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DCE Magazine

Winning the 2020 Tax Season

Spring 2020

Our resident CPA walks you through expert tips that'll save money, and grief, come April 15.

Tax deadline is fast approaching, one of only two certainties we face in life — and only slightly the least dreadful of the pair, some would argue. Time to drag out expense records and pay stubs, W-2s and 1099s, and hunker down with a calculator to find out how much we're getting back, with luck, or the amount we owe to the IRS.

Regardless, it can be a stressful chore, but doing your homework beforehand can help save money and prevent costly pitfalls. And with the tax code recently being overhauled, it can be especially confusing, said Ryan Bourque, accounting instructor for the Division of Continuing Education and principal at Bourque & Associates, CPAs and Business Advisors, headquartered in Irvine. Winning the 2020 Tax Season

“The most important thing is to be aware of the changes brought on by the Tax Cuts and Jobs Act (TCJA) that was passed in 2017,” he said. “Not only did it shift tax brackets and withholding rates, it also made big changes to some previous deductions and credits. Everyone who files taxes needs to be aware of the new rules. It can be confusing, but if you're prepared and know what you're doing, you can avoid mistakes, reduce your tax liability or maximize your refund.”

With that in mind, Bourque offers several valuable tips that can make life much easier as April 15 approaches.

Consider putting money into your IRA. If it looks like you'll have to write a check to the IRS, you can always tuck some money away for retirement and get a nice deduction up to $6,000. “It's not too late,” Bourque said. “You can still get your IRA deduction for 2019 as long as you make the contribution on or before April 15. It's a good way to save for retirement and save on your taxes.”

Get an extension if you can't file on time. Getting a late start on your taxes? No need to panic. The IRS will give you until October 15 to file your 1040 return. All you need to do is estimate your total tax liability for 2019 and send along Form 4868, available for download on the IRS.gov website. But you still need to pay all your taxes by April 15 or you'll face potential penalties and interest — and they can pile up very quickly. If it looks like you owe the government, estimate your liability as accurately as possible and send a payment along with Form 4868, either online through IRS e-file or by mail.

Consider itemizing your state deductions. Most people take the standard deduction on their 1040 in lieu of itemized deductions, and for good reason. For 2019 it has been increased to $24,400 for married couples filing jointly and $12,200 for single filers. But California's Franchise Tax Board isn't nearly as generous — in 2018 it was $4,401 for singles and $8,802 for married couples. “If you've had a lot of medical expenses, property taxes, charity contributions and other applicable expenses, it pays to check your records, run the numbers, and see if you can get a larger deduction by itemizing your state tax,” Bourque said.

Ryan Bourque

“Everyone who files taxes needs to be aware of the new rules. It can be confusing, but if you're prepared and know what you're doing, you can avoid mistakes, reduce your tax liability or maximize your refund.” Ryan Bourque
DCE Instructor; Principal, Bourque & Associates

Be aware of new limits on mortgage interest deductions. If you purchased or refinanced a home in 2019 you can deduct interest on qualified loans of up to a total of $750,000, down from $1 million. But if the loan was secured before Dec. 15, 2017, the previous limit applies. “This is another change brought on by the TCJA,” Bourque said.

Self-employed? Take deductions for mileage and other business expenses. With so many people working the gig economy, this is especially relevant. Any expense that's directly related to running your business can be deducted from your taxable income, including car mileage, computers and even phones, Bourque said. “So many people are driving for Uber or Lyft to get extra money, and they aren't aware they can deduct for mileage, 58 cents per mile for 2019. You can also deduct for actual cost of using your car for business, including gas and insurance, and often get a larger deduction than straight mileage.” Bear in mind, you need to file a Schedule C or C-EZ to take business deductions.

Don't leave education credits on the table. Deductions for tuition and fees have been eliminated, but there are two credits that can help ease a student's tax burden. The American Opportunity Tax Credit allows a maximum credit of $2,500 for educational expenses, and the Lifetime Learning Credit limit is $2,000. To be eligible, you had to be enrolled at least half time for at least one academic period, for education credit or job skills. “Keep in mind these are tax credits, not deductions,” Bourque said. “Credits are deducted from the amount of tax you owe, not from your taxable income.” Check IRS.gov for more details.

Get a tax credit for your new electric vehicle. If you bought a shiny new all-electric or plug-in hybrid in 2019 you might be eligible for a fat tax credit up to $7,500, depending on the size of the vehicle and battery capacity. The amount varies widely, with more popular models often bringing smaller credits. The reason? Once a manufacturer reaches a limit of 200,000 EVs sold, the credit begins phasing out. The purchase date can be a factor, as well, Bourque said. “For instance, if you bought a Tesla S from January to the end of June, you get a $3,750 credit. But if it was purchased after that, it's only $1,875.” By contrast, an Audi e-tron SUV fetches the full $7,500, regardless of purchase date; the Toyota Prius Plug-in Hybrid gets $2,500. It's all spelled out on Department of Energy's Fuel Economy.

Learn more about starting or growing a career in accounting at ce.uci.edu/accounting.