contents chapter by chapter · 2019-11-13 · traditional ira to another 229 8.11 transfer of...

J.K. Lasser’s Your Income Tax 2020 | v

Contents Chapter by Chapter

What’s New for 2019 xxviiTax News for 2019 xxviiKey Tax Numbers for 2019 xxxTax-Saving Opportunities for 2019 xxxiiiPending Legislation That Could Affect 2019 Returns xxxiv

FILING BASICS 1

Do You Have to File a 2019 Tax Return? 2Filing Tests for Dependents: 2019 Returns 4Where to File Your 2019 Form 1040 or 1040-SR 5Filing Deadlines (on or before) 6What Forms Do You Need to File? 8

Filing Status 9

1.1 Which Filing Status Should You Use? 101.2 Tax Rates Based on Filing Status 111.3 Filing Separately Instead of Jointly 131.4 Filing a Joint Return 141.5 Nonresident Alien Spouse 161.6 Community Property Rules 161.7 Innocent Spouse Rules 181.8 Separate Liability Relief for Former Spouses 191.9 Equitable Relief 221.10 Death of Your Spouse in 2019 241.11 Qualifying Widow/Widower Status for 2019

If Your Spouse Died in 2018 or 2017 251.12 Qualifying as Head of Household 251.13 Filing for Your Child 271.14 Return for Deceased 281.15 Return for an Incompetent Person 291.16 How a Nonresident Alien Is Taxed 301.17 How a Resident Alien Is Taxed 301.18 Who Is a Resident Alien? 301.19 Certificate of Tax Compliance for Alien

Leaving the United States 331.20 Expatriation Tax 33

ftoc.indd 5 10/25/19 3:42 AM

COPYRIG

HTED M

ATERIAL


vi | J.K. Lasser’s Your Income Tax 2020

REPORTING YOUR INCOME 35Wages, Salary, and Other Compensation 37

2.1 Salary and Wage Income 402.2 Constructive Receipt of Year-End Paychecks 412.3 Pay Received in Property Is Taxed 422.4 Commissions Taxable When Credited 422.5 Unemployment Benefits 432.6 Strike Pay Benefits and Penalties 432.7 Nonqualified Deferred Compensation 442.8 Did You Return Wages Received in a Prior Year? 452.9 Waiver of Executor’s and Trustee’s Commissions 462.10 Life Insurance Benefits 462.11 Educational Benefits for Employees’ Children 472.12 Sick Pay Is Taxable 482.13 Workers’ Compensation Is Tax Free 482.14 Disability Pay and Pensions 492.15 Stock Appreciation Rights (SARs) 502.16 Stock Options 512.17 Election to Defer Income on Qualified Equity Grants

from Private Companies (Section 83(i) election) 542.18 Restricted Stock 54

Fringe Benefits 56

3.1 Tax-Free Health and Accident Coverage Under Employer Plans 583.2 Health Savings Accounts (HSAs) and Archer MSAs 583.3 Reimbursements and Other Tax-Free Payments From Employer

Health and Accident Plans 613.4 Group-Term Life Insurance Premiums 643.5 Dependent Care Assistance 663.6 Adoption Benefits 663.7 Education Assistance Plans 673.8 Company Cars, Parking, and Transit Passes 683.9 Working Condition Fringe Benefits 703.10 De Minimis Fringe Benefits 713.11 Employer-Provided Retirement Advice 713.12 Employee Achievement Awards 723.13 Employer-Furnished Meals or Lodging 723.14 Minister’s Housing or Housing Allowance 753.15 Cafeteria Plans Provide Choice of Benefits 763.16 Flexible Spending Arrangements 773.17 Company Services Provided at No Additional Cost 793.18 Discounts on Company Products or Services 80

ftoc.indd 6 10/25/19 3:42 AM


J.K. Lasser’s Your Income Tax 2020 | vii

Dividend and Interest Income 81

4.1 Reporting Dividends and Mutual Fund Distributions 824.2 Qualified Corporate Dividends Taxed

at Favorable Capital Gain Rates 834.3 Dividends From a Partnership, S Corporation,

Estate, or Trust 844.4 Real Estate Investment Trust (REIT) Dividends 844.5 Taxable Dividends of Earnings and Profits 854.6 Stock Dividends on Common Stock 854.7 Dividends Paid in Property 864.8 Taxable Stock Dividends 864.9 Who Reports the Dividends 864.10 Year Dividends Are Reported 874.11 Distribution Not Out of Earnings: Return of Capital 884.12 Reporting Interest on Your Tax Return 884.13 Interest on Frozen Accounts Not Taxed 894.14 Interest Income on Debts Owed to You 904.15 Reporting Interest on Bonds Bought or Sold 904.16 Forfeiture of Interest on Premature Withdrawals 914.17 Amortization of Bond Premium 914.18 Discount on Bonds 934.19 Reporting Original Issue Discount on Your Return 944.20 Reporting Income on Market Discount Bonds 954.21 Discount on Short-Term Obligations 974.22 Stripped Coupon Bonds and Stock 974.23 Sale or Retirement of Bonds and Notes 984.24 State and City Interest Generally Tax Exempt 994.25 Taxable State and City Interest 994.26 Tax-Exempt Bonds Bought at a Discount 1004.27 Treasury Bills, Notes, and Bonds 1004.28 Interest on United States Savings Bonds 1014.29 Deferring United States Savings Bond Interest 1024.30 Minimum Interest Rules 1044.31 Interest-Free or Below-Market-Interest Loans 1044.32 Minimum Interest on Seller-Financed Sales 106

