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Issue 1Volume 42

January 2020

Moonlight Inc. was incorporated and elected S status on Oct. 31, 2017. On Dec. 31, 2017, Vander Family Trust acquired a 50% ownership in Moonlight. Under §1361(c)(2)(A)(v), Vander Family Trust qualified as an eligible S corporation shareholder and timely filed an electing small business trust (ESBT) election effective Dec. 31, 2017. Moonlight states that on Jan. 1, 2018, under the laws of the state, Vander Family Trust merged with and into Harris Family Trust, with Harris Family Trust surviving. As a result of the merger, the shares of Moonlight owned by Vander Family Trust were transferred to Harris Family Trust on Jan. 1, 2018. On Jan. 3, 2018, the trustee of Harris Family Trust filed an election under §1361(c)(2)(A)(v) to be treated as an ESBT effective Jan. 5, 2018. The ESBT election incorrectly stated that the shares of Moonlight owned by Vander Family Trust prior to the merger were transferred to Harris Family Trust on Jan. 5, 2018, when in fact the shares were transferred on Jan. 1, 2018. As a result, Moonlight’s S corporation election terminated on Jan. 1, 2018, because Harris Family Trust was an ineligible shareholder. Moonlight states that the circumstances result-ing in the termination of its S corporation election was inadvertent and not motivated by tax avoidance. Moonlight states they filed returns consistent with

their status as an S corporation. Moonlight and its shareholders agree to make such adjustments consis-tent with their treatment as an S corporation as may be required by the Secretary. The IRS concluded that the S corporation elec-tion for Moonlight terminated on Jan. 3, 2018, when the shares of Vander Family Trust were transferred to Harris Family Trust. Furthermore, the termination was inadvertent within the meaning of §1362(f ), and Vander Family Trust will continue to be treated as an S corporation shareholder for the period from Oct. 31, 2017, and forward, provided that the S corporation election for Vander Family Trust was valid and was not otherwise terminated under §1362(d). The trustee of Harris Family Trust must file an ESBT election effective Jan. 1, 2018. The election must be filed within 120 days of the ruling. n Note: Names and dates are fictional.

PLR 201941006 10/11/2019IRC §1362

Tax Law

Quick Reference Guide:

A tool for preparing 2019 returns

4 Tax101

Client Information:

Obtaining written consent

13Government News

IRSAC Report:

Recommendations for the IRS

2monthlyTAXPRO

Maintains S corporation statusBy Liza Corbisier, EA

Trust Deemed an Eligible Shareholder

Government News

The Internal Revenue Service Advisory Council (IRSAC) issued its 2019 annual report, which includes recommendations to the IRS on new and continuing issues in tax administration. IRSAC is a federal advisory committee that provides an organized public forum for discussion of relevant tax administration issues between IRS officials and representatives of the public. IRSAC members offer constructive observations regarding current or proposed IRS policies, programs and procedures. The 2019 report includes recommendations on over 20 issues, covering a broad range of topics and concerns. Included in the report are calls for proper IRS funding to enable the IRS to carry out its strategic goals. Some of the more notable are discussed here.

Accelerating the Use of e-signatures in Federal Tax AdministrationThe use of electronic signatures in federal tax administration is limited despite the IRS having requisite statutory authority and a long-standing legislative mandate to accept digital and electronic signatures. IRSAC is recommending that the IRS leverage private sector

expertise and resources to accelerate e-signature use in furtherance of its tax administration goals.

Guidance Relating to the Tax Cuts and Jobs ActIRSAC recommends the IRS continue to place an emphasis on needed guidance as a result of the Tax Cuts and Jobs Act (TCJA). IRSAC further recommends the IRS grant penalty relief to those taxpayers who can demonstrate a good-faith effort in complying with unclear provisions of the TCJA.

Broadening and Improving a Self-Correction Program for Tax-Exempt Bonds The Tax Exempt and Government Entities Division has requested that IRSAC suggest mechanisms for self-remediation with respect to tax-advantaged bonds that would make correction more cost-effective and less complex and potentially promote and increase voluntary compliance. Tax-advantaged bonds are generally subject to certain restric-tions under the code relating to the usage and investment of proceeds for the term to maturity of the bonds, necessitating careful post-issuance compliance to maintain the

tax-advantaged status. To alleviate burdens on issuers of tax-advantaged bonds, IRSAC recommends the IRS establish a consolidated, flexible multi-level self-correction program, in a revenue procedure that is periodically updated, that encourages compli ance by incentivizing issuers to self-correct.

