In our last article, we introduced you to three changes you should know about for the 2020 tax season. In this article, we’ll share two more things to watch out for as you prepare for April 15. Don’t be caught off-guard by these or any other changes. Talk to tax professionals like those at James Russell, PLLC for professional advice.

Wayfair Decision Summary and Impact

State tax agencies are spreading a wider net to capture more sales tax on interstate transactions as a result of the June 2018 U.S. Supreme Court’s South Dakota vs. Wayfair decision in favor of the State.  This decision has changed the rules allowing States to initiate sales tax collections from businesses operating across state borders, without an in-state presence requirement.  As a result of this ruling, all 45 states with sales and use taxes are expected to enact revised nexus regulations in order to collect more revenue for their state coffers.

Although sales and use taxes have historically been the burden of the end user, the Wayfair decision has opened the path for States to shift collection and remittance obligations to the seller.  In addition, the tax obligations may not stop at the entity level.  Conducting business as a corporation or a limited liability company may not protect business owners and officers from personal state tax liability under the responsible person rules.

With the future of virtual marketplace growth in standard business sales and operations, the impact of the Wayfair decision will be shifting into high gear over the next several years.  So, hold on it may be a bumpy ride.

Estate Tax

Big changes happened with the Estate and Trust rules, as the Federal level exemption increased to $11.58 million.  However, caution should be taken as the Washington state threshold is holding at $2,193,000 so it is easy to cross the Washington estate tax threshold and incur an estate tax liability.  The average Woodway home is $1.5 million dollars as of October 2019, so by adding the value of your home, other real estate, retirement accounts, and life insurance, you are likely to surpass the Washington estate limit. Collaborating with your attorney and CPA to preserve the step-up basis, leveraging gifts, and optimizing tax savings will provide peace of mind for you and your family.

What’s Next?

Talk to your tax professional now to find the best way to save money in light of these changes. We would love to help you. Our expert CPAs are available for consultation so you can be sure you’re receiving the full benefit of the new tax laws.

It’s a complex world, and with the huge overhaul of the tax code two years ago aimed at simplification, it seems to get more complicated.  Are you able to navigate the new tax law and get the best benefit?  Are you overpaying your taxes?  Do you feel that there is something not being addressed when Tax Day comes?  Here are some items to consider for 2020 and beyond.

Federal Tax Withholding

While the lower tax rates made headline news, behind the scenes the IRS decreased the amount of federal tax withheld from paychecks which was not widely publicized.  Unfortunately, this resulted in many taxpayers owing more than they expected, getting less back than expected, or in some cases, owing money when they usually receive a refund.  Heading into 2020, it would be advisable to speak with a tax advisor regarding adjustments to your withholding, so you are not surprised come tax time.

Tax Tip:  A new 2020 W-4 form has been released.  The form has a new look with revisions to determining withholding amounts.  Although it is not required to update your W-4 form each year, it is highly recommended to fill out a new W-4 form for 2020 if a recent tax return resulted in an unexpected tax liability.

Lost Deductions

We also saw the demise of the 2% miscellaneous deduction on Schedule A.  This was a big loss especially for salespeople and their mileage, employees who maintained home offices, or others who had unreimbursed business expenses from their employer.  If this affects you, now is the time to sit down with your employer to discuss the implications of this change and work towards a remedy to compensate you for the lost deductions.

Qualified Business Income (QBI)

The Qualified Business Income deduction (QBI) was part of the recent changes made by the Tax Cuts and Jobs Act.  Its aim is to eliminate the disparity between the 21% corporate tax rate and individual tax rate.  This provides a special deduction for self-employed, small business owners, and real estate investors.  The deduction can reduce the amount of your qualified business income by 20%.  However, the rules for claiming the QBI deduction are complicated and many restrictions apply.

There are some great ways to maximize your QBI deduction to help you pay less tax.  Being in the right entity or structure is imperative as well as how you structure payments to yourself.  It is recommended that you work with a qualified tax professional who can help you get the most out of this important tax break.  Maximization can be achieved with the right planning.

Next Steps

With all these changes in mind, speaking with your tax professional proactively is the best way to save money.  If you find yourself needing assistance, please come and talk with one of our experienced and knowledgeable CPAs at James Russell, PLLC.