The IRS has provided updated mortality improvement rates and static mortality tables to be used for defined benefit pension plans. This data is used to calculate the funding target and other items for valuation dates occurring during the calendar year 2020. The IRS also issued a modified unisex version of the mortality tables for use in determining the minimum present value for distributions with annuity starting dates that occur during stability periods beginning in the 2020 calendar year. (IRS Notice 2019-26)
The IRS has finalized reportable transaction penalty regulations. Reportable transactions are those identified by the IRS as having a potential for tax avoidance or evasion. The penalty is 75% of the decrease in tax shown on the return as a result of a reportable transaction. The final regs add a rule that clarifies how the penalty is calculated in situations where a transaction becomes reportable after the filing of a return reflecting participation in the transaction. The regs are effective for penalties assessed after 3/26/19. Contact us for more information.
Tax penalty relief for underpayment of federal tax expands again. Generally, taxpayers who don’t pay at least 90% of their total tax liability through withholding (or estimated payments) are subject to underpayment penalties. Due to changes brought by the Tax Cuts and Jobs Act, the IRS waived those penalties for taxpayers who paid in at least 85% and stated more relief was possibly coming. The IRS has now announced that relief will expand to those who paid in at least 80% of the required amount. For details visit the IRS newsroom.
Do you know someone in the military? The IRS has a publication for U.S. Armed Forces members about special tax breaks for them. One is “combat pay,” which is partially or fully tax-free. Those serving in support of a designated combat zone or in a qualified hazardous duty area may qualify. Also, U.S. citizens or resident aliens, such as spouses, who worked as contractors or employees of contractors supporting the troops in combat zones may qualify for the “foreign earned income exclusion.” Learn more in the IRS’s Armed Forces’ Tax Guide: https://www.irs.gov/pub/irs-pdf/p3.pdf.
Are you still looking for ways to reduce the taxes you owe for 2018? If you qualify, it’s not too late to contribute to an Individual Retirement Arrangement (IRA) and claim it on your 2018 tax return. You must make the contribution by 4/15/19 (in some areas, 4/17/19). Qualified contributions to one or more traditional IRAs are deductible up to the contribution limit or 100% of the taxpayer’s compensation, whichever is less. For 2018, the contribution limit is $5,500, or $6,500 for taxpayers age 50 and up by the end of the year. Questions? Contact us.
Child credit amounts have increased, to help offset the cost of raising kids in qualified families. Thanks to the Tax Cuts and Jobs Act, the credit increased from $1,000 to $2,000 for tax years beginning in 2018. To qualify, the child must be younger than 17 at the end of the year; the taxpayer must claim the child as a dependent, and the child must live with the taxpayer for at least 6 months of the year. Also, the income threshold at which the credit begins to phase out has increased, so more families now qualify. For more details read, “Here’s how tax reform affects taxpayers who claim the child tax credit.”
Do you want more information about the changes brought by tax reform? Major tax law changes have affected every taxpayer. That’s why the IRS has developed an online publication and other resources to help you understand how the changes affect you. Key changes to be aware of include lower tax rates; a much higher standard deduction; a list of deductions that are limited or discontinued; an expanded child credit; elimination of the personal exemption; and more. See the IRS’s Time Tax Guide or contact us for help.
LBMC tax tips are provided as an informational and educational service for clients and friends of the firm. The communication is high-level and should not be considered as legal or tax advice to take any specific action. Individuals should consult with their personal tax or legal advisors before making any tax or legal-related decisions. In addition, the information and data presented are based on sources believed to be reliable, but we do not guarantee their accuracy or completeness. The information is current as of the date indicated and is subject to change without notice.