Improving Customer Experience and Service Delivery Under and in alignment to Office of Management and Budget guidance and Presidential Management Agenda, the IRS developed a Customer Experience/Service Delivery (CXSD) plan. The CXSD plan aligns to the 2018–2022 IRS Strategic Plan, W&I Operating Plan and the IRS Integrated Modernization Business Plan. The purpose of the CXSD plan is to define a future-based vision and strategy for delivering top quality service to all American taxpayers. The IRS envisions a seamless service strategy that provides taxpayers (and their representatives) with secure access to necessary tax information, and empowers them with integrated capabilities that deliver the services they need.

IRSAC Issues 2019 Report

The 2019 report is the first report published by the reconstituted IRSAC, which now also addresses topics previously worked by the former Advisory Council on Tax Exempt and Government Entities (ACT) and the Information Reporting Program Advisory Committee (IRPAC).

Includes recommendations on over 20 issues By Cindy Hockenberry, EA

2 NATP TAXPRO Monthly / natptax.com

December §7520 rate = 2.0%Blended rate for 2019 = 2.42%

Applicable Federal Rates for December 2019

Annual Semiannual Quarterly Monthly

Revenue Ruling 2019-26

Short-term (3 years or less)

1.61 1.60 1.60 1.59

Mid-term 1.69 1.68 1.68 1.67

Long-term(More than 9 years)

2.09 2.08 2.07 2.07

January 2020 / NATP TAXPRO Monthly 3

IRSAC believes the CXSD plan superbly incorporates many of its goals. There are opportunities to address additional aspects of the taxpayer journey to better provide a seamless experience and align with the IRS strategic goals. Specifically, the IRS can improve its CXSD plan in three areas: (1) envision a holistic customer journey; (2) enable mission and business partners as service delivery channels; and (3) embrace collaboration and agile development methods earlier in the planning phase.

2020 Forms W-4 and W-4PIn 2020 the IRS will be introduc-ing new Forms W-4 and W-4P. These forms eventually will be used by all taxpayers who receive Forms W-2 and W-2P. The new forms are necessitated by changes in the TCJA and more accurately calculate withholdings. While these forms are more accurate, they are a major change from the W-4 and W-4P that taxpayers have used for the past 30 years. Employers and taxpayers will need to under-

stand the new forms and must use them for any new employment or changes after Dec. 31, 2019. Current employees are not required to submit a 2020 Form W-4 to their employers unless they wish to make a change to what they have on file, but are encouraged to do a “Paycheck Checkup” by using the IRS’s revised withholding esti-mator. Because the TCJA nearly doubled the standard deduction, many people are now filing their Form 1040 returns taking the stan-dard deduction when in the past they itemized their deductions. This change is heightened by the limita-tion of state and local tax (SALT) deductions to $10,000, the limit on interest deductions for mort-gages exceeding $750,000, and the elimination of most miscellaneous deductions including non-reim-bursed employee business expenses. Allowing two significantly different versions of Forms W-4 or W-4P for an extended period is confusing to both employers and employees/retirees. The IRS has stated they will accommodate both 2020 and prior year versions of

Forms W-4 and W-4P when the 2020 income tax withholding tables are released. While there are no “exemptions” or “allowances” per se on the draft 2020 Form W-4 (other than the two or three allowances assigned to the employee based on filing status), allowing the continued use of pre-2020 Forms W-4 and W-4P implies that these versions still exist. Under the new system, an employee indicating “single or married filing separately” or “head of household” will receive two allowances, and an employee indicating “married filing jointly” will receive three allowances. To avoid the potential of under-withholding, it is believed many employees will not update their Form W-4 or W-4P status. To simplify reporting requirements, IRSAC recommends that the IRS review the decision to allow pre-2020 Forms W-4 or W-4P to be used indefinitely and require employees to file a 2020 Form W-4 by a certain date. The full text of the 2019 IRSAC report is available at irs.gov/pub/irs-pdf/p5316.pdf. n

Quick Reference Guide

At the close of every year, NATP’s Tax Knowledge Center pulls together a list of common facts and figures based on current law that tax professionals can reference throughout the coming tax season. You’ll find this Quick Reference Guide useful as you prepare returns.

A tool for preparing 2019 returnsBy Chris Novak, CPA

Tax Law

Personal Exemption For 2018–2025, the personal exemption deduction for taxpayer, spouse, and dependents is zero. However, the personal exemption amount for other purposes (for example, the qualifying relative gross income test) is $4,200 for 2019 and $4,300 for 2020.