Reporting Property Sales 109

5.1 General Tax Rules for Property Sales 1105.2 How Property Sales Are Classified and Taxed 1105.3 Capital Gains Rates and Holding Periods 1125.4 Capital Losses and Carryovers 1165.5 Capital Losses of Married Couples 1165.6 Losses May Be Disallowed on Sales to Related Persons 1175.7 Special Treatment of Gain on Sale of Small Business Stock

or Qualified Opportunity Zone Investment 118

ftoc.indd 7 10/25/19 3:42 AM


viii | J.K. Lasser’s Your Income Tax 2020

5.8 Reporting Capital Asset Sales on Form 8949 and on Schedule D 120

5.9 Counting the Months in Your Holding Period 1295.10 Holding Period for Securities 1295.11 Holding Period for Real Estate 1305.12 Holding Period: Gifts, Inheritances, and Other Property 1305.13 Calculating Gain or Loss 1315.14 Amount Realized Is the Total Selling Price 1325.15 Finding Your Cost 1325.16 Unadjusted Basis of Your Property 1325.17 Basis of Property You Inherited or Received as a Gift 1345.18 Joint Tenancy Basis Rules for Surviving Tenants 1385.19 Allocating Cost Among Several Assets 1405.20 How To Find Adjusted Basis 1415.21 Tax Advantage of Installment Sales 1425.22 Figuring the Taxable Part of Installment Payments 1435.23 Electing Not To Report on the Installment Method 1465.24 Restriction on Installment Sales to Relatives 1465.25 Contingent Payment Sales 1485.26 Using Escrow and Other Security Arrangements 1495.27 Minimum Interest on Deferred Payment Sales 1505.28 Dispositions of Installment Notes 1505.29 Repossession of Personal Property Sold on Installment 1515.30 Boot in Like-Kind Exchange Payable in Installments 1525.31 “Interest” Tax if Sales Price Exceeds $150,000

With Over $5 Million Debt 1525.32 Worthless Securities 1535.33 Tax Consequences of Bad Debts 1545.34 Four Rules To Prove a Bad Debt Deduction 1565.35 Family Bad Debts 157

Tax-Free Exchanges of Property 158

6.1 Like-Kind Exchanges of Real Property Used for Investment or Business 159

6.2 Receipt of Cash and Other Property—“Boot” 1606.3 Time Limits and Security Arrangements for Deferred Exchanges 1636.4 Qualified Exchange Accommodation Arrangements (QEAAs)

for Reverse Exchanges 1656.5 Exchanges Between Related Parties 1666.6 Property Transfers Between Spouses and Ex-Spouses 1666.7 Tax-Free Exchanges of Stock in Same Corporation 1696.8 Joint Ownership Interests 1706.9 Setting up Closely Held Corporations 1706.10 Tax-Free Exchanges of Insurance Policies 170

ftoc.indd 8 10/25/19 3:42 AM


J.K. Lasser’s Your Income Tax 2020 | ix

Retirement and Annuity Income 172

Retirement Distributions on Form 1099-R 1737.1 Retirement Distributions on Form 1099-R 1747.2 Lump-Sum Distributions 1767.3 Lump-Sum Options If You Were Born Before January 2, 1936 1767.4 Lump-Sum Payments Received by Beneficiary 1797.5 Tax-Free Rollovers From Qualified Plans 1807.6 Direct Rollover or Personal Rollover 1817.7 Rollover of Proceeds From Sale of Property 1857.8 Distribution of Employer Stock or Other Securities 1857.9 Survivor Annuity for Spouse 1867.10 Court Distributions to Former Spouse Under a QDRO 1877.11 When You Must Begin Receiving Required Minimum

Distributions (RMDs) 1887.12 Payouts to Beneficiaries 1887.13 Penalty for Distributions Before Age 59½ 1897.14 Restrictions on Loans From Company Plans 1917.15 Tax Benefits of 401(k) Plans 1937.16 Limit on Salary-Reduction Deferrals 1947.17 Withdrawals From 401(k) Plans Restricted 1957.18 Designated Roth Account Within 401(k), 403(b),

or Governmental 457 Plans 1967.19 403(b) Plans (tax-sheltered annuity plans) for Employees

of Tax-Exempts and Schools and Ministers 1987.20 Government and Exempt Organization Deferred Pay Plans 1997.21 Figuring the Taxable Part of Commercial Annuities 2017.22 Life Expectancy Tables 2067.23 When You Convert Your Endowment Policy 2077.24 Reporting Employee Annuities 2077.25 Simplified Method for Calculating Taxable Employee Annuity 2087.26 Employee’s Cost in Annuity 2107.27 Withdrawals From Employer’s Qualified Retirement Plan Before

