The percentage for deducting medical expenses on Schedule A increases to 10% of adjusted gross income this year, versus the 7.5% allowed for 2018. Historically, most taxpayers don’t meet this threshhold—and we anticipate even fewer with the larger percentage requirement—but it is still worth investigating, particularly if you or your family members have undergone any significant medical procedures in the past 12 months.
To figure out if you have enough medical expenses to claim a deduction, the formula is to multiply your Adjusted Gross Income by 10%. For example:If your Adjusted Gross Income is $100,000.00, any out-of-pocket medical expenses above $10,000.00 can be added to Schedule A as a deduction.
If it is available, the best way to deduct your medical expenses is still to take advantage of a Flexible Spending Account through your employer.
Please note that we do not need to see copies of your medical and dental receipts! The total amount of all of your medical expenses is all we need to include on Schedule A if you are itemizing. If the deduction for medical expenses is ever questioned, we will need the receipts at that time, but otherwise, you should maintain the privacy of your medical information just as you would with any service provider.
There is good news for taxpapers 65+ who qualify for the Massachusetts Circuit Breaker real estate tax credit program. For some senior citizens who own or rent residential property as their primary residence, the credit has increased by $30.00 this year, to $1,130.00. The maximum assessed value of the homeowner’s principal residence, has also increased, by $30,000.00, to $808,000.00.The qualifying income threshholds have increased as well, by $2,000, regardless of filing status, as indicated below:
Filing Status
2018
2019
Single
$58,000
$60,000
Head of Household
$73,000
$75,000
Married Filing Jointly
$88,000
$90,000
This may be enough of an increase to include some of our clients who previously were ineligible. We’ll be looking to determine your qualifications as we head into tax season to make sure no deserving seniors miss out.
IRS Notice 2019-59, published on November 6, 2019, announced changes to employee contribution limits for 2020. Now, employees enrolled in 401(k), 403(b), and the majority of 457 plans may contribute up to $19,500 towards their retirement.
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.
Curious about whether your current withholdings will be sufficient under the new tax laws? The IRS has made available a new self-service online tool which can help you determine this. It is important to read the instructions carefully before you start, as you will need to have documentation handy to answer several of the questions (e.g.most recent tax return, pay stubs).
The system will prompt you for missing information, but you will need to know things like your projected income for 2018, and number of children who qualify for the child tax credit (they must be under age 17 as of 12/31/18), so make sure to gather everything you need before you start the questionnaire. Also, please note that If your health care is through the Health Connector, this amount will not factor in to the ACA premium tax credits.
According to the IRS, the formula to determine if you will pay taxes on your Social Security income is to take one half of your Social Security benefits and add that amount to all your other income, including tax-exempt interest. This number is known as your combined income (combined income = adjusted gross income + nontaxable interest + half of your Social Security benefits).
If your combined income is above a certain limit (the IRS calls this limit the base amount), you will need to pay at least some tax. The limit is $25,000 if you are a single filer, head of household or qualifying widow or widower with a dependent child. The same applies if you are married filing separately and you lived apart from your spouse for the entire tax year. The limit for joint filers is $32,000. If you are married filing jointly and you lived with your spouse for any part of the tax year, all of your Social Security income is taxable.
When retirees need extra money their first choice is generally taking an additional IRA distribution. What they may not realize is that this is taxable income, and therefore it increases their taxable Social Security amount. For example, an additional $12,000 IRA distribution may increase the taxable Social Security portion by as much as $6,000.
If it’s available to you, the safest bet for an immediate cash need is to use your savings. Though this may seem counterintuitive, you can see how adding any money that is considered taxable income to your base limit could potentially end up costing you money.
For the same reason, if you do need to take an additional distribution from your IRA, make sure you think about how much you really need. For instance, if you only need $5,000, but take $10,000 with the idea that it will give you a rainy day fund, at least some of that money may be eaten up in taxes if it causes your taxable income to exceed the base limit.
Whatever your circumstance, we are here to help. Give us a call if you have questions about the best course of action for your particular situation.
Last fall we gave you a heads up on one of the significant impacts of the Tax Cuts and Jobs Act for 2017: the loss of itemized miscellaneous deductions for employees. The IRS issues Publication 529 as a guide outlining what is deductible—and what’s not—under current tax regulations.
We like to remind our clients that tax laws are always subject to change. And likewise, personal situations may change during the course of the year that will affect your returns the following April. For instance, perhaps you started a new job this year that requires you to pay union dues, or work from home. Except for a very few specific categories of employment, employee deductions for everything from uniforms to meals and mileage has been disallowed. Be sure to check with your employer to see which, if any, out-of-pocket expenses you can expect reimbursement for before you make any purchases related to your job. And either way, remember to keep your receipts!
In the meantime, here is a link to the IRS website with current information about Publication 529.
Late last fall, we predicted that changes from the Tax Cuts and Jobs Act of 2017 would have a significant impact on many of our clients in 2018. Unfortunately, for most of you that impact came in the form of refunds that were $3,500 to $4,500 lower, or balances due that saw an increase of $5,000 to $7,000 over the previous year.
How did this happen? What we found is that the withholding tables under the new tax code are severely skewed—in the wrong direction for many taxpayers. In order to correct the situation for our clients who would like to see their refunds or amounts owed come closer to 2017 levels, we are suggesting a simple solution: Adjust your withholding now.
To make this adjustment you’ll need to complete a new W-4 form,and fill in the extra amount you want withheld on Line 6. Just be sure not to change your filing status (e.g. if you currently claim “Married -0-“, do not change that).
For example: Say you saw a $4,000 difference between 2017 and 2018, and you have 10 pay periods left this year. Simply divide the amount by the number of pay periods and add the result to the withholding amount for your remaining paychecks. In this case, $4,000 ÷ 10 = $400 per paycheck, so you would enter $400 on Line 6 of your new W-4.
The problem is also magnified if you have multiple sources of income. A married couple that has three or four W-2 forms will see a lower federal withholding on their second job(s), which may not cover what is owed.
Consider this: Most people earning between $25,000 and $50,000 will only have 7% or 8% Federal tax withheld from their paycheck. Since many taxpayers in this situation may have income from other sources that put them in the 22-24% tax bracket, the minimal 7% or 8% federal withholding will likely result in a balance due.
You’ll need to remember that increasing your withholding will reduce the amount of your paychecks, but if your income is similar to 2018 you’ll see a corresponding increase in your refund, or decrease in your balance due, for 2019.
Feel free to contact our office if you have questions, or need help determining whether and how much to adjust! [email protected] or 781-337-8788