Standard DeductionThe standard deduction amounts increased; however, the additional amount for age or blindness remains the same in 2020.

Filing Status 2019 2020

MFJ/Surviving Spouse (SS) $24,400 $24,800

HH $18,350 $18,650

Single $12,200 $12,400

MFS $12,200 $12,400

Additional for Age or Blindness

MFJ/SS $1,300 $1,300

Single or HH $1,650 $1,650

For 2019 and 2020, the standard deduction for dependents who only have unearned income is $1,100. If the dependent has both earned and unearned income, the standard deduction is the greater of:• $1,100, or• The dependent’s earned income plus $350, but not

more than the basic standard deduction for his or her filing status.

Itemized DeductionsFor 2018–2025, the overall limitation (Pease Limit-ation) on itemized deductions for taxpayers with AGI exceeding an applicable threshold does not apply. Medical Expense Deduction. For 2019, medical expenses are subject to the 10%-of-AGI limitation regardless of age.

Capital Gains Rates The top tax rate for capital gains and qualified dividends is permanently set at 20% for taxpayers with taxable income in the highest tax bracket. The net investment income tax (NIIT) of 3.8% makes the overall capital gain rate for higher income taxpayers effectively 23.8%. For tax years beginning after 2017, the 0% rate applies to capital gain below the maximum 0% rate amount. The 15% rate applies to capital gain at or above the 0% rate amount and below the maximum 15% rate amount. The 20% rate applies to capital gain at or above the 15% rate amount. These amounts will be indexed for inflation.

4 NATP TAXPRO Monthly / natptax.com4 NATP TAXPRO Monthly / natptax.com

Beginning of Capital Gain Tax Brackets

2019 0% 15% 20%

MFJ, SS $0 $78,751 $488,851

HH $0 $52,751 $461,701

S $0 $39,376 $434,551

MFS $0 $39,376 $244,426

Estates and Trusts $0 $2,651 $12,951

2020 0% 15% 20%

MFJ, SS $0 $80,001 $496,601

HH $0 $53,601 $469,051

S $0 $40,001 $441,451

MFS $0 $40,001 $248,301

Estates and Trusts $0 $2,651 $13,151

The ordinary income tax rates for short-term capital gain, the unrecaptured §1250 rate of 25%, and the collectible rate of 28% continue to apply.

Additional Medicare TaxAn additional Medicare tax of 0.9% applies to an individual’s wages, Railroad Retirement Tax Act compensation, and self-employment income if such

compensation exceeds the following threshold amounts, which are not indexed for inflation.• $250,000 for MFJ.• $125,000 for MFS.• $200,000 for all others (SS, HH, S).

Net Investment Income TaxA 3.8% Medicare tax is applied against net investment income (NII) of individuals, estates, and trusts. For this purpose, “individual” means any natural person, except those who are nonresident aliens. As such, the net investment income tax (NIIT) applies only to citizens or residents of the U.S. The NIIT is 3.8% of the lesser of:• Net investment income for the year.• The excess of modified adjusted gross income

(MAGI) over the threshold amount of $250,000 for MFJ and SS; $125,000 for MFS; and $200,000 for HH and S.

• Estates and trusts do not have any threshold as defined in §1411. They pay tax on the lesser of undistributed net investment income or the amount of AGI that exceeds the highest tax bracket of $12,750 for 2019 and $12,950 for 2020.

–continued on page 6

Income Tax Rates

Threshold for Individuals

2019 10% 12% 22% 24% 32% 35% 37%

S $0 $9,701 $39,476 $84,201 $160,726 $204,101 $510,301

MFJ, SS $0 $19,401 $78,951 $168,401 $321,451 $408,201 $612,351

MFS $0 $9,701 $39,476 $84,201 $160,726 $204,101 $306,176

HH $0 $13,851 $52,851 $84,201 $160,701 $204,101 $510,301

2020 10% 12% 22% 24% 32% 35% 37%

S $0 $9,876 $40,126 $85,526 $163,301 $207,351 $518,401

MFJ, SS $0 $19,751 $80,251 $171,051 $326,601 $414,701 $622,051

MFS $0 $9,876 $40,126 $85,526 $163,301 $207,351 $311,026

HH $0 $14,101 $53,701 $85,501 $163,301 $207,351 $518,401

Threshold for Estates and Trusts

Year 10% 24% 35% 37%

2019 $0 $2,601 $9,301 $12,751

2020 $0 $2,601 $9,451 $12,951


Tax Law (continued from page 5)

