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Tips to Avoid 2019 Tax Penalties
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Article Highlights: Underpayment Penalties Withholding Under-distribution Penalty Required Minimum Distributions IRA-to-Charity Distributions The holiday season is upon us, complete with family gatherings, over-indulging in food and beverages, and gift shopping and giving, and the last thing most of us want to think about right now is what faces us after the New Year is rung in: tax season! But taking some time now to get in the tax-season spirit may help you to avoid or reduce certain penalties on your 2019 tax return. Underpayment Penalty – Have you prepaid enough taxes to cover your 2019 liability? If you are an employee, you will have had income tax withheld from your paychecks, but has that withholding been sufficient? This is an especially important question if you have a second job or a side business, or if you are married and your spouse is also employed. Many times in these circumstances, your withholding for the year may not be enough to cover your 2019 tax liability. Further complicating the issue is that many individuals still haven’t adjusted their withholding with their employers to account for the numerous tax reform changes, which mostly became effective starting in 2018. You will be hit with an underpayment penalty if your advance payments toward your 2019 tax liability, through withholding and estimated tax payments, are less than 90% of your 2019 tax or 100% (110% for high-income taxpayers) of your 2018 tax. But the good news is there is no penalty if you owe less than $1,000 in tax. When the underpayment penalty does apply, it is figured on a quarterly basis, so making an estimated tax payment late in the year will not reduce the penalties from earlier periods. However, wage withholding is treated as being paid evenly throughout the year, allowing you to mitigate underpayments earlier in the year by increasing your withholding late in the year. Does your state have an income tax? If so, then also be sure to adjust your state income tax withholding, if needed, to offset under-withholding earlier in the year to avoid or reduce a state underpayment penalty. Under-Distribution Penalty – Tax law doesn’t allow money to indefinitely remain untaxed in your traditional IRA, a self-employed retirement plan, or your employer’s qualified plan. Thus, you are required to annually withdraw a minimum amount from the IRA or plan (referred to as the minimum required distribution or RMD) once you reach 70 1/2 years of age*. Did you turn age 70 1/2 in 2019 or reach 70 1/2 in an earlier year? If so, and if you haven’t already, be sure to take your RMD for 2019 or face a potential penalty (additional tax) equal to a whopping 50% of the amount you should have withdrawn for 2019. The minimum distribution for any year is based upon an annuity factor for your age divided into your account balance on December 31 of the prior year. Most IRA custodians or trustees will advise their clients of the RMD for the specific accounts they oversee, but if you need help figuring out your RMD amount, especially if you have multiple accounts, please call this office for assistance.
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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.