Annuity Starting Date 2107.28 Qualified Disaster Relief 211

IRAs 212

8.1 Starting a Traditional IRA 2138.2 Contribution Limit for Traditional IRAs 2148.3 Contributions to a Traditional IRA If You Are Married 2168.4 Restrictions on Traditional IRA Deduction

for Active Participants in Employer Plans 2178.5 Active Participation in Employer Plan 2228.6 Nondeductible Contributions to Traditional IRAs 2238.7 Penalty for Excess Contributions to Traditional IRAs 225

ftoc.indd 9 10/25/19 3:42 AM


x | J.K. Lasser’s Your Income Tax 2020

8.8 Distributions From Traditional IRAs 2258.9 Partially Tax-Free Traditional IRA Distributions Allocable to

Nondeductible Contributions 2278.10 Tax-Free Direct Transfer or Rollover From One

Traditional IRA to Another 2298.11 Transfer of Traditional IRA to Spouse at Divorce 2328.12 Penalty for Traditional IRA Withdrawals Before Age 59½ 2338.13 Required Minimum Distributions From a Traditional IRA 2378.14 Inherited Traditional IRAs 2418.15 SEP Basics 2488.16 Salary-Reduction SEP Set Up Before 1997 2488.17 Who Is Eligible for a SIMPLE IRA? 2498.18 SIMPLE IRA Contributions and Distributions 2508.19 Roth IRA Advantages 2508.20 Annual Contributions to a Roth IRA 2518.21 Recharacterizing a Traditional IRA Contribution

to a Roth IRA and Vice Versa 2548.22 Converting a Traditional IRA to a Roth IRA 2558.23 Conversions Made After 2017 to a Roth IRA

Cannot Be Recharacterized 2568.24 Distributions From a Roth IRA 2568.25 Distributions to Roth IRA Beneficiaries 2598.26 Special IRA Rules for Victims of Hurricanes Harvey,

Irma, Maria, and California Wildfires 259

Income From Real Estate Rentals and Royalties 261

9.1 Reporting Rental Real Estate Income and Expenses 2629.2 Checklist of Rental Deductions 2639.3 Distinguishing Between a Repair and an Improvement 2649.4 Reporting Rents From a Multi-Unit Residence 2669.5 Depreciation on Converting a Home to Rental Property 2679.6 Renting a Residence to a Relative 2699.7 Personal Use and Rental of a Residence During the Year 2699.8 Counting Personal-Use Days and Rental Days for a Residence 2719.9 Allocating Expenses of a Residence to Rental Days 2729.10 IRS May Challenge Loss Claimed on Temporary Rental

of Residence Before Sale 2749.11 Reporting Royalty Income 2759.12 Production Costs of Books and Creative Properties 2769.13 Deducting the Cost of Patents or Copyrights 2769.14 Intangible Drilling Costs 2769.15 Depletion Deduction 2779.16 Oil and Gas Percentage Depletion 2789.17 Qualified Business Income Deduction for Real Estate Activities 279

ftoc.indd 10 10/25/19 3:42 AM


J.K. Lasser’s Your Income Tax 2020 | xi

Loss Restrictions: Passive Activities and At-Risk Limits 281

10.1 Rental Activities Generally Treated as Passive 28210.2 Rental Real Estate Loss Allowance of up to $25,000 28410.3 Real Estate Professionals 28710.4 Business Participation May Avoid Passive Loss Restrictions 29010.5 Classifying Business Activities as One or Several 29010.6 Material Participation in a Business 29110.7 Tax Credits of Passive Activities Limited 29410.8 Determining Passive or Nonpassive Income and Loss 29410.9 Passive Income Recharacterized as Nonpassive Income 29610.10 Working Interests in Oil and Gas Wells 29910.11 Partners and Members of LLCs and LLPs 29910.12 Form 8582 and Other Tax Forms 30010.13 Suspended Losses Allowed on Disposition of Your Interest 30110.14 Suspended Tax Credits 30310.15 Personal Service and Closely Held Corporations 30410.16 Sales of Property and of Passive Activity Interests 30510.17 At-Risk Limits 30610.18 What Is At Risk? 30710.19 Amounts Not At Risk 30810.20 At-Risk Investment in Several Activities 30910.21 Carryover of Disallowed Losses 31010.22 Recapture of Losses Where At Risk Is Less Than Zero 310

Other Income 311

11.1 Prizes and Awards 31211.2 Lottery and Sweepstake Winnings 31211.3 Gambling Winnings and Losses 31211.4 Gifts and Inheritances 31511.5 Refunds of State and Local Tax Deductions 31511.6 Other Recovered Deductions 31811.7 How Legal Damages Are Taxed 31911.8 Cancellation of Debts You Owe 32211.9 Schedule K-1 32611.10 How Partners Report Partnership Profit and Loss 32611.11 When a Partner Reports Income or Loss 32711.12 Partnership Loss Limitations 32711.13 Tax Audits of Partnerships 32811.14 Stockholder Reporting of S Corporation Income or Loss 32811.15 How Beneficiaries Report Estate or Trust Income 32911.16 Reporting Income in Respect of a Decedent (IRD) 33011.17 Deduction for Estate Tax Attributable to IRD 330

ftoc.indd 11 10/25/19 3:42 AM


xii | J.K. Lasser’s Your Income Tax 2020

11.18 How Life Insurance Proceeds Are Taxed to a Beneficiary 33011.19 A Policy with a Family Income Rider 33211.20 Selling or Surrendering Life Insurance Policy 33211.21 Jury Duty Fees 33311.22 Foster Care Payments 333