Alternative Minimum Tax (AMT)

Filing Status

2019 Exemption

2019 Phaseout

MFJ, SS $111,700 $1,020,600–$1,467,400

S, HH $71,700 $510,300–$797,100

MFS $55,850 $510,300–$733,700

For a child

subject to kiddie

tax

$7,750 plus child’s

earned income not to exceed $71,700

$510,300–$797,100

Estates and

Trusts$25,000 $83,500–$183,500

Filing Status

2020 Exemption

2020 Phaseout

MFJ, SS $113,400 $1,036,800–$1,490,400

S, HH $72,900 $518,400–$810,000

MFS $56,700 $518,400–$745,200

For a child

subject to kiddie

tax

$7,900 plus child’s

earned income not to exceed $72,900

$518,400–$810,000

Estates and

Trusts$25,400 $84,800–$186,400

Kiddie TaxFor 2019 and 2020, kiddie tax applies to a child who is required to file a tax return, does not file a joint return, has at least one living parent, has more than $2,200 of unearned income, and is any one of the following: • Under age 18 at the end of the year.• Age 18 and did not have earned income that was

more than half of his or her support.• A full-time student over age 18 and under age 24 at

the end of the year and did not have earned income that was more than half of his or her support.

In addition, for 2018–2025, the child’s unearned income is taxed at the same rates as estates and trusts.

Adoption CreditThe maximum nonrefundable credit increased to $14,080 for 2019. The credit begins to phase out

when MAGI exceeds $211,160 and is completely phased out when MAGI reaches $251,160. The maximum credit increases to $14,300 for 2020. The credit begins to phase out when MAGI exceeds $214,520 and completely phases out when MAGI reaches $254,520.

Child and Dependent Care CreditThe minimum child and dependent care credit is 20% and the maximum is 35% based on AGI. The amount of eligible expenses is $3,000 for one child and $6,000 for two or more children.

Child Tax CreditFor 2018–2025, the maximum child tax credit is $2,000 for each qualifying child. Furthermore, the maximum refundable child tax credit is $1,400 per child for 2019 and 2020, but is limited to the greater of:• 15% of earned income above $2,500; or• The excess of the taxpayer’s Social Security taxes

for the year over the earned income credit for the year for taxpayers with three or more qualifying children.

The TCJA also added a $500 nonrefundable credit for each dependent who is not a qualifying child for purposes of the child tax credit. In other words, taxpayers can claim the $500 other dependent credit (ODC) for qualifying children age 17 or older and qualifying relatives. Beginning with tax year 2018, no child tax credit is allowed for a qualifying child if such child does not have a Social Security number (SSN) by the due date of the tax return (including extensions). However, children without a valid SSN may still qualify for the ODC if they have an individual taxpayer identification number (ITIN) or adoption taxpayer identification number (ATIN) by the due date, including extensions. The child tax credit phase-out begins:

Filing Status MAGI

MFJ $400,000

All others $200,000


Earned Income Tax CreditThe maximum amount of income a taxpayer can earn and still be eligible for the earned income tax credit increased. If earned income or AGI exceeds the following amounts, the earned income tax credit is zero.

2019

Taxpayer MFJ Other Than MFJ

Max.Credit

With one child $46,884 $41,094 $3,526

With two children $52,493 $46,703 $5,828

With three or more children $55,952 $50,162 $6,557

With no children $21,370 $15,570 $529

2020

Taxpayer MFJ Other Than MFJ

Max.Credit

With one child $47,646 $41,756 $3,584

With two children $53,330 $47,440 $5,920

With three or more children $56,844 $50,954 $6,660

With no children $21,710 $15,820 $538

The maximum amount of investment income a taxpayer may have and still be eligible for the credit is $3,600 for 2019 and $3,650 for 2020.

Education Credits

Credit 2019 Maximum

Lifetime Learning Credit $2,000

American Opportunity Tax Credit $2,500

Credit 2020 Maximum

Lifetime Learning Credit $2,000

American Opportunity Tax Credit $2,500

The maximum lifetime learning credit is the lesser of 20% of the first $10,000 of qualified higher education expenses or $2,000.

The maximum American opportunity tax credit is 100% of the first $2,000 of qualified higher education tuition and related expenses, plus 25% of the next $2,000 of such expenses paid during the tax year, equaling a maximum credit of $2,500. Up to 40% of the credit may be refundable, unless it is claimed by a child who could be subject to the kiddie tax provisions no matter how much unearned income the child has.

