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Tax Tip Tuesday: Five Tips Your Clients Need This Tax Season, Part 2

Tax Tip Tuesday: Five Tips Your Clients Need This Tax Season, Part 2

The American College of Financial Services
March 10, 2020

Once again, March has arrived, and for most people that means they’ve arrived squarely in the middle of tax season. With all tax materials due to the IRS by April 15, financial advisors are likely to field many more questions from their clients over the next few weeks about the finer points of taxation: how can I keep the most of my hard-earned money? What deductions might I qualify for? Are there better ways to organize and file my returns than I’m currently using? The list goes on and on.

In this series we’re calling “Tax Tip Tuesday,” we outline a series of insights that you as a financial advisor, or possibly even as a client or everyday taxpayer, can use to educate yourself on some of the finer points of taxation. While all financial experts may not agree on the subjects discussed, these tips are a collection of the biggest trending topics for tax season 2020 and are things you’ll likely want or need to consider when filing your return--or helping your clients perfect theirs.

 

#2: Keep Up With the Times

 

It seems to go without saying that advisors and their clients should be well-informed about updates and changes to tax laws, but it’s especially important to be vigilant nowadays. Over the past several years, we’ve seen laws including the SECURE Act of 2019 and the Tax Cuts and Jobs Act (TCJA) of 2017 that have rewritten large swaths of the financial services profession, and making sure you and your clients understand what the changes mean is critical in ensuring their taxes are optimized.

Just a few of the changes ushered in by tax year 2019 include:

For those going through divorces or separations from a partner, alimony payments made or changed in 2019 or later will no longer be deductible from your taxes. This means divorcees and others may face a heavier tax burden when filing this year than in previous years.

While many people in the country are covered by health insurance marketplace plans or other plans available through their jobs, existing penalties put in place under the Affordable Care Act for those who don’t have insurance will no longer occur. However, the SECURE Act opens up possible opportunities for many in part-time or freelance lines of work to get health insurance, and this could give clients an extra avenue to put away some pre-tax dollars.

If you itemize your taxes, the threshold for deducting qualifying medical and dental expenses has been hiked up to 10 percent of your adjusted gross income (AGI). This means it’s now harder to deduct medical expenses from your taxes, so be prepared to deal with the extra burden or choose the simpler standard tax deduction--it’s higher than it has been in a while, so many clients may benefit from choosing this over itemizing.

In addition, the standard 1040 tax forms are changing yet again. For older clients, they’ll now have access to a new version (1040-SR) specifically designed for seniors. Along with being less complicated and easier to read, the new form allows seniors to claim standard deductions without income limits or restrictions on types of income reported. This means more of your clients may be qualified for some special tax opportunities. The six existing supplemental schedules for Form 1040 have also been merged into three, hopefully streamlining the filing process for many other taxpayers as well.

While it’s a bit rarer of a subject to deal with, some of your clients may engage in cryptocurrency trading with bitcoin--but watch out, because the rules around that are changing as well. New guidance issued at the end of 2019 means that, starting this tax season, bitcoin and other cryptocurrencies will no longer be treated like other forms of money, but rather as property for tax purposes. If your clients trade in bitcoin, they’ll now have to pay capital gains taxes and report growth and loss for those trades, or risk being cited for tax fraud. It’s another thing to keep your eye on as the financial landscape continues to shift.