CLAIMING DEDUCTIONS 335Deductions Allowed in Figuring Adjusted Gross Income 337

12.1 Figuring Adjusted Gross Income (AGI) 33812.2 Claiming Deductions from Gross Income 33812.3 Moving Costs Are Deductible Only by Qualifying

Members of the U.S. Armed Forces 342

Claiming the Standard Deduction or Itemized Deductions 343

New Law Increases the Standard Deduction for 2018 and Cuts Back Itemized Deductions 344

13.1 Does Your Standard Deduction for 2019 Exceed Your Itemized Deductions? 345

13.2 Basic Standard Deduction 34513.3 Spouses Filing Separate Returns 34613.4 Standard Deduction If 65 or Older or Blind 34713.5 Standard Deduction for Dependents 34813.6 Prepaying or Postponing Itemized Expenses 34813.7 Itemized Deductions No Longer Reduced

for Higher-Income Taxpayers 349

Charitable Contribution Deductions 350

14.1 Deductible Contributions 35114.2 Nondeductible Contributions 35214.3 Contributions That Provide You With Benefits 35314.4 Unreimbursed Expenses of Volunteer Workers 35614.5 Support of a Student in Your Home 35714.6 What Kind of Property Are You Donating? 35714.7 Cars, Clothing, and Other Property Valued Below Cost 36114.8 Bargain Sales of Appreciated Property 36314.9 Art Objects 36414.10 Interests in Real Estate 36514.11 Life Insurance 36714.12 Business Inventory 36714.13 Donations Through Trusts 36714.14 Records Needed To Substantiate Your Contributions 36814.15 Form 8283 and Written Appraisal Requirements

for Property Donations 370

ftoc.indd 12 10/25/19 3:42 AM


J.K. Lasser’s Your Income Tax 2020 | xiii

14.16 Penalty for Substantial Overvaluation of Property 37214.17 Ceiling on Charitable Contributions 37214.18 Carryover for Excess Donations 37514.19 Election To Reduce Fair Market Value by Appreciation 376

Itemized Deduction for Interest Expenses 377

15.1 Deduction for Home Mortgage Interest 37815.2 Home Acquisition Loans 37915.3 Home Equity Loans 38215.4 Home Construction Loans 38415.5 Mortgage Insurance Premiums and

Other Payment Rules 38515.6 Interest on Refinanced Loans 38615.7 “Points” 38715.8 Cooperative and Condominium Apartments 38815.9 Investment Interest Limitations 38915.10 Debts To Carry Tax-Exempt Obligations 39015.11 Earmarking Use of Loan Proceeds For Investment

or Business 39115.12 Year To Claim an Interest Deduction 39315.13 Prepaid Interest 394

Deductions for Taxes 395

16.1 Overall Limit on Deduction for State and Local Taxes 39616.2 Nondeductible Taxes 39716.3 State and Local Income Taxes or General Sales Taxes 39716.4 Deducting Real Estate Taxes 39816.5 Assessments 40116.6 Tenants’ Payment of Taxes 40116.7 Allocating Taxes When You Sell or Buy Realty 40116.8 Automobile License Fees 40316.9 Taxes Deductible as Business Expenses 40316.10 Foreign Taxes 403

Medical and Dental Expense Deductions 404

17.1 Medical and Dental Expenses Must Exceed AGI Threshold 40517.2 Allowable Medical and Dental Care Costs 40517.3 Nondeductible Medical Expenses 40917.4 Reimbursements Reduce Deductible Expenses 41017.5 Expenses of Your Spouse 41217.6 Expenses of Your Dependents 41217.7 Decedent’s Medical Expenses 414

ftoc.indd 13 10/25/19 3:42 AM


xiv | J.K. Lasser’s Your Income Tax 2020

17.8 Premiums for Health Insurance 41417.9 Travel Costs May Be Medical Deductions 41517.10 Schooling for the Mentally or Physically Disabled 41717.11 Nursing Homes 41817.12 Nurses’ Wages 41817.13 Home Improvements as Medical Expenses 41917.14 Costs Deductible as Business Expenses 42117.15 Long-Term Care Premiums and Services 42117.16 Life Insurance Used by Chronically ill or Terminally ill Person 422

Casualty and Theft Losses and Involuntary Conversions 423

18.1 Casualty or Theft Losses for Personal-Use Property Must be Due to a Federally Declared Disaster 424

18.2 When To Deduct a Casualty or Theft Loss 42518.3 Prior-Year Election for Disaster Losses 42618.4 Gain Realized From Insurance Proceeds

for Damaged or Destroyed Principal Residence 42718.5 Who May Deduct a Casualty or Theft Loss 42918.6 Proving a Casualty Loss 42918.7 Theft Losses 42918.8 Floors for Personal-Use Property Losses 43218.9 Figuring Your Loss on Form 4684 43318.10 Personal and Business Use of Property 43518.11 Repairs May Be a “Measure of Loss” 43618.12 Excess Living Costs Paid by Insurance Are Not Taxable 43618.13 Do Your Casualty or Theft Losses Exceed Your Income? 43818.14 Defer Gain from Involuntary Conversion

by Replacing Property 43818.15 Involuntary Conversions Qualifying for Tax Deferral 43918.16 How to Elect to Defer Gain 44018.17 Types of Qualifying Replacement Property 44118.18 Time Period for Buying Replacement Property 44218.19 Cost of Replacement Property Determines

