Through the closing weeks of 2019, many Denver business owners were focused on wrapping up year-end items, assessing performance, refining goals and setting new benchmarks. Many were focused on analyzing the company’s expenses, revenues and overall financial position to create the budget for 2020. At the same time, individual Denver taxpayers were pouring over last-minute tax planning steps they could take to reduce income and improve their tax position. While the “blocking and tackling” of year-end activities are essential for both individual and business taxpayers, it’s important to be aware of the changes which will impact you in 2020. At the end of December, the President signed the Taxpayer Certainty and Disaster Tax Relief Act of 2019, which extended many tax incentives scheduled to expire. While not all incentives were renewed, there were many which were extended through 2020. To help clients, prospects, and others, Hanson & Co has provided a summary of the top incentives which were impacted below.
Tax Changes for 2020
- Section 179d Deduction – This incentive provides taxpayers with a deduction for installing certain property such as energy-efficient lighting, additional insulation or HVAC systems which reduce overall power costs. The deduction applied to both new and existing buildings and often times qualifying contractors and other service providers could take the deduction. While there were no changes to the amount of deduction eligible taxpayers could claim, it was extended through the end of 2020.
- Section 45L Credit – This credit provided developers the opportunity to claim a $2,000 credit for the construction or re-development of qualifying residential units meeting energy efficiency standards. This includes single-family homes, apartments, condominiums, student housing, and other residences. While there were no changes to the amount of the credit, the incentive was extended through the end of 2020.
- Mortgage Insurance Premium (PMI) Deduction – This deduction, which was renewed retroactively for 2017, permitted individual taxpayers to take a deduction for the cost of private mortgage insurance on principal residences and vacation homes. It was set to expire but has been extended for one-year through 2020.
- Employer-Provided Parking Tax – Nonprofit organizations were heavily impacted last year when the tax law required them to pay Unrelated Business Income Tax (UBIT) for employer-provided parking services. The change was quite unpopular because it impacted all tax-exempt organizations resulting in an unexpected tax liability. However, the recently approved legislation eliminated this requirement permitting organizations to offer these services again tax-free.
- Qualified Tuition Deduction – This deduction was available to taxpayers for qualifying tuition and related education expenses. Prior to the Tax Cuts and Jobs Act of 2017, a taxpayer was allowed to claim a deduction for these expenses without being required to itemize. The deduction was eliminated but was brought back through 2020 under the new legislation.
- Work Opportunity Tax Credit – This incentive provides a tax credit to companies that hire workers that traditionally face challenges when seeking employment such as veterans, ex-felons and those who may be receiving public assistance. Although it was scheduled to expire, it was extended to through 2020. This means that Denver companies who hire qualifying workers can continue to receive tax benefits.
- Employer Credit for Paid Family/Medical Leave – This incentive provides a general business tax credit, based on wages paid to employees while they are on family or medical leave. The credit provides the employer with an additional incentive to offer employees paid time away for life circumstances such as the birth/adoption of a child or to deal with a serious medical condition. Although it was slated to expire at the end of 2019, it has now been extended through 2020.
- Medical Expense Deduction – When tax reform was implemented, the amount of medical expenses a taxpayer could deduct was increased from 7.5% of adjusted gross income (AGI) to 10% of AGI in 2019. This change meant that fewer taxpayers would be eligible to claim a deduction for medical expenses. The good news is the old rate of 7.5% has been restored for 2020 allowing more taxpayers the opportunity to claim a deduction.
The tax incentives extended at the end of last year offer an opportunity for qualifying taxpayers in 2020. The amount of opportunity available to individual and business taxpayers can be determined through comprehensive tax planning. Although many think of tax planning as a year-end exercise, it actually creates the most benefit when conducted throughout the year. If you have questions about the tax extenders or need assistance with a tax planning or compliance issue, Hanson & Co can help! For additional information call us at 303-388-1010 or click here to contact us. We look forward to speaking with you soon.