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Helpful Tax Tips For 2019
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Article Highlights: Education Credit Avoiding Underpayment Penalties Strategy Spouse IRA Strategy Qualified Charitable Distributions Medical Expenses Election to Deduct Start-Up Costs State and Local Tax (SALT) Deductions Electric Car Credit Alimony Heath Insurance Penalty Cryptocurrency Transactions Qualified Opportunity Funds Solar Credit As the year draws to a close, we have pulled together a number of tax tips that may be beneficial, some of which need to be acted before the end the of the year to be useful for 2019. Education Credit – Since the American Opportunity credit for higher education expenses is only allowed in the first four calendar years for each eligible student, taxpayers may benefit from prepaying the education expenses for an academic period beginning in the first three months of the next year. This is especially important when you consider that most students enter college in the last half of the first eligible tax (calendar) year and qualify for the credit with only half a year’s expenses during the first year. Working out a payment plan where the tuition is prepaid under the three-month rule in each of the eligible years would more evenly spread the tuition over the four years. Avoiding Underpayment Penalties Strategy – Most high-income taxpayers and those who might end up with higher-than-normal income because they are likely to receive extraordinary taxable income should consider paying 110% of their prior year’s tax to meet the safe harbor for avoiding an underpayment penalty. And then, no matter how much they end up owing for the year, they will not need to pay up until the April due date. However, this exception requires the prepayments to be made evenly and to be paid in a timely manner by quarter; underpayments generally can’t be made up later and still qualify for the safe harbor. But, since withholding is treated as being paid evenly throughout the year (unless the taxpayer elects actual withholding amounts), the estimated tax shortfall of the even-payments-by-quarter requirement can be made up by having extra withholding at the end of the year. Spousal IRA Strategy –If one spouse works and the other does not, tax law allows the non-working spouse to base his or her contribution to an IRA on the working spouse’s income. This tax benefit is frequently overlooked when spouses have been working and basing their individual contributions on their own income for years and then one of the spouses retires. Even if the working spouse has a pension plan at work and his or her income precludes making an IRA contribution, the non-working retired spouse can still make a contribution based on the working spouse’s income. However, be careful since traditional IRA contributions, both deductible and non-deductible, are not allowed in the year when an individual turns 70½ or any subsequent years. This restriction does not apply to Roth IRA contributions. Qualified Charitable Distributions – With the tax reform’s substantial increase in the standard deduction, many taxpayers no longer itemize their deductions and thus get no tax benefit from making charitable contributions. However, individuals age 70½ or older—who must withdraw annual required minimum distributions (RMDs) from their IRAs—can annually transfer up to $100,000 from their IRAs to qualified charities. Here is how this provision, if utilized, works: (1) The IRA distribution is excluded from income; (2) The distribution counts toward the taxpayer’s RMD for the year; and (3) The distribution does NOT count as a charitable contribution deduction. At first glance, this may not appear to provide a tax benefit. However, by excluding the distribution, a taxpayer lowers his or her adjusted gross income (AGI), which helps for other tax breaks (or punishments) that are pegged at AGI levels, such as medical expenses when itemizing deductions, passive losses, and taxable Social Security income. In addition, non-itemizers essentially receive the benefit of a charitable contribution to offset the IRA distribution.
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Tax and Financial Insights
by NR CPAs & Business Advisors
2026 IRS Mileage Rates: Key Updates and Insights
The IRS has rolled out the inflation-adjusted mileage rates for 2026, offering taxpayers an efficient way to claim deductions for vehicle-related expenses incurred for business, charity, medical, or moving purposes. These adjustments reflect the continued economic shifts impacting car operation costs.
Effective January 1, 2026, the new standard mileage rates are established as follows:
- Business Travel: Increased to 72.5 cents per mile, inclusive of a 35-cent-per-mile depreciation allocation. This marks a rise from the 70 cents per mile rate set for 2025
- Medical/Moving Purposes: Reduced slightly to 20.5 cents per mile, down from 21 cents in the previous year, reflecting the variable cost considerations.
- Charitable Contributions: Consistent at 14 cents per mile, a fixed rate unchanged for over a quarter-century.
As is typical, the business mileage rate considers the integral fixed and variable costs of automobile operation. Meanwhile, the medical and moving rates remain contingent on variable expenses as determined by the IRS study.
It is critical to note that the One Big Beautiful Bill Act (OBBBA) held firm on disallowing moving expense deductions except for specific cases within the Armed Forces and intelligence community, marking a substantial shift since 2017.
When engaging in charitable work, taxpayers might opt for a direct expense deduction over the per-mile method, covering gas and oil costs. However, comprehensive upkeep and insurance costs are non-deductible expenses.
Business Vehicle Use Considerations: Taxpayers can alternatively compute vehicle expenses using actual costs, which might benefit from shifting depreciation rules, particularly through bonuses and first-year advantages. Keep in mind, however, reverting from actual cost calculations to standard rates in subsequent years is restricted, particularly per vehicle protocol and when exceeding four vehicles in concurrent use.
Additionally, parking, tolls, and property taxes attributable to business can be deducted independently of the general rate, an often-overlooked advantage by many business owners.
Tax Strategies for Employers and Employees: Reimbursements based on the standard mileage framework, providing the right documentation is in place, remain tax-free for employees. Meanwhile, the elimination and continued prohibition of unreimbursed employee deductions continue, with particular exceptions offered to qualified personnel across specific occupations.
Opportunities for Self-employed Individuals: Entrepreneurs remain eligible for deductions on business-related vehicle use via Schedule C, with potential to account for business-use interest on auto loans.
Heavy SUVs and Deduction Advantages: Heavier vehicles exceeding 6,000 pounds but under 14,000 pounds open opportunities for substantial tax deductions through Section 179 and bonus depreciation avenues. The lifecycle of such a vehicle bears implications on recapturing initially claimed deductions, urging cautious tax planning.
For professional guidance on optimizing your vehicle-related tax deductions and understanding their implications on tax strategies, contact our office in Coral Gables, Florida, where expert advice and strategic insights are just a call away.
Educator's Deduction Reform: Key Changes Under OBBBA
The One Big Beautiful Bill Act (OBBBA) introduces significant enhancements for educators' tax deductions starting in 2026, offering both strategic opportunities and planning considerations for educators who qualify. With the reinstated itemized deduction for qualified unreimbursed expenses, educators have a broader spectrum of financial relief. This is complemented by the retention of the $350 above-the-line deduction, allowing educators to maximize their tax benefits by selectively allocating expenses between these avenues.
Understanding the nuances of these changes is crucial for educators and financial advisors alike. The dual-option deduction strategy can potentially enhance tax efficiency, thereby aligning with broader financial planning goals.
At NR CPAs & Business Advisors, based in Coral Gables, Florida, our expertise in tax preparation and planning provides invaluable support to educators navigating these changes. Our comprehensive approach, combined with personalized advice from our experienced team, ensures compliance and optimization in line with the latest tax legislations.
Given these updates, it is imperative to engage with seasoned professionals to fully leverage your deduction strategies. Contact us today to streamline your tax planning under OBBBA's new guidelines and maximize your deductions for upcoming tax years.
