JUNE 2020 Deep Creek Times Cover Story

Special June Cover Story from Brian Boal at Boal and Associates

We thought our readers would benefit from this submission and reminder/tips regarding taxes and tax planning from Brian Boal:

“The impact of the coronavirus crisis has brought numerous tax law changes that readers should consider as the changes could have a positive impact on 2020 and future tax liabilities.  We expect many more changes to come and will plan to continue to update Deep Creek Times as they are released.  Please review these changes carefully as they present some very good “planning opportunities” for 2020 and beyond.

Just to provide a high-level brush over a few of the major ones that came about as a result of the Cares Act recently:

Charitable donations – crisis situations can give us a sense of wanting to be philanthropic. Congress recognized this and created an “above the line” deduction for $300 for charitable donations made in 2020.  The 2018 tax law changes made it more challenging for folks to itemize their deductions due to the higher standard deduction, this deduction provides the opportunity for an above the line deduction regardless of whether you can itemize or not.  In addition, taxpayers can still utilize the QCD Qualified Charitable Distribution from their RMD, which can be a great tax planning strategy.  Congress also suspended the 60% of AGI limitation on 2020 charitable donations.

The Cares Act includes three key retirement plan tax law changes for 2020 that can be very significant in your overall tax and financial planning strategy:

>Required Minimum Distributions (RMD’s) – prior to COVID, the Secure Act recently raised the age for taking RMD’s from IRA’s and other qualified retirement plans from age 70.5 to age 72.   With the Cares Act, Congress suspended the requirement for taking an RMD in 2020 to allow for retirement plans to recover in value.  If you already took your RMD in February or March, you still have the opportunity to return the funds to your IRA by July 15th with no tax consequences.   If you took your RMD in January, it is a little more complicated, but can be possible.

>Premature Distributions – there is typically a 10% penalty on pre-age 59.5