Postponed Gain 44418.20 Special Assessments and Severance Damages

from Condemnation 444

Other Itemized Deductions 446

19.1 Only a Few Expenses Are Allowed as “Other” Itemized Deductions 447

19.2 Deductions for Job Costs and Other Miscellaneous Expenses No Longer Allowed 448

ftoc.indd 14 10/25/19 3:42 AM


J.K. Lasser’s Your Income Tax 2020 | xv

Travel and Meal Expense Deductions 449

20.1 Who May Deduct Travel and Transportation Expenses 45020.2 Commuting Expenses 45020.3 Overnight-Sleep Test Limits Deduction of Meal Costs 45120.4 IRS Meal Allowance 45220.5 Business Trip Deductions 45320.6 When Are You Away From Home? 45420.7 Tax Home of Married Couple Working in Different Cities 45620.8 Deducting Living Costs on Temporary Assignment 45620.9 Business-Vacation Trips Within the United States 45720.10 Business-Vacation Trips Outside the United States 45820.11 Deducting Expenses of Business Conventions 45920.12 Restrictions on Foreign Conventions and Cruises 46020.13 Entertainment Expenses No Longer Deductible 46120.14 Client Business Meals Still Generally Deductible 46120.15 50% Cost Limitation on Most Deductible Meals 46220.16 Substantiating Travel Expenses 46320.17 Employee Reporting of Unreimbursed Expenses 46420.18 Are You Reimbursed Under an Accountable Plan? 46420.19 Per Diem Travel Allowance Under Accountable Plans 46520.20 Automobile Mileage Allowance 46720.21 Reimbursements Under Non-Accountable Plans 468

PERSONAL TAX COMPUTATIONS 469Dependents 471

21.1 No Exemption Deductions Are Allowed 47221.2 How Many Dependents Do You Have? 47221.3 Qualifying Children 47321.4 Qualifying Relatives 47521.5 Meeting the Support Test for a Qualifying Relative 47721.6 Multiple Support Agreements 48121.7 Special Rule for Divorced or Separated Parents 48121.8 Reporting Social Security Numbers of Dependents 483

Figuring Your Regular Income Tax Liability 484

22.1 Taxable Income and Regular Income Tax Liability 48522.2 Using the Tax Table 48522.3 Tax Computation Worksheet 48622.4 Tax Calculation If You Have Net Capital Gain

or Qualified Dividends 486

ftoc.indd 15 10/25/19 3:42 AM


xvi | J.K. Lasser’s Your Income Tax 2020

22.5 Foreign Earned Income Tax Worksheet 48622.6 Income Averaging for Farmers and Fishermen 48722.7 Tax Credits 48722.8 Additional Medicare Tax and Net Investment Income Tax 488

Alternative Minimum Tax (AMT) 489

Computing Alternative Minimum Tax on Form 6251 49023.1 Computing Alternative Minimum Tax on Form 6251 49123.2 Adjustments and Preferences for AMT 49223.3 Tax Credits Allowed Against AMT 49523.4 Regular Tax Credit for Prior-Year AMT 49523.5 Avoiding AMT 495

Computing the “Kiddie Tax” on Your Child’s Unearned Income 497

24.1 Filing Your Child’s Return 49824.2 Children Subject to “Kiddie Tax” for 2019 49924.3 Computing “Kiddie Tax” on Child’s Return 50024.4 Parent’s Election To Report Child’s Dividends and Interest 500

Personal Tax Credits Reduce Your Tax Liability 503

25.1 Overview of Personal Tax Credits 50425.2 Child Tax Credit for Children Under Age 17 50425.3 Figuring the Child Tax Credit and

Additional Child Tax Credit 50525.4 Credit for Other Dependents 50725.5 Qualifying for the Child and Dependent Care Credit 50725.6 Figuring the Child and Dependent Care Credit 50925.7 Qualifying Tests for EIC 51225.8 Income Tests for Earned Income Credit (EIC) 51525.9 Qualifying for the Adoption Credit 51625.10 Claiming the Adoption Credit on Form 8839 51625.11 Eligibility for the Saver’s Credit 51825.12 Figuring the Saver’s Credit 51825.13 Premium Tax Credit 51925.14 Health Coverage Credit 52125.15 Mortgage Interest Credit 52225.16 Residential Energy Credits 52225.17 Credit for Qualified Plug-in Electric

and Fuel Cell Vehicles 52525.18 Repayment of the First-Time Homebuyer Credit 526

ftoc.indd 16 10/25/19 3:42 AM


J.K. Lasser’s Your Income Tax 2020 | xvii

Tax Withholdings 527

26.1 Withholdings Should Cover Estimated Tax 52826.2 Income Taxes Withheld on Wages 52826.3 Low Earners May Be Exempt From Withholding 52926.4 Are You Withholding the Right Amount? 52926.5 Voluntary Withholding on Government Payments 53026.6 When Tips Are Subject to Withholding 53026.7 Withholding on Gambling Winnings 53126.8 FICA Withholdings 53226.9 Withholding on Distributions from Retirement

