Tax Update will come as a surprise to many Californians.
California has announced that even though the IRS will no longer be imposing health insurance based penalties, California will. Starting in January 2020, all Californians are required to have minimum essential health coverage.
Just like the expired IRS regulations, California is imposing penalties for noncompliance and a possible tax credit for those who go through the Covered California to obtain their insurance.
Don’t forget to track your expenses!
Many people who generally itemized their deductions in the past were not able to in 2018 due to IRS increasing the standard deductions amounts as well as disallowing many deductions. California is still allowing many of the deductions the IRS has disallowed and is also allowing us to itemize CA deductions even when you do not itemize for IRS.
RETRO-ACTIVE tax extenders and new tax laws. 715 pages. Here are some highlights.
In prior years, we were allowed to deduct medical expenses that exceeded 7.5% of our adjusted gross income, if we itemized. Tax law changes happen every year and a couple of years ago, they changed the 7.5% floor to 10% floor. So, when you filed your 2018 tax return, if you itemized medical expenses, you were only allowed to itemize any amount that was over 10% of your adjusted gross income. It’s been reverted, retroactively, back to 7.5% for tax years 2017 and 2018 through 2020. What this means, is that a very few people will have enough medical expenses to make it worth itemizing. If you think you fall into this category, let me know and we can check to see if it would be worth the time and money to amend your returns.
They also took away, and then gave back the mortgage insurance premium deduction. Certain mortgages are required to have MIP. For 2018, they took it away, but at the end of December 2019 they gave it back, retroactively, for tax years 2017 through 2020. If you itemize and paid MIP, you may want to consider amending prior year returns. For most people, this deduction alone will not make it worth your effort to amend the tax return. But if you are amending anyway for another reason, you may as well add this if it applies.
If you defaulted on your mortgage that you took out to “buy, build or substantially improve your main home” you were able to exclude from income cancelled debt on your “qualified principal residence”. They took this away in 2017, but it’s back now! This one is a big deal.
WE DID NOT GET BACK the un-reimbursed employee expenses deduction! Boo! This one was huge. This was mileage, uniforms and union dues (to name a just few). Losing this particular deduction made it so that many folks who itemized are now better off taking the standard deduction. CALIFORNIA still allows these deductions, so be sure to track them if you are in CA, or another state that allows them.