2019 Phaseout

Filing Status

American Opportu-nity Tax Credit

Lifetime Learning Credit

MFJ, SS $160,000–$180,000 $116,000–$136,000

S, HH $80,000–$90,000 $58,000–$68,000

MFS Not Available Not Available

2020 Phaseout

Filing Status

American Opportu-nity Tax Credit

Lifetime Learning Credit

MFJ, SS $160,000–$180,000 $118,000–$138,000

S, HH $80,000–$90,000 $59,000–$69,000

MFS Not Available Not Available

Educator Expense DeductionAn eligible educator can take an above-the-line deduction for out-of-pocket classroom-related expenses. For 2019 and 2020, the deduction may not exceed $250.

Student Loan Interest DeductionTaxpayers can deduct up to $2,500 of interest paid on qualified education loans that were used for qualified education expenses of the taxpayer, spouse, or dependents when the loan was taken out. To deduct the amount paid, the taxpayer must be legally liable for the loan.

Filing Status 2019 Phaseout

MFJ, SS $140,000–$170,000

S, HH $70,000–$85,000

MFS Not Available

Filing Status 2020 Phaseout

MFJ, SS $140,000–$170,000

S, HH $70,000–$85,000

MFS Not Available


Health Savings Accounts (HSAs)Like IRAs, funds in HSAs are 100% tax-deferred until distributed. A non-dependent taxpayer insured by a high deductible health plan (HDHP) may deduct after-tax monthly HSA contributions up to an annual limit.

CoverageAnnual

Contribution Limit

HDHP Minimum

Deductible

HDHP Maximum

Out of Pocket

2019 Individual $3,500 $1,350 $6,750

2019 Family $7,000 $2,700 $13,500

2020 Individual $3,550 $1,400 $6,900

2020 Family $7,100 $2,800 $13,800

If the HSA account beneficiary is age 55 or older at the end of the year, the annual contribution limit is increased by $1,000 [§223(b)(3)]. If a husband and wife are both age 55 or over and eligible individuals, they can each contribute an additional $1,000 to his or her own HSA (Notice 2008-59, Q&A #22). To reiterate, if they both want to take advantage of the additional $1,000, each must have his or her own HSA in which to contribute.

Long-Term Care Premiums Annual Deductible Limit

Taxpayer’s Age at the Close of the Tax Year 2019 2020

40 or less $420 $430

More than 40 but not more than 50 $790 $810

More than 50 but not more than 60 $1,580 $1,630

More than 60 but not more than 70 $4,220 $4,350

More than 70 $5,270 $5,430

(Archer) Medical Savings Accounts (MSAs)

Health Plan

Annual Deductible

Maximum Out-of-Pocket

Expenses

Annual Maximum

Deduction*

2019 Individual $2,350–3,500 $4,650 65% of

deductible

2019 Family $4,650–7,000 $8,550 75% of

deductible

2020 Individual $2,350–3,550 $4,750 65% of

deductible

2020 Family $4,750–7,100 $8,650 75% of

deductible

*If the plan is established by a self-employed individual, the limit is the lesser of the related trade or business earned income or the applicable percentage.

Health Flexible Spending Arrangement (FSA)Voluntary employee salary reduction contributions to a health FSA cannot exceed $2,700 for 2019. This amount increases to $2,750 for 2020.

QSEHRAFor 2019, the total amount of payments and reim-bursements under a qualified small employer health reimbursement arrangement (QSEHRA) cannot exceed $5,150 ($10,450 for family coverage). For 2020, this amount increases to $5,250 ($10,600 for family coverage).

Refundable Credit: Qualified Health PlanThe limitation on tax imposed under §36B(f )(2)(B) for excess advance credit payments is determined using the following table:

2019If household

income (expressed as a percent of the poverty line) is:

Limitation amount

for Single filers is:

Limitation amount for MFJ, SS,

HH, MFS is:

Less than 200% $300 $600

At least 200%, but less than

300%$800 $1,600


400%$1,325 $2,650



2020

If household income

(expressed as a percent of the poverty line) is:

Limitation amount

for Single filers is:

Limitation amount for MFJ, SS,

HH, MFS is:

Less than 200% $325 $650


300%$800 $1,600


400%$1,350 $2,700

IRA Contribution Limit to Traditional and Roth IRAs For 2019 and 2020, the contribution limit to a tradi-tional or Roth IRA is $6,000 ($7,000 for taxpayers age 50 or older).