Plans and Commercial Annuities 53226.10 Backup Withholding 533

Estimated Tax Payments 534

27.1 Do You Owe an Estimated Tax Penalty for 2019? 53527.2 Planning Estimated Tax Payments for 2020 53727.3 Dates for Paying Estimated Tax Installments for 2020 53827.4 Estimates by Married Taxpayers 53827.5 Adjusting Your Payments During the Year 539

Additional Medicare Tax and Net Investment Income Tax 540

28.1 Higher-Income Taxpayers May be Subject to Additional Taxes 541

28.2 Additional 0.9% Medicare Tax on Earnings 54128.3 Additional 3.8% Tax on Net Investment Income 543

TAX PLANNING 547Tax Savings for Residence Sales 549

29.1 Avoiding Tax on Sale of Principal Residence 55029.2 Meeting the Ownership and Use Tests for Exclusion 55129.3 Home Sales by Married Persons 55529.4 Reduced Maximum Exclusion 55629.5 Figuring Gain or Loss 55929.6 Figuring Adjusted Basis 56029.7 Personal and Business Use of a Home 56129.8 No Loss Allowed on Personal Residence 56229.9 Loss on Residence Converted to Rental Property 56329.10 Loss on Residence Acquired by Gift or Inheritance 564

ftoc.indd 17 10/25/19 3:42 AM


xviii | J.K. Lasser’s Your Income Tax 2020

Tax Rules for Investors in Securities 566

30.1 Planning Year-End Securities Transactions 56730.2 Earmarking Stock Lots 56730.3 Sale of Stock Dividends 56830.4 Stock Rights 56930.5 Short Sales of Stock 56930.6 Wash Sales 57130.7 Convertible Stocks and Bonds 57330.8 Stock Options 57430.9 Sophisticated Financial Transactions 57530.10 Investing in Tax-Exempts 57630.11 Ordinary Loss for Small Business Stock (Section 1244) 57730.12 Series EE Bonds 57730.13 I Bonds 57930.14 Trader, Dealer, or Investor? 57930.15 Mark-to-Market Election for Traders 580

Tax Savings for Investors in Real Estate 583

31.1 Real Estate Ventures 58431.2 Sales of Subdivided Land—Dealer or Investor? 58531.3 Exchanging Real Estate Without Tax 58631.4 Timing Your Real Property Sales 58831.5 Cancellation of a Lease 58831.6 Sale of an Option 58831.7 Granting of an Easement 58831.8 Special Tax Credits for Real Estate Investments 58931.9 Foreclosures, Repossessions, Short Sales,

and Voluntary Conveyances to Creditors 59031.10 Restructuring Mortgage Debt 59131.11 Abandonments 59231.12 Seller’s Repossession After Buyer’s Default on Mortgage 59331.13 Foreclosure on Mortgages Other Than Purchase Money 59531.14 Foreclosure Sale to Third Party 59531.15 Transferring Mortgaged Realty 59631.16 QBI Deduction for REIT Dividends 596

Tax Rules for Investors in Mutual Funds 597

32.1 Timing of Your Investment Can Affect Your Taxes 59832.2 Reinvestment Plans 59832.3 Mutual Fund Distributions Reported on Form 1099-DIV 59832.4 Tax-Exempt Bond Funds 59932.5 Fund Expenses 599

ftoc.indd 18 10/25/19 3:42 AM


J.K. Lasser’s Your Income Tax 2020 | xix

32.6 Tax Credits From Mutual Funds 60032.7 How to Report Mutual Fund Distributions 60032.8 Redemptions and Exchanges of Fund Shares 60032.9 Basis of Redeemed Shares 60232.10 Comparison of Basis Methods 60432.11 Mutual Funds Compared to Exchange-Traded Funds 605

Educational Tax Benefits 606

33.1 Scholarships and Grants 60733.2 Tuition Reductions for College Employees 60733.3 How Fulbright Awards Are Taxed 60733.4 United States Savings Bond Tuition Plans 60733.5 Contributing to a Qualified Tuition Program

(Section 529 Plan) 60933.6 Distributions From Qualified Tuition Programs

(Section 529 Plans) 61033.7 Education Tax Credits 61133.8 American Opportunity Credit 61333.9 Lifetime Learning Credit 61433.10 Contributing to a Coverdell Education

Savings Account (ESA) 61533.11 Distributions From Coverdell ESAs 61633.12 Tuition and Fees Deduction 61833.13 Student Loan Interest Deduction 61933.14 Types of Deductible Work-Related Costs 62133.15 Work-Related Tests for Education Costs 62233.16 Local Transportation and Travel Away

