We hope that you are keeping yourself, your loved ones, safe from COVID-19 (commonly referred to as the Coronavirus).
During this past year the Coronavirus Aid, Relief, and Economic Security (Cares) Act was signed into law on March 27, 2020.
Recovery rebates for individuals. To help individuals stay afloat during this time of economic uncertainty, the government sent up to $1,200 payments to eligible taxpayers and $2,400 for married couples filing joints returns. An additional $500 payment was sent to taxpayers for each qualifying child dependent under age 17. Rebates were payable whether or not tax was due. Taxpayers not required to file tax returns were still eligible for rebates. Rebates are phased out based on adjusted gross income. If you did not receive a rebate, you will be able to apply when you file your 2020 personal income tax return.
Waiver of required distribution rules. Required minimum distributions that otherwise would have to be made in 2020 from defined contribution plans (such as 401(k) plans) and IRAs are waived. This includes distributions that would have been required by April 1, 2020, due to the account owner's having turned age 70 1/2 in 2019. Even if not required to take a distribution , taxpayers may want to take one to take advantage of lower tax rates or convert from a traditional IRA to a Roth IRA at lower tax rates.
Waiver of 10% early distribution penalty. The additional 10% tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) is waived for distributions made between January 1 and December 31, 2020 by a person who (or whose family) is infected with the Coronavirus or who is economically harmed by the Coronavirus (a qualified individual). Penalty-free distributions are limited to $100,000, and may, subject to guidelines, be re-contributed to the plan or IRA. Income arising from the distributions is spread out over three years unless the employee elects to turn down the spread out.
Charitable deduction liberalizations. Taxpayers will be able to claim a $300 above-the-line deduction for cash contributions made, generally, to public charities in 2020. This rule effectively allows a limited charitable deduction to taxpayers claiming the standard deduction . The limitation on charitable deductions for individuals that is generally 60% of modified adjusted gross income (the contribution base) doesn't apply to cash contributions made, generally, to public charities in 2020 (qualifying contributions).
Break for remote care services provided by high deductible health plans. For plan years beginning before 2021, the CARES allows high deductible health plans to pay for expenses for tele health and other remote services without regard to the deductible amount for the plan.
Break for nonprescription medical products. For amounts paid after December 31, 2019, the CARES allows amounts paid from Health Savings Accounts and Archer Medical Savings Accounts to be treated as paid for medical care even if they aren't paid under a prescription. And, amounts paid for menstrual care products are treated as amounts paid for medical care. For reimbursements after December 31, 2019, the same rules apply to Flexible Spending Arrangements and Health Reimbursement Arrangements.
Delayed payment of employer payroll taxes. This is a deferral of tax due, not a forgiveness. Taxpayers (including self-employed) will be able to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Taxes that can be deferred include the 6.2% employer portion of the Social Security (OASDI) payroll tax and the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer 6.2% Social Security
(OASDI) rate). For self-employed, the deferral applies to 50% of the Self-Employment Contributions Act tax liability.
Net operating loss (NOLs) liberalizations. The 2017 Tax Cuts and Jobs Act (the 2017 Tax Law) limited NOLs arising after 2017 to 80% of taxable income and eliminated the ability to carry NOLs back to prior tax years. For NOLs arising in tax years beginning before 2021, the CARES Act allows taxpayers to carry-back 100% of NOLs to the prior five tax years, effectively delaying for carry-backs the 80% taxable income limitation and carry-back prohibition until 2021.
Effect of Presidential Election
President elect Biden has stated according to the tax plan he released before the election would be raising taxes on individuals with incomes above$ 400,000.
The maximum tax rate currently 37% would be increased to 39.6% for taxpayers whose income is above $400,000. The long term capital gains and qualified dividend rate would be increased for taxpayers whose income exceeds $1 million. For taxpayers whose incomes exceed $400,000, the phase out of itemized deductions would be reinstated.
Impose 12.4% Social Security tax on income earned over $400,000. Corporate tax rate now 21% would be increased to 28%.
The Qualified Business Deduction would be phased out for incomes above $400,000.
Restore the estate and gift pre-2019 levels.
If you wish to discuss the provisions affecting your tax liability and maximize your savings please call the office.