IRA: Deduction Phaseout for Traditional IRAs for 2019

Filing Status Taxpayer Covered by Employer Plan

S, HH $64,000–$74,000

MFJ, SS $103,000–$123,000

MFS* $0–$10,000

Filing Status Spouse of Covered Employee

S, HH N/A

MFJ $193,000–$203,000

MFS $0

IRA: Deduction Phaseout for Traditional IRAs for 2020

Filing Status Taxpayer Covered by Employer Plan

S, HH $65,000–$75,000

MFJ, SS $104,000–$124,000

MFS* $0–$10,000

Filing Status Spouse of Covered Employee

S, HH N/A

MFJ $196,000–$206,000

MFS $0

IRA: MAGI Phaseout for Roth IRA Contributions

Filing Status 2019

MFJ $193,000–$203,000

MFS (lived with spouse) $0–$10,000

S, HH, SS, or MFS* $122,000–$137,000

Filing Status 2020

MFJ $196,000–$206,000

MFS (lived with spouse) $0–$10,000

S, HH, SS, or MFS* $124,000–$139,000

*If a taxpayer is filing MFS and did not live with his/her spouse at any time during the year, he/she is considered Single for IRA deduction purposes.

Annual Gift Tax Exclusion For 2019 and 2020, the annual gift tax exclusion is $15,000 per person. The 2019 annual exclusion to a spouse who is not a citizen of the United States is $155,000. This annual exclusion increases to $157,000 for tax year 2020.

Estate Tax ExclusionThe estate tax exclusion is $11,400,000 for 2019. This amount increases to $11,580,000 for 2020.

Foreign Earned Income ExclusionFor 2019, a qualified individual may exclude up to $105,900 of qualified foreign earned income using Form 2555, Foreign Earned Income. For 2020, this amount increases to $107,600.

Social SecurityFor 2019, the maximum wages subject to Social Ssecurity tax is $132,900. For 2020, the maximum wage amount increases to $137,700.


Saver’s CreditA saver’s credit can be claimed using Form 8880, Credit for Qualif ied Retirement Savings Contributions. The credit is calculated by multiplying the applicable rate by the qualified retirement plan contributions not to exceed $2,000. The maximum credit is $1,000 per person.

2019

Filing Status 50% 20% 10% No Credit

MFJ $0–$38,500 $38,501–$41,500 $41,501–$64,000 Over $64,000

HH $0–$28,875 $28,876–$31,125 $31,126–$48,000 Over $48,000

All others $0–$19,250 $19,251–$20,750 $20,751–$32,000 Over $32,000

2020

Filing Status 50% 20% 10% No Credit

MFJ $0–$39,000 $39,001–$42,500 $42,501–$65,000 Over $65,000

HH $0–$29,250 $29,251–$31,875 $31,876–$48,750 Over $48,750

All others $0–$19,500 $19,501–$21,250 $21,251–$32,500 Over $32,500



Cost-of-Living Adjustments for Qualified Retirement Plans

Annual Elective Deferral Limit 2020 2019 2018 2017 2016

§401(k) $19,500 $19,000 $18,500 $18,000 $18,000

§401(k) age 50 or older* $25,500 $25,000 $24,500 $24,000 $24,000

§403(b) annuity $19,500 $19,000 $18,500 $18,000 $18,000

§403(b) age 50 or older* $25,500 $25,000 $24,500 $24,000 $24,000

SARSEP $19,500 $19,000 $18,500 $18,000 $18,000

SARSEP age 50 or older* $25,500 $25,000 $24,500 $24,000 $24,000

SIMPLE and SIMPLE 401(k) $13,500 $13,000 $12,500 $12,500 $12,500

SIMPLE and SIMPLE 401(k) age 50 or older* $16,500 $16,000 $15,500 $15,500 $15,500

§457 (government and exempt organizations) $19,500 $19,000 $18,500 $18,000 $18,000

§457 age 50 or older* $25,500 $25,000 $24,500 $24,000 $24,000

Annual benefit limit for defined benefit plan $230,000 $225,000 $220,000 $215,000 $210,000

Annual benefit limit for defined contribution plan $57,000 $56,000 $55,000 $54,000 $53,000

Annual compensation limit $285,000 $2,800 $275,000 $270,000 $265,000

SEP minimum compensation limit $600 $600 $600 $600 $600

Highly compensated employee (based on previous year’s compensation) $130,000 $125,000 $120,000 $120,000 $120,000

Key employee compensation in top-heavy plan $185,000 $180,000 $175,000 $175,000 $170,000

IRA or Roth** $6,500 $6,000 $5,500 $5,500 $5,500

IRA or Roth age 50 or older** $7,500 $7,000 $6,500 $6,500 $6,500

* A participant who is projected to attain age 50 before the end of a calendar year is deemed to be age 50 as of January 1 of that year. This optional provision must first be elected by the pension plan sponsor (employer).** Lesser of this or earned income.