From Home To Take Courses 623

Special Tax Rules for Senior Citizens and the Disabled 625

34.1 Senior Citizens Get Certain Filing Breaks 62634.2 Social Security Benefits Subject to Tax 62634.3 Computing Taxable Social Security Benefits 62734.4 Election for Lump-Sum Social Security Benefit Payment 63234.5 Retiring on Social Security Benefits 63234.6 How Tax on Social Security Reduces Your Earnings 63334.7 Eligibility for the Credit for the Elderly or the Disabled 63434.8 Figuring the Credit for the Elderly or Disabled 63434.9 Tax Effects of Moving to a Continuing Care Facility 63534.10 Medicare Part B and Part D Premiums for 2020 63634.11 Special Tax Rules for the Disabled 63734.12 ABLE Accounts 637

ftoc.indd 19 10/25/19 3:42 AM


xx | J.K. Lasser’s Your Income Tax 2020

Members of the Armed Forces 639

35.1 Taxable Armed Forces Pay and Benefits 64035.2 Tax Breaks for Armed Forces Members 64035.3 Deductions for Armed Forces Personnel 64235.4 Tax-Free Pay for Service in Combat Zone 64235.5 Tax Deadlines Extended for Combat Zone

or Contingency Operation Service 64435.6 Tax Forgiveness for Combat Zone or Terrorist

or Military Action Deaths 64435.7 Extension To Pay Your Tax When Entering the Service 64535.8 Tax Information for Reservists 645

How To Treat Foreign Earned Income 647

36.1 Claiming the Foreign Earned Income Exclusion 64836.2 What Is Foreign Earned Income? 64836.3 Qualifying for the Foreign Earned Income Exclusion 65036.4 How To Treat Housing Costs 65136.5 Meeting the Foreign Residence or Physical Presence Test 65236.6 Claiming Deductions 65436.7 Exclusion Not Established When Your Return Is Due 65436.8 Tax-Free Meals and Lodging for Workers in Camps 65536.9 U. S. Virgin Islands, Samoa, Guam, and Northern Marianas 65536.10 Earnings in Puerto Rico 65536.11 Tax Treaties With Foreign Countries 65636.12 Exchange Rates and Blocked Currency 65636.13 Foreign Tax Credit or Deduction for Foreign Taxes Paid 656

Planning Alimony and Marital Settlements 658

37.1 Rules for Post-2018 Divorce and Separation Agreements 65937.2 Rules for Pre-2019 Divorces or Separation Agreements 65937.3 Decree or Agreement Required 66037.4 Cash Payments Required 66037.5 Payments Must Stop at Death 66137.6 Child Support Payments Are Not Alimony 66237.7 No Minimum Payment Period for Alimony 66237.8 3rd Year Recapture If Alimony Drops by More Than $15,000 66337.9 Legal Fees of Marital Settlements 664

Other Taxes 665

38.1 Overview of Household Employment Taxes 66638.2 Social Security and Medicare (FICA) Taxes

for Household Employees 667

ftoc.indd 20 10/25/19 3:42 AM


J.K. Lasser’s Your Income Tax 2020 | xxi

38.3 Filing Schedule H To Report Household Employment Taxes 66838.4 Federal Unemployment Taxes (FUTA)

for Household Employees 670

Gift and Estate Tax Planning Basics 671

39.1 Gifts of Appreciated Property 67239.2 Gift Tax Basics 67239.3 Filing a Gift Tax Return 67339.4 Gift Tax Credit 67339.5 Custodial Accounts for Minors 67339.6 Trusts in Family Planning 67439.7 What is the Estate Tax? 67539.8 Take Inventory and Estimate the Value

of Your Potential Estate 67539.9 Estate Tax for 2019 67639.10 Planning for a Potential Estate Tax 677

BUSINESS TAX PLANNING 679Income or Loss From Your Business or Profession 681

40.1 Forms of Doing Business 68240.2 Reporting Self-Employed Income 68240.3 Accounting Methods for Reporting Business Income 68440.4 Tax Reporting Year for Self-Employed 68540.5 Reporting Certain Payments and Receipts to the IRS 68540.6 Filing Schedule C 68740.7 Deductions for Professionals 69340.8 Nondeductible Expense Items 69340.9 How Authors and Artists May Write Off Expenses 69440.10 Deducting Expenses of a Sideline Business or Hobby 69440.11 Deducting Expenses of Looking for a New Business 69540.12 Home Office Deduction 69640.13 Write-Off Methods for Home Office Expenses 69840.14 Allocating Expenses to Business Use 70040.15 Business Income May Limit Home Office Deductions 70140.16 Home Office for Sideline Business 70340.17 Depreciation of Office in Cooperative Apartment 70440.18 Net Operating Losses (NOLs) 70440.19 How To Report a Net Operating Loss 70540.20 Excess Business Losses 70640.21 Business Credits 70640.22 Filing Schedule F 70740.23 Farming Expenses 70840.24 Qualified Business Income Deduction 708

ftoc.indd 21 10/25/19 3:42 AM


xxii | J.K. Lasser’s Your Income Tax 2020

Retirement and Medical Plans for Self-Employed 713

41.1 Overview of Retirement and Medical Plans 71441.2 Choosing a Qualified Retirement Plan 71441.3 Choosing a SEP 71541.4 Deductible Contributions 71541.5 How To Claim the Deduction for Contributions 71841.6 How To Qualify a Retirement Plan or SEP Plan 71941.7 Annual Qualified Retirement Plan Reporting 71941.8 How Qualified Retirement Plan Distributions Are Taxed 71941.9 SIMPLE IRA Plans 72041.10 Health Savings Account (HSA) Basics 72041.11 Limits on Deductible HSA Contributions 72041.12 Distributions From HSAs 72141.13 Archer MSAs 72341.14 Small Employer Health Insurance Credit 724

