps ensure that taxpayers believe our system is fair,” Rettig said. “The vast majority of taxpayers strive to pay what they owe on time. Those who do not pay their fair share ultimately shift the tax burden to those people who properly meet their tax obligations. The IRS will continue to direct our resources to help educate taxpayers about the tax requirements under the law while also focusing on pursuing those who skirt their responsibilities.”

Dear Tax Professional,

Summer is over, and it won’t be long until you’re sitting down at your computer to renew your preparer tax identification number (PTIN) for 2020. In mid-October when renewal season begins, you will notice a data security responsibilities statement has been added to the PTIN renewal process. It serves as a reminder of your legal responsibility to have a data security plan and to provide data and system security protections for all taxpayer information. When completing your PTIN renewal, a checkbox will be available to confirm your awareness of these data security responsibilities.

Data security continues to be a hot topic. That’s because tax professionals remain a top target of identity thieves and data breaches continue to affect tax professionals at an alarming rate. Cybercriminals use sophisticated and ever evolving techniques to gain access to your systems. These criminals steal sensitive taxpayer data to file fraudulent tax returns and create financial havoc for your clients. There are simple steps you can incorporate in your daily operations to minimize your vulnerability and protect client data, including:

• Protect email accounts with strong passwords and two-factor authentication if available.
• Install an anti-phishing tool bar to help identify known phishing sites.
• Use anti-phishing tools that are included in security software products.
• Use security software to help protect systems from malware and scan emails for viruses.
• Never open or download attachments from unknown senders, including potential clients. They should instead make contact first by phone.
• Send only password-protected and encrypted documents when files must be shared with clients over email.
• Never respond to suspicious or unknown emails.
• Back up sensitive data to a safe and secure external source.
• Properly dispose of old computer hard drives that contain sensitive data.

You should also make sure to have a written data security plan in accordance with the Federal Trade Commission’s Safeguard Rule. Remember, protecting your clients is not only good for business, it’s also the law. While the hope is that you’re never the victim of a data breach, preparation and education will go a long way in helping to protect your clients and yourself.

More information:

Publication 4557, Safeguarding Taxpayer Data
Publication 5293, Data Security Resource Guide for Tax Professionals
Identity Theft Information for Tax Professionals

WASHINGTON — The Internal Revenue Service today issued Revenue Procedure 2019-38 that has a safe harbor allowing certain interests in rental real estate, including interests in mixed-use property, to be treated as a trade or business for purposes of the qualified business income deduction under section 199A of the Internal Revenue Code (section 199A deduction).

If all the safe harbor requirements are met, an interest in rental real estate will be treated as a single trade or business for purposes of the section 199A deduction. If an interest in real estate fails to satisfy all the requirements of the safe harbor, it may still be treated as a trade or business for purposes of the section 199A deduction if it otherwise meets the definition of a trade or business in the section 199A regulations.

 

This safe harbor is available for taxpayers who seek to claim the section 199A deduction with respect to a “rental real estate enterprise.” Solely for purposes of this safe harbor, a rental real estate enterprise is defined as an interest in real property held to generate rental or lease income. It may consist of an interest in a single property or interests in multiple properties. The taxpayer or a relevant passthrough entity (RPE) relying on this revenue procedure must hold each interest directly or through an entity disregarded as an entity separate from its owner, such as a limited liability company with a single member.

 

The following requirements must be met by taxpayers or RPEs to qualify for this safe harbor:

• Separate books and records are maintained to reflect income and expenses for each rental real estate enterprise.
• For rental real estate enterprises that have been in existence less than four years, 250 or more hours of rental services are performed per year. For other rental real estate enterprises, 250 or more hours of rental services are performed in at least three of the past five years.
• The taxpayer maintains contemporaneous records, including time reports, logs, or similar documents, regarding the following: hours of all services performed; description of all services performed; dates on which such services were performed; and who performed the services.
• The taxpayer or RPE attaches a statement to the return filed for the tax year(s) the safe harbor is relied upon.

For more information about this and other TCJA provisions, visit IRS.gov/taxreform.