Cash Method of AccountingFor tax years beginning after 2017, the gross receipts limit under §448(c) for using the cash method of accounting for corporations and partnerships increased under the TCJA to $25 million for 2018. This amount increased to $26 million for 2019 and 2020.

§179 ExpensingFor 2019, taxpayers may expense up to $1,020,000 of qualifying property acquired for use in a trade or business, while the SUV limit is $25,500. The deduction phase-out begins at $2,550,000 on purchases of qualifying property, including qualified real property. For property placed in service in tax years beginning after 2017, qualified real property means:• Qualified improvement property, and • Any of the following improvements to

nonresidential real property: roofs; heating, ventilation, and air conditioning (HVAC) property; fire protection and alarm systems; and security systems.

For 2020, the aggregate amount taxpayers may expense increases to $1,040,000, and the SUV limit increases to $25,900. However, the deduction is reduced when the cost of qualifying property exceeds $2,590,000.

Luxury Automobile Depreciation Limits for Vehicles Placed in Service in 2019Passenger autos and light trucks and vans all have the same limits.

Purchased

before 9/28/17Purchased

after 9/27/17

1st year–2019 $10,100 $10,100

1st year w/ bonus $14,900 $18,100

2nd year $16,100 $16,100

3rd year $9,700 $9,700

Succeeding years $5,760 $5,760

Standard Mileage Rates

2019

Business mileage 58¢

Medical or moving mileage 20¢

Charity 14¢

Depreciation component 26¢

Per Diem Allowance Substantiation Method

Standard Rate* M&IE Lodging Total

Oct. 1, 2018–Sept. 30, 2019

$55 $94 $149

Oct. 1, 2019–Sept. 30, 2020

$55 $96 $151

*See gsa.gov for rates for specific cities.

The incidentals allowance is $5 for travel both inside and outside the United States.

Per Diem Meal Allowance for Transportation Industry

2018–2019 2019–2020

Travel inside the U.S. $66 $66

Travel outside the U.S. $71 $71

– continued on page 12

Business Tax Issues


Daycare Per Diem for MealsThe standard meal and snack rates allowed for day care facilities are equal to the Tier 1 reimbursement rates established by the Child and Adult Care Food Program (CACFP) of the Department of Agriculture. The Department of Agriculture changes the rates every July; therefore, the IRS uses the rates in effect as of December 31 of the prior year for the entire year (for example, December 31, 2019, rates apply for all of 2020), even though the CACFP rates change in July (http://www.fns.usda.gov/cacfp/reimbursement-rates). The taxpayer is required to keep a log for the number of meals and snacks served to each child. The rate represents the amount allowed as a deduction per child for the corresponding type of meal served.

2019

Meal Contiguous States Alaska Hawaii

Breakfast $1.31 $2.09 $1.53

Lunch and Supper $2.46 $3.99 $2.88

Snack $0.73 $1.19 $0.86

2020

Meal Contiguous States Alaska Hawaii

Breakfast $1.33 $2.12 $1.54

Lunch and Supper $2.49 $4.04 $2.92

Snack $0.74 $1.20 $0.87

Qualified Business Income (QBI) DeductionThe QBI deduction may be phased out or limited when taxable income exceeds the following thresholds.

Filing Status 2019 2020

Single, HH $160,700 $163,300

MFJ $321,400 $326,600

MFS $160,725 $163,300

Excess Business LossFor 2018–2025, an excess business loss limitation applies to taxpayers (other than C corporations). Section 461(l) limits the ability of noncorporate taxpayers to use trade or business losses against other sources of income, such as wages, interest, dividends, and capital gains. For 2019, noncorporate business losses are limited to $255,000 ($510,000 if MFJ). For 2020, these limits increase to $259,000 ($518,000 if MFJ).

Self-Employment Optional MethodsIn 2019, the following dollar limits apply:• Under the farm optional method, if the individual’s

gross farm income is $8,160 ($8,460 for 2020) or less or net farm income is less than $5,891 ($6,107 for 2020), net earnings from self-employment equals the smaller of two-thirds of gross farm income (not less than zero) or $5,440 ($5,640 for 2020). The individual can use this method year after year. There is no limit on the number of years a taxpayer can use this method.