Claiming Depreciation Deductions 725

42.1 What Property May Be Depreciated? 72642.2 Claiming Depreciation on Your Tax Return 72742.3 First-Year Expensing Deduction 72742.4 MACRS Recovery Periods 72942.5 MACRS Rates 73042.6 Half-Year Convention for MACRS 73142.7 Last Quarter Placements—Mid-Quarter Convention 73242.8 150% Rate Election 73342.9 Straight Line Depreciation 73442.10 Listed Property 73542.11 Assets in Service Before 1987 73742.12 MACRS for Real Estate Placed in Service After 1986 73742.13 Demolishing a Building 73842.14 Qualified Improvement Property 73942.15 Depreciating Real Estate Placed in Service

After 1980 and Before 1987 73942.16 Amortizing Goodwill and Other Intangibles (Section 197) 73942.17 Amortizing Research and Experimentation Costs 74142.18 Bonus Depreciation 741

ftoc.indd 22 10/25/19 3:42 AM


J.K. Lasser’s Your Income Tax 2020 | xxiii

Deducting Car and Truck Expenses 742

43.1 Standard Mileage Rate 74343.2 Expense Allocations 74443.3 Depreciation Restrictions on Cars, Trucks, and Vans 74543.4 Annual Ceilings on Depreciation 74643.5 MACRS Rates for Cars, Trucks, and Vans 74743.6 Straight Line Method 75243.7 Depreciation for Year Vehicle Is Disposed of 75343.8 Depreciation After Recovery Period Ends 75343.9 Trade-in of Business Vehicle 75443.10 Recapture of Deductions on Business Car, Truck, or Van 75443.11 Keeping Records of Business Use 75643.12 Leased Business Vehicles: Deductions and Income 756

Sales of Business Property 757

44.1 Depreciation Recaptured as Ordinary Income on Sale of Personal Property 758

44.2 Depreciation Recaptured as Ordinary Income on Sale of Real Estate 758

44.3 Recapture of First-Year Expensing 75944.4 Gifts and Inheritances of Depreciable Property 76044.5 Involuntary Conversions and Tax-Free Exchanges 76044.6 Installment Sale of Depreciable Property 76044.7 Sale of a Proprietorship 76044.8 Property Used in a Business (Section 1231 Assets) 76144.9 Sale of Property Used for Business

and Personal Purposes 76244.10 Should You Trade in Business Equipment? 76244.11 Corporate Liquidation 76244.12 Additional Taxes on Higher-Income Taxpayers 763

Figuring Self-Employment Tax 764

45.1 What Is Self-Employment Income? 76545.2 Partners Pay Self-Employment Tax 76645.3 Schedule SE 76745.4 How Wages Affect Self-Employment Tax 76845.5 Optional Method If 2019 Was a Low-Income

or Loss Year 76945.6 Self-Employment Tax Rules for Certain Positions 770

ftoc.indd 23 10/25/19 3:42 AM


xxiv | J.K. Lasser’s Your Income Tax 2020

FILING YOUR RETURN AND WHAT HAPPENS AFTER YOU FILE 773Filing Your Return 775

46.1 Keeping Tax Records 77646.2 Getting Ready to File Your Return 77646.3 Applying for an Extension 77746.4 Getting Your Refund 77846.5 Paying Taxes Due 77946.6 Handling Identity Theft 78146.7 Notify the IRS of Address Changes 78146.8 Interest on Tax Underpayments 78246.9 Tax Penalties for Late Filing and Late Payment 782

Filing Refund Claims, and Amended Returns 784

47.1 Filing an Amended Return 78547.2 When to File a Refund Claim 78547.3 Stating the Reasons for Refund Claim 78647.4 Quick Refund Claims 78647.5 Interest Paid on Refund Claims 78647.6 Refunds Withheld to Cover Debts 78747.7 Amended Returns Showing Additional Tax 78747.8 Penalty for Filing Excessive Refund Claim 787

If the IRS Examines Your Return 788

48.1 Odds of Being Audited 78948.2 When the IRS Can Assess Additional Taxes 79048.3 Audit Overview 79148.4 Preparing for the Audit 79248.5 Handling the Audit 79348.6 Tax Penalties for Inaccurate Returns 79348.7 Penalties for Not Reporting Foreign Financial Accounts 79648.8 Agreeing to the Audit Changes 79748.9 Disputing the Audit Changes 79748.10 Offer in Compromise 79848.11 Recovering Costs of a Tax Dispute 80048.12 Suing the IRS for Unauthorized Collection 800

ftoc.indd 24 10/25/19 3:42 AM


J.K. Lasser’s Your Income Tax 2020 | xxv

2019 TAX FORMS 803

Form 1040 805Form 1040-SR 807 Schedule 1 809 Schedule 2 810 Schedule 3 810 Schedule A 8112019 Tax Table 8122019 Tax Computation Worksheet 824

GLOSSARY 825

INDEX 831

ftoc.indd 25 10/25/19 3:42 AM

ftoc.indd 26 10/25/19 3:42 AM

contents chapter by chapter · 2019-11-13 · traditional ira to another 229 8.11 transfer of...

Documents