Mar 2020

Tax Return Prep (2019) and SECURE Act

by | Mar 1, 2020

 

To say that our tax system has gotten more complicated over the years would be an understatement.  In 1913, the 16th Amendment to the Constitution was ratified enacting the federal income tax as we know it today.  In those days, a tax return was a mere 3 pages while the top tax bracket was 7%.  Nowadays, a Form 1040 tax return is an intimidating 108 pages while the top tax bracket is 37%.  The passing of the Setting Every Community Up for Retirement Enhancement (SECURE) Act in December 2019 made an already complex tax process even more complicated.  In this piece, we are going to help you prepare to file your 2019 tax return as well as provide a brief overview of the major changes that were enacted when the SECURE Act passed.

 

What Are The Typical Tax Forms And When Do They Get Sent?:

A common question that we receive from clients around tax time is what forms should they expect to receive and when will they be sent out.  Here’s a list of the common tax forms, their mailing deadlines, and short description of the form:

 

Form Name Deadline Form Description
W-2 Jan. 31st Wages, sick pay, and benefits.  This also includes tax withholding totals
SSA-1099 Jan. 31st Social Security payments
5498 May 31st Contributions to any IRA or a Fair Market Value (FMV) statement
5498-SA June 1st HSA, Archer MSA, or Medicare Advantage MSA contributions
1099-SA Jan. 31st HSA, Archer MSA, or Medicare Advantage MSA distributions
1099-R Jan. 31st Retirement plan, IRA, and pension distributions
1099-MISC Jan. 31st A catch-all 1099 for compensation received.  This form can include rents, royalties, and prizes
1099-INT Jan. 31st Interest income
Sch. K-1 Mar. 15th Sent out by S-corps and partnerships to show an owner’s share of earnings, losses, deductions, and credits
1099-DIV Jan. 31st Dividends, capital gains, and distributions
1099-B Feb. 28th Sales and redemption of securities from taxable accounts
1098 Jan. 31st Home mortgage interest
1099-G Jan. 31st Govt payments including tax refunds and unemployment compensation

 

What Did The SECURE Act Change?  Will It Affect Me?

The changes prompted by the SECURE Act will very likely affect you depending on your current income and tax situation.  Here’s some of the more notable changes from the act:

  • RMDs – The age that you have to begin taking Required Minimum Distributions from your tax-deferred IRA or employer retirement plan has increased to age 72 from age 70.5. This allows you to keep your retirement funds sheltered from taxation a bit longer. 
  • Inherited IRAs – Upon the death of the original IRA owner (beginning in 2020), distributions of all assets to individual beneficiaries must be made within 10 years. This change substantially shortens the time that a beneficiary can keep their inheritance tax-sheltered.  A notable exception to the 10-year rule includes assets left to surviving spouses and minor children.
  • Contribution Rules For Traditional IRAs – The law removes the age limit at which an individual can contribute to a traditional IRA. Previously, a person was no longer to make IRA contributions past age 70.5.  This will provide additional flexibility to defer income from taxation.
  • 529 Plan Distributions – The law expands the definition of a tax-free or qualified distribution from a 529 savings plan to include repayment of up to $10,000 in qualified student loans, and expenses for certain apprenticeship programs.

 

It’s worth noting that the Tax Cuts and Jobs Act from December 2017 also made a huge change to the tax code.  The standard deduction for all filing statuses was practically doubled.  People who previously had to diligently track records in order to itemize now have an easier time filing their taxes because they can simply take the larger standard deduction. 

 

Additionally, here is a very useful tax preparation checklist to assist you in getting your documents and information together in order to file.  A best practice would be to review your 2018 return to see what forms were used then.

 

Read More From Phillips Financial Advisors