WHY DOES WASHINGTON DO EVERYTHING AT THE LAST MINUTE??
December 22, 2019
On January 1, 2020, the Secure Act will take effect which will include five significant changes in the rules and regulations for IRA’s.
Massachusetts Income Tax (and the MA IRA Withholding) Rate Drops to 5.00% on January 1, 2020
Previously approved by the House of Representatives, the Senate passed this legislation on Thursday December 19th. President Trump then signed it into law late Friday December 20th.
Thus the SECURE Act is set to become effective on January 1, 2020.
The SECURE Act includes five significant changes to IRA Rules and Regulations:
Age Limit Eliminated for Traditional IRA Contributions – Beginning for Tax Year 2020 and beyond, the new law eliminates the age limit for Traditional IRA contributions (formerly age 70½). Thus as with a Roth IRA, those with eligible earned income can continue to contribute to a Traditional IRA regardless of their age.
RMD Age Raised to 72 – The SECURE Act increases the age for commencing RMDs to age 72. IRA owners reaching age 70½ after December 31, 2019 will not have to take their first RMD until the year in which they attain age 72.
New Exception to the 10% Penalty for Birth or Adoption – The SECURE Act adds a new 10% penalty exception for birth or adoption. The distribution is still subject to tax. It is also limited to $5,000 over a lifetime. But the birth or adoption distribution amount can be re-contributed back at any future time
IRA Contributions with Fellowship and Stipend Payments – Additionally, the new law allows taxable non-tuition fellowship and stipend payments to be treated as eligible compensation to qualify for IRA contributions.
Most Importantly…The “Stretch IRA” Disappears for Many – Beginning for deaths after December 31, 2019, the “Stretch IRA” rules will be replaced with a “Ten Year” distribution rule for most IRA beneficiaries. The rule will require accounts to be emptied by the end of the tenth year following the year of death of the IRA owner. There will be no requirements for annual Beneficiary RMDs as currently exist. The only RMD required of a Beneficiary of an Inherited IRA will be the full Inherited IRA balance being withdrawn by the end of the 10th year after the IRA owner’s death. But for deaths in 2019 or in prior years, the old Beneficiary RMD “Stretch IRA” rules will remain in place.
There are five categories of “eligible designated beneficiaries” who will be exempt from this new 10-year post-death payout rule and who can still use the existing Stretch RMD rules over their life expectancy. These are:
the chronically ill, and
beneficiaries not more than ten years younger than the IRA owner
Travel Expenses Allowed Without Log Book
Cross References • Maki, T.C. Summary Opinion 2019-34 In general, travel expenses have strict substantiation requirements. A taxpayer must maintain records that include: • The amount of the expense, • The time and place of travel, • The business purpose of the expense, and • The business relationship between the taxpayer and persons provided meals. Courts generally require that the taxpayer produce a contemporaneous log book documenting the above information for each business trip taken. The taxpayer in this case regularly traveled to take care of and monitor timber on his land. The round trip from his residence to and from the land is about 300 miles for each visit. During the trips, the taxpayer would plant new trees and care for them so that they could be harvested for future timber sales. Two of his properties had trees with a harvest value of over $1 million. The taxpayer testified that in a previous year while he was very sick and not able to check on his land, the fir trees were illegally harvested. Commercial timber companies hire people to regularly check and patrol their timberland to curb or thwart illegal harvesting. The taxpayer was not able to afford the cost of hiring people to check and patrol his land. That is one of the reasons why he regularly visits his timber properties. The taxpayer maintained a log listing the days that he visited and stayed on the land. The log, along with other records, was maintained in the building he uses when visiting the land. During an IRS audit, the taxpayer used the log to make a summary of his visits during the tax year that was under audit. After he prepared the summary, the original contemporaneous logs and other records were stolen when the building in which they were maintained was vandalized. The summary reflected that the taxpayer was present at the properties a total of 161 days during the year at issue. The summary also reflects that the taxpayer made 47 round trips from his residence to the timber properties. Some visits were as short as one day, but most were three-day visits. For the year at issue, the taxpayer reported zero income on Schedule C for his timber activity. Expenses included $7,011 for travel, and $55,925 for away from home per diem. The IRS disallowed these two deductions because the taxpayer did not adequately substantiate the expenses with a contemporaneous log book. The Tax Court noted that the IRS did not question whether or not the taxpayer was engaged in a business activity or whether he was away from home when he visited the tim
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ber properties. The IRS only argued that the taxpayer did not substantiate his deductions by providing a log book. The court stated the taxpayer established a normal pattern of travel. He always traveled to the same locations. His testimony that he maintained a log is credible, and his summary presented as evidence to the court was extracted from that log book. The repetitive pattern of travel is easily verified because it was essentially the same each week. That fact along with the taxpayer’s credible testimony was sufficient to show the occasions on which he traveled to and visited the timber properties. The court also agreed that the travel expenses were ordinary and necessary because of the need to monitor the timber and to maintain and plant trees. The court agreed with the taxpayer that he made 47 trips and spent 161 days at his timber properties. The $7,011 for travel was allowed by the court because it reflected the permitted standard mileage rate for the total miles driven to and from the timber properties. The court reduced the per diem deduction to $7,406 to reflect the standard meal allowance for the number of days away from home. The per diem for lodging was not allowed because the taxpayer did not provide any evidence of the lodging expenses actually incurred in the timber activity during the year.
Receipts for expenses are not required for deducting the standard mileage rate or the standard meal allowance. Receipts for actual expenses are required to deduct lodging expenses. The per diem rate for lodging is only used to determine the amount of employer reimbursement that meets the accountable plan rules. Self-employed taxpayers who are not reimbursed for lodging cannot use the per diem rate method for deducting lodging expenses