• Under the nonfarm optional method, if net nonfarm profits are less than $5,891 ($6,107 for 2020) and also less than 72.189% of gross nonfarm income, and net earnings from self-employment were at least $400 in two of the prior three years, net earnings from self-employment equal the smaller of two-thirds of gross nonfarm income (not less than zero) or $5,440 ($5,640 for 2020). There is a five-year lifetime limit on the use of the nonfarm optional method. However, the five years do not have to be consecutive. n



Our clients use their emails and cell numbers to log into many sites where sensitive information is accessed. Its easy to understand why client contact information needs protection under the law. Section 6103 deals with confidentiality and disclosure. In §6103(b)(2)(A), return information is defined as a taxpayer’s identity and includes all the information tax return preparers obtain from clients or other sources, in any form or manner, that is used to prepare tax returns or is obtained in connection with the preparation of returns. Even entering client contact information in apps outside your tax software requires their consent. This includes the common practice of entering client details into QuickBooks and other apps, or even on your cell phone. All are disclosure to third parties. Disclosure and use law is further found under §7216. In short, tax preparers must maintain written records indicating clients have consented to the disclosure and use of apps, texting, email, IM, electronic signing, etc.

Mandates on ProceduresThe rules for obtaining written consent are found in Treas. Reg.

§301.7216-3(b) and Rev. Proc. 2013-14 and 2013-19 among other places. Fulfilling all the require-ments isn’t easy. Some of the requirements for consent forms are:• Including mandatory language

clarifying a taxpayer doesn’t need to complete a consent form to engage you as a tax preparer.

• Paper form size is 8.5 x 11.• Text must be 12-point type.• If done in electronic form,

consent is to be on individual screens with text pertaining to each type of consent.

• The Treasury Inspector Gen-eral for Tax Administration (TIGTA) mandates specific disclosure and use statements, which must be verbatim. Refer to Rev. Proc. 2013-14 for verbiage.

• Consents must be done individually as a separate “Yes” or “No” action and not as a group of “select all” consents.

• Consent forms must be signed.• Electronic signatures must have

a 5-digit PIN so the firm can verify identity. Clients will then type their name and hit enter.

• Forms must note a clear “opt out” procedure to the client.

• Allow client to indicate when consents expire (otherwise consent is only good one year).

Again, generally, disclosure to e-file providers is allowable but almost any other technology is a third-party disclosure. Technology needs to be inventoried. Creating your inventory is the first step. Implementing a reasonable consent procedure follows. To avoid missing a disclosure, my firm includes our tax software in our list because it can integrate with other apps. I’ve included a sample inventory spreadsheet we use (see page 14). At the very least, update your inventory and procedures on an annual basis. Now is the time to review where you disclose and use client information and gather their written consents. n

Client Names, Phone Numbers and Email Addresses

Rules for obtaining written consentBy Portia Vogt, EA

Do you get written affirmative consent before adding client information to your iPhone, Android, software and apps? If not, a breach under §7216 is a penalty of $1,000 or imprisonment, or both, for each violation.

Tax 101


Tax 101 continued from page 13


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(001-839) (ISSN 1535-5896) is published monthly by NATP

National Association of Tax Professionals3517 N. McCarthy Road

Appleton, WI 54913

Periodicals postage paid at Appleton, WIand additional mailing office.

Editor: Cindy Van BeckumManaging Editor: Cindy Hockenberry, EA

Contributing Writers:Liza Corbisier, EA

Cindy Hockenberry, EAChris Novak, CPA

Portia Vogt, EA

Postmaster: Send address changes to:TAXPRO Monthly c/o NATP

3517 N. McCarthy RoadAppleton, WI 54913

Change of address?Please contact NATP at:

800.558.3402 ext. [email protected]

natptax.com

Views expressed in TAXPRO Monthly are not necessarily endorsed by the National Association of Tax Professionals.© Copyright 2020

National Association of Tax Professionals, Inc.All rights reserved.

monthlyTAXPRO

About NATPNATP is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 22,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.


NATP News

Tax Professional of the Year

Congratulations to

Kathryn A. Bowman, EA, AFSPLebanon, PA

Thank you, Kathryn, for your exceptional service to NATP and its members!

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Visit natptax.com/shop for everything to successfully run your practice.

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Tax Office Supplies

Organized clients make for happy preparers.

Products such as record books and client envelopes help your clients stay organized throughout the year so you can breathe a little easier come tax season.

Visit natptax.com/shop for everything to successfully run your practice.

NATP members receive a discount on most products. Premium members receive free shipping, year-round.

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