Make This a Tax Election Year

Five Choices on 2019 Returns  

1. Joint or separate returns: If you are married, one of your first tax return decisions is whether to file jointly or as marrieds filing separately. Generally, a couple fares better with a joint return, but that is not always so. For example, one spouse might have a disproportionately large amount of deductible medical expenses. Due to the deduction floor of 7.5% of adjusted gross income (AGI) for 2019, the couple collectively may benefit by filing separately. Caution: This election has numerous other ramifications, so consider the overall impact.  

2. Investment interest: The tax law allows you to deduct investment interest expenses up to the amount of net investment income for the year. Normally, “net investment income” for this purpose does not include capital gains. But you can elect to include long-term capital gains for which you forego the favorable tax rate. For 2019 returns, the maximum tax rate for long-term capital gains is 15% (20% for certain upper-income investors). With this election, you can “cherry-pick” the gains you want to treat as net investment income.

3. Installment sales: If you sell real estate or business interests in installments over two or more years, the tax liability is spread over the time in which payments are actually received. In effect, you postpone the tax from the sale, as well as possibly reducing the overall tax amount. This installment sale tax treatment is automatic. However, if it suits your needs, you can elect to pay the entire tax due in the year of the sale. This might be preferable on a 2019 return if it is otherwise a low tax year or you expect the next few years to be high tax years. 

4. Home office deductions: Typically, a self-employed individual running a business from home qualifies for home office deductions. As a result, you are entitled to expenses directly attributable to the home office, plus a portion of the entire home’s expenses based on the percentage of business use of the home. However, instead of keeping detailed records, you may elect to use a simplified method equal to $5 per square foot of the home office, up to a maximum of $1,500. Note: The actual expense method often produces a bigger deduction and could be worth the extra work.

5. Standard mileage rate: When you use your vehicle for business driving, you can write off a portion of your actual expenses based on business use, plus a generous depreciation allowance. But this actual expense method requires detailed recordkeeping for every business trip and documentation of all expenses. Alternatively, you can use an IRS-approved deduction rate with less recordkeeping. For 2019, the flat rate is 58 cents per business mile (57.5 cents in 2020), plus related tolls and parking fees. However, you cannot use the standard mileage rate if you previously claimed accelerated depreciation for this vehicle.   

Fortunately, you do not have to make these tough decisions on your own. A GMP Tax consultant is ready to help you.  Contact us to set up an appointment today.  

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