Page 10 - Supplement to Income Tax 2020
P. 10

Recent Tax Developments*



         mile on your 2019 Form 1040 or 1040-SR, or to claim     Note that not all states allow for QOF deferral.
         actual expenses plus Section 179 expensing, bonus     California and Massachusetts require state income tax
         depreciation, or modified accelerated cost recovery   on gains from the sale of QOF investments. (Out-of-
         system (MACRS) depreciation if this will give you a   state investors in California with a QOF projects in
         bigger deduction. If you do not use the 58 cents IRS rate   that state may also be subject to California income tax;
         for 2019, you will not be allowed to use the 57.5-cents-  it’s not yet clear.)
         per-mile rate for that vehicle on your 2020 tax return or
         to use the then-applicable IRS rate for years after 2020.  Social Security & Medicare Taxes on 2020
            In addition, if you maintain a fleet of vehicles of
         more than four vehicles that you use simultaneously,   Wages & Self-Employment Earnings
         the standard mileage rate cannot be used for any of   (pages 532, 541, 764-771)
         the vehicles.
            For each mile that you claim the standard mileage   For 2020, Social Security taxes apply to the first
         rate for a business vehicle that you own (rather than   $137,700 of wages  (up from  $132,900 in 2019).
         lease), you must reduce your basis in the vehicle by a   Since the tax rate fixed by law is 6.2%, the maximum
         deemed depreciation rate set by the IRS. For 2020, the   amount of Social Security that can be withheld from
         deemed depreciation rate will be 27 cents per mile (a   an employee’s 2020 wages is $8,537.40 ($137,700 ×
         penny more than in 2019).                             6.2%). The employer must pay the same amount.

         Employee reimbursements for 2020 mileage.  Em-          Self-employed individuals figuring self-employment
         ployees who use their vehicles for work and who are   tax on Schedule SE will pay Social Security tax
         reimbursed under an “accountable” plan in 2020 will   of   12.4% (both the employee and employer 6.2%
         not be taxed on reimbursements up to the 57.5-cents-  share) on their first $137,700 of net earnings. To the
         per-mile standard business rate.                      extent self-employed individuals also have wages, the
                                                               Social Security tax applies to no more than $137,700
         Gain on Opportunity Zone Assets                       of wages and net earnings combined.
         (pages 119-120)                                         All wages are subject to the Medicare tax withholding

                                                               rate of   1.45%. On Schedule SE, self-employed
         Generally, gain on the sale of assets can be deferred by   individuals pay the Medicare tax of  2.9% (employee
         investing them in a qualified opportunity fund (QOF)   and employer 1.45% shares) on all net earnings from
         within 180 days. Deferral continues until the earlier of
         an inclusion event or December 31, 2026. And if there   self-employment. There is no ceiling for the Medicare
         is an inclusion event, a rollover of gain from a QOF   tax, so it applies to all wages and net earnings from
         is permissible. Final regulations issued in December   self-employment for the year.
         2019 (T.D. 9889) provide a list of inclusion events,    Self-employed individuals will be able to claim 50%
         which include:                                        of the self-employment tax figured on Schedule SE as
              •  Inclusion events: A disposition of a QOF interest,   an above-the-line deduction on Schedule 1 of Form
                 gift of a QOF interest, transfer to a spouse   1040 or 1040-SR.
                 incident to divorce, loss of QOF status (a      In addition, employees and self-employed workers
                 decertification of the fund as qualified, either
                 voluntarily or involuntarily), a partnership   will have to pay on Form 8959 the Additional Medicare
                 distribution of a QOF to the extent that cash or   tax of  0.9% on earnings over $200,000 if single, head
                 the fair market value exceeds the partner’s outside   of household, or qualifying widow/widower, $250,000
                 basis in the QOF, a QOF becomes worthless.    if married filing jointly, or $125,000 if married filing
              •  Non-inclusion events: Death (but heirs do not get   separately. These thresholds do not change annually,
                 a stepped-up basis; they recognize the deferred
                 gain no later than 2026), contribution to     as the statute authorizing the tax does not provide an
                 a partnership.                                inflation adjustment.



         6  |  Supplement to J.K. Lasser’s Your Income Tax 2020
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