Under tax reform, many tax laws changed, including those affecting itemized deductions. While many people no longer need to itemize due to the nearly doubling of the standard deduction, certain taxpayers whose total deductions exceed the standard deduction may still want to consider itemizing. As a reminder, here is quick summary of how tax reform affected four itemized deductions used by many taxpayers in prior years:

1. Medical and Dental Expenses. Taxpayers can deduct the part of their medical and dental expenses that are more than 7.5 percent of their adjusted gross income.

2. State and Local Taxes (SALT). The law limits the deduction of state and local income, sales, and property taxes to a combined total deduction of $10,000. The amount is $5,000 for married taxpayers filing separate returns. Taxpayers cannot deduct any state and local taxes paid above this amount.

3. Home Equity Loan Interest. Taxpayers can no longer deduct interest paid on most home equity loans unless they used the loan proceeds to buy, build or substantially improve their main home or second home.

4. Miscellaneous Deductions. The new law suspends the deduction for job-related expenses or other miscellaneous itemized deductions that exceed two percent of adjusted gross income. This includes, among other things, unreimbursed employee expenses such as uniforms, and union dues.

Due to ongoing efforts to protect taxpayers from identity thieves, the Internal Revenue Service no longer offers tax transcript faxing service and third-party mailing of tax returns and certain transcripts. These measures are effective June 28 and July 1, 2019 respectively, and affect individual and business transcripts.

Background

Tax transcripts are summaries of tax return information and have increasingly become a target of criminal activity. Identity thieves impersonate taxpayers or authorized third parties and use tax transcripts to file fraudulent returns for refunds. These fraudulent returns are difficult to detect because they mirror a legitimate tax return.

In September 2018, the IRS began to mask personally identifiable information for every individual and entity listed on the transcript and works with tax professionals like me to make sure that we have what we need for tax preparation and representation for our clients.

Here is what is visible on the new tax transcript:

• Last four digits of any SSN listed on the transcript: XXX-XX-1234
• Last four digits of any EIN listed on the transcript: XX-XXX1234
• Last four digits of any account or telephone number.
• First four characters of the last name for any individual (first three characters if the last name has only four letters).
• First four characters of a business name.
• First six characters of the street address, including spaces.
• All money amounts, including wage and income, balance due, interest and penalties.

Faxing Service Ends June 28

Starting June 28, 2019, the IRS will stop faxing tax transcripts to both taxpayers and third parties, including tax professionals. This action affects individual and business transcripts.Several options remain, however, for obtaining a tax transcript, including using the IRS2Go app to get transcripts online or by mail. Taxpayers can also call 800-908-9946 to access an automated Get Transcript by Mail feature, or submit Form 4506-T or 4506T-EZ, Request for Transcript of Tax Return, to have a transcript mailed to the address of record.

Certain Third-party Mailings Stop July 1

Effective July 1, 2019, the IRS will no longer provide transcripts requested on Form 4506, Form 4506-T and Form 4506T-EZ to third parties. These forms are often used by lenders and others to verify income for non-tax purposes and have been amended to remove the option for mailing to a third-party. Taxpayers may continue to use these forms to obtain a copy of their tax return or a copy of their tax transcripts.

Among the largest users are colleges and universities verifying income for financial aid purposes. This change will NOT affect use of the IRS Data Retrieval Tool through the Free Application for Federal Student Aid (FAFSA) process.

Third parties who use these forms for income verification have other alternatives such as Income Verification Express Service (IVES). Taxpayers may choose to provide transcripts to requestors instead of authorizing the third party to request these transcripts from the IRS on their behalf.

Because the taxpayer’s name and Social Security number are now partially masked, the IRS also created a Customer File Number space that can be used to help third parties match transcripts to taxpayers. Third parties can assign a Customer File Number, such as a loan application number or a student identification number. The number will populate on the transcript and help match it to the client/student.

If you adopt a child in 2019, you may qualify for a tax credit, and if your employer helped pay for the costs of an adoption, you may be able to exclude some of your income from tax. Here are ten facts you should know about the Adoption Tax Credit.

1. Credit or Exclusion. The credit is nonrefundable. This means that the credit may reduce your tax to zero. If the credit is more than your tax, you can’t get any additional amount as a refund. If your employer helped pay for the adoption through a written qualified adoption assistance program, you may qualify to exclude that amount from tax.

2. Maximum Benefit. The maximum adoption tax credit and exclusion for 2019 is $14,080 per child.

3. Credit Carryover. If your credit is more than your tax, you can carry any unused credit forward. This means that if you have an unused credit in 2019, you can use it to reduce your taxes for 2020. You can do this for up to five years, or until you fully use the credit, whichever comes first.

4. Eligible Child. An eligible child is under age 18. This rule does not apply to persons who are physically or mentally unable to care for themselves.

5. Qualified Expenses. Adoption expenses must be directly related to the adoption of the child and be reasonable and necessary. Types of expenses that can qualify include adoption fees, court costs, attorney fees, and travel.

6. Domestic Adoptions. For domestic adoptions (adoption of a U.S. child), qualified adoption expenses paid before the year the adoption becomes final are allowable as a credit for the tax year following the year of payment even if the adoption is never finalized.

7. Foreign Adoptions. For foreign adoptions (adoption of an eligible child who is not yet a citizen or resident of the U.S.), qualified adoption expenses paid before and during the year are allowable as a credit for the year when it becomes final.

8. Special Needs Child. If you adopted an eligible U.S. child with special needs and the adoption is final, a special rule applies. You may be able to take the tax credit even if you didn’t pay any qualified adoption expenses.

9. No Double Benefit. Depending on the adoption’s cost, you may be able to claim both the tax credit and the exclusion. However, you can’t claim both a credit and exclusion for the same expenses. This rule prevents you from claiming both tax benefits for the same expense.

10. Income Limits. The credit and exclusion are subject to income limitations. The limits may reduce or eliminate the amount you can claim depending on the amount of your income.

Active members of the U.S. Armed Forces should be aware that there are special tax benefits available to them such as not having to pay taxes on some types of income or more time to file and pay their federal taxes. If you’re an active member of the armed forces, here’s what you should know about these important tax benefits.

1. Moving Expenses. If you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you may be able to deduct some of your unreimbursed moving expenses.

2. Combat Pay Exclusion. If you serve in a combat zone as an enlisted person or as a warrant officer for any part of a month, military pay you received for military service during that month is not taxable. For officers, the monthly exclusion is capped at the highest enlisted pay, plus any hostile fire or imminent danger pay received.

3. Earned Income Tax Credit (EITC). You can also elect to include your nontaxable combat pay in your “earned income” when claiming the Earned Income Tax Credit. In 2019, this credit is worth up to $6,557 for low-and-moderate-income service members. A special computation method is available for those who receive nontaxable combat pay. Choosing to include it in taxable income may boost the EITC, meaning that you owe less tax or get a larger refund.

4. Extension of Deadline to File a Tax Return. An automatic extension to file a federal income tax return is available to U.S. service members stationed abroad. Also, those serving in a combat zone typically have until 180 days after they leave the combat zone to file and to pay any tax due.

5. Joint Returns. Both spouses normally must sign a joint income tax return, but if one spouse is absent due to certain military duty or conditions, the other spouse may be able to sign for him or her. A power of attorney is required in other instances. A military installation’s legal office may be able to help with this.

6. ROTC Students. Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay, such as pay received during summer advanced camp, is taxable.