Tax Changes and Regulations Impacting 2020

2020-tax-changes-web Tax Changes and Regulations Impacting 2020
Photo: Gerd Altmann

Parsonage Allowances

U.S District  Court found that the non-taxability of parsonage allowances was unconstitutional in the case of Gaylor v. Mnuchin. This decision was overturned by the Seventh Circuit Court on March 15, 2019, which found that the provision (Code Section 107(2)) that made parsonage allowances free of income tax, was constitutional on the grounds that it has s secular legislative purpose. This decision was not appealed,

Clergy Self Employment Tax and Deductions

The Tax Cuts and Jobs Aact suspended the employee business expenses as an itemized deduction, but for clergy, they can still be deducted in computing self- employment income.

Setting Every Community up for Retirement Enhancement (Secure) Act

  • Was passed in the final weeks of 2019. Contributions can now be made to Traditional IRS’s after age 70-½. Required minimum distributions now start at age 72 instead of 70-½.
  • Penalty-free distributions can be made from retirement accounts of up to $ 5,000 for
  • Qualified birth or adoption expenses.
  • There are now tax credits for small businesses that establish a 401(k). 43(b), SEP or Simple plans
  • Employee eligibility begins at 500 hours of work per year, down from 1,000 hours.
  • With some restrictions, you can now use a 529 plan to pay up to $10,000 of student loans.
  • Kiddie tax now reverts to the parent’s highest rate, instead of the even higher fiduciary tax rate.
  • The qualified tuition deduction was extended
  • The threshold for medical expense deduction was lowered back to 7.5% down from 10%.
  • The $2,000,000 rule for exemption from tax on qualified acquisition debt forgiveness was extended.

The Bipartisan Budget Act of 2018 directed the IRS to create Form 1040SR for use by individuals age 65and older. Use of the form is optional and not likely to be used by many.

Married couples with a nonresident alien spouse must file separately unless both spouses elect to file jointly, in which case the nonresident spouse must pay U. S. income tax on worldwide income.

Cryptocurrency (bitcoin and others) are treated in tax law like a stock. When you sell or otherwise dispose of it you will have a reportable gain or loss, just like a share of stock.

Be careful about having a foreign exchange holding your cryptocurrency. If it is foreign and is over a certain amount, it must be reported as a foreign account ( FBAR) on Form FinCen 114.

If you pay for goods or services with cryptocurrency there will be a reportable gain or loss on the currency.

IRS is sending letters to virtual currency owners advising them that they may have to file an amended return to report currency transactions. Letter 6173 requires a response. Letter 6174 is a warning that the taxpayer might have a reporting requirement. Letter 6174A informs the taxpayer that the IRS definitely needs to file an amended return. If you get one of these letters do not ignore them. Seek professional assistance as soon as possible.