WASHINGTON — The Treasury Department and the Internal Revenue Service today released final regulations and additional proposed regulations under section 168(k) of the Internal Revenue Code on the new 100% additional first year depreciation deduction that allows businesses to write off most depreciable business assets in the year they are placed in service by the business.

The regulations released today on IRS.gov have been submitted to the Federal Register and may vary slightly from the published documents due to minor editorial changes. The documents published in the Federal Register will be the official documents.

The final regulations finalize the proposed regulations issued in August 2018 which implement several provisions included in the Tax Cuts and Jobs Act (TCJA). The proposed regulations contain new provisions not addressed previously.

The 100% additional first year depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify.

The deduction applies to qualifying property acquired and placed in service after Sept. 27, 2017. The final regulations provide clarifying guidance on the requirements that must be met for property to qualify for the deduction, including used property. The final regulations also provide rules for qualified film, television and live theatrical productions.

Additionally, in the proposed regulations, the Treasury Department and IRS propose rules regarding (i) certain property not eligible for the additional first year depreciation deduction, (ii) a de minimis use rule for determining whether a taxpayer previously used property; (iii) components acquired after Sept. 27, 2017, of larger property for which construction began before Sept. 28, 2017; and (iv) other aspects not dealt with in the previous August 2018 proposed regulations. The proposed regulations also withdraw and repropose rules regarding application of the used property acquisition requirements (i) to consolidated groups, and (ii) to a series of related transactions. 

For details on claiming the deduction or electing out of claiming it, see the final regulations or the instructions to Form 4562, Depreciation and Amortization (Including Information on Listed Property). For tax years that include Sept. 28, 2017, see Rev. Proc. 2019-33 for further information about making a late election or revoking an election.

Taxpayers who elect out of the 100% depreciation deduction must do so on a timely-filed return. Those who have already timely filed their 2018 return and did not elect out but still wish to do so have six months from the original deadline, without an extension, to file an amended return. 

For more information about this and other TCJA provisions, visit IRS.gov/taxreform.

WASHINGTON — The Internal Revenue Service today issued proposed regulations clarifying the reporting requirements generally applicable to tax-exempt organizations. 

The proposed regulations reflect statutory amendments and certain grants of reporting relief announced by the Treasury Department and the IRS in prior guidance to help many tax-exempt organizations generally find the reporting requirements in one place.

Among other provisions, the proposed regulations incorporate the existing exception from having to file an annual return for certain organizations that normally have gross receipts of $50,000 or less, which is found in Revenue Procedure 2011-15. The regulations also incorporate relief from requirements to report contributor names and addresses on annual returns filed by certain tax-exempt organizations, previously provided in Revenue Procedure 2018-38.  A recent court decision held that the Treasury Department and the IRS should have followed notice and comment procedures in 2018 when announcing this relief with respect to providing contributor names and addresses, and these regulations provide the opportunity for notice and comment on that relief as well as on other proposed updates to existing regulations.

Under the proposed regulations, filing requirements for Section 501(c)(3) organizations and Section 527 political organizations remain unchanged, and all organizations are required to keep the contributor information and make it available to the IRS upon request.
 
Treasury and IRS welcome public comments on all aspects of these proposed regulations. For details on submitting comments, see the proposed regulations. The regulations propose to allow tax-exempt organizations to elect to apply the regulations to returns filed after Sept. 6, 2019.
 
Additionally, the IRS issued Notice 2019-47 providing penalty relief for certain exempt organizations that, consistent with the 2018 guidance from the IRS, do not report the names and addresses of contributors on annual returns for tax years ending on or after Dec. 31, 2018, but on or before July 30, 2019. 

WASHINGTON – The Internal Revenue Service today announced new procedures that will enable certain individuals who relinquished their U.S. citizenship to come into compliance with their U.S. tax and filing obligations and receive relief for back taxes.

The Relief Procedures for Certain Former Citizens apply only to individuals who have not filed U.S. tax returns as U.S. citizens or residents, owe a limited amount of back taxes to the United States and have net assets of less than $2 million. Only taxpayers whose past compliance failures were non-willful can take advantage of these new procedures. Many in this group may have lived outside the United States most of their lives and may have not been aware that they had U.S. tax obligations.

