Dear Clients, Friends and Colleagues;
Happy New Year! I hope your holidays were terrific and your 2019 was everything you had hoped for! My firm had a big year hiring many new employees and moving into new offices on the 56th floor of the beautiful 70 W. Madison building. We would love for you to come by and see the new space and meet our new team! I continue to be blessed with the best clients in the world and as I get older (this will be my 32nd year practicing tax law!), I am so thankful to be able to work for such great clients!
With the new year comes a new tax season. Thankfully, after the tax insanity that was last year’s tax season, 2019 will be fairly consistent. Having survived a year with the largest change in tax law in 30 years, I am looking to 2019 and beyond to work with clients to implement a comprehensive strategy to take full advantage of the new law and save even more money while continuing to reduce audit risk. I encourage you to schedule time with me this year to review what we have done in the past and look to any changes that need to be implemented to accomplish your goals and reduce your tax hit.
Although a majority of the code will stay consistent with last year, there are a few changes that are new for 2019:
• Alimony. One very significant change that came into effect January 1, 2019, is the treatment of alimony. Beginning with divorces and separation agreements entered into after December 31, 2018, alimony or separate maintenance payments are no longer deductible by the payor, nor includible in the income of the payee. This change does not affect divorce or separation agreements entered into before 2019, nor those altered after 2018 where the changed method of taxation is not expressly stated to apply.
• Medical expenses. The floor for claiming deductions for medical expenses increased to 10 percent for 2019 after the new law lowered it to 7.5 percent for all taxpayers for two years.
Other than these new provisions, remember that the below significant changes came into effect in 2018 under the new tax law, some of which are not taxpayer friendly:
• State and local taxes. The new law limits the deduction for state and local taxes to $10,000 per year.
• Increased standard deduction. One of the most broadly impactful provisions of the new law was the near doubling of the standard deduction for all taxpayers. For 2019, the standard deduction amounts are $24,400 for joint filers, $18,350 for heads of households, and $12,200 for all other individual filers.
• Miscellaneous itemized deductions. The new law eliminated miscellaneous itemized deductions for individuals. This includes deductions for unreimbursed employee expenses.
• Withholding. The new law significantly impacted employee withholding, and taxpayers who didn’t adjust for these changes in 2018 found themselves with a large tax bill when filing returns in 2019. The IRS gave some relief from penalties for not withholding enough during 2018, but it is unlikely to do so again for 2019.
Lastly, I always stress to clients that an integral part of what I do in tax preparation and planning is audit mitigation. I realize that’s not discernable on the face of the returns and certainly reducing the effective tax rate is the thing most folks like the most about what I do; however, I continually monitor national audit statistics and trends to insure that we have a coordinated tax strategy in place that reduces audit risk as well as save tax. By applying these macro statistics to my tax planning, I am able to save you money on your returns while significantly reducing audit risk.
Our firm motto is “seeing value beyond tax” and our vision and drive have always been to work with our clients in a wholistic manner to spot opportunities for tax reduction, but also asset protection, audit avoidance, and to be a trusted advisor. It is our sincere privilege to help you in tax planning. I look forward to working with you this year!
Very Truly Yours,
Michael T. McCormick