Eligible individuals wishing to use these relief procedures are required to file outstanding U.S. tax returns, including all required schedules and information returns, for the five years preceding and their year of expatriation. Provided that the taxpayer’s tax liability does not exceed a total of $25,000 for the six years in question, the taxpayer is relieved from paying U.S. taxes. The purpose of these procedures is to provide relief for certain former citizens. Individuals who qualify for these procedures will not be assessed penalties and interest.  

The IRS is offering these procedures without a specific termination date. The IRS will announce a closing date prior to ending the procedures. Individuals who relinquished their U.S. citizenship any time after March 18, 2010, are eligible so long as they satisfy the other criteria of the procedures.

These procedures are only available to individuals. Estates, trusts, corporations, partnerships and other entities may not use these procedures.

The IRS will host an on-line webinar in the near future providing additional information and practical tips for making a submission to the Relief Procedures for Certain Former Citizens.

Relinquishing U.S. citizenship and the tax consequences that follow are serious matters that involve irrevocable decisions. Taxpayers who relinquish citizenship without complying with their U.S. tax obligations are subject to the significant tax consequences of the U.S. expatriation tax regime. Taxpayers interested in these procedures should read all the materials carefully, including the FAQs, and consider consulting legal counsel before making any decisions.

WASHINGTON — The Internal Revenue Service said today that the new Tax Withholding Estimator tool includes a feature designed to make it easier for employees who also receive self-employment income to accurately estimate the right amount of tax to have taken out of their pay. 

The estimator is an expanded, mobile-friendly online tool that replaced the Withholding Calculator, which since 2001 had offered workers an online method for checking their withholding. The old calculator lacked features geared to self-employed individuals; the new estimator made changes to address this important group.

The new tool offers self-employed individuals, workers, retirees and other taxpayers a more dynamic and user-friendly way to calculate the amount of income tax they want to have withheld from either wages or pension payments. With only a third of the year remaining, the IRS encourages these taxpayers – and others – to use the estimator to take a Paycheck Checkup as soon as possible to make sure they are having the right amount of tax withheld and avoid a surprise when they file next year.

Among other things, the estimator allows a user to enter any self-employment income, including income from side gigs or the sharing economy, in addition to wages or pensions. The user is then alerted that they may qualify for several special tax benefits, including the self-employment health insurance deduction or the deduction for contributions to a Simplified Employee Pension (SEP), Savings Incentive Match Plans for Employees (SIMPLE) or other qualified retirement plan. The estimator automatically calculates the self-employment tax and the self-employment tax deduction and incorporates these into its overall tax liability estimate.

The enhancement for self-employed people is just one of many new features offered by the Tax Withholding Estimator. Others include:

The new estimator also makes it easier to enter wages and withholding for each job held as well as jobs held by a spouse. Users can separately enter pensions and other sources of income. At the end of the process, the tool makes specific withholding recommendations for each job and spouse’s job, including incorporating any self-employment income entered into the estimator.

The estimator then automatically links to the appropriate withholding form. For employees, the link goes to Form W-4,  Employee's Withholding Allowance Certificate (PDF) , which they can then fill out and submit to their employer. Similarly, for pension recipients, the link is to Form W-4P, Withholding Certificate for Pension or Annuity Payments, which is submitted to the pension payor. Remember, don’t send these forms to the IRS.

The new tool can help anyone, including self-employed people, doing tax planning for the last few months of the year. The IRS urges everyone to do a Paycheck Checkup and review their withholding for 2019. This is especially important for anyone who faced an unexpected tax bill or a penalty when they filed earlier this year. It’s also a critical step for those who made withholding adjustments in 2018 or had a major life change, such as marriage, childbirth, adoption or buying a home.

Those most at risk of having too little tax withheld include those who itemized in the past but now take the increased standard deduction, as well as two wage earner households, employees with non-wage sources of income and those with complex tax situations.

Anyone who changes their withholding in the middle or latter part of this year should do another Paycheck Checkup in January of 2020. That will help ensure that they have the right amount of tax withheld, on a full-year basis, for all of 2020.

The IRS sponsors a free two-hour webinar on the Tax Withholding Estimator. The webinar will take place on Thursday, Sept. 19 at 2 p.m. Eastern time. To sign up, visit the webinars page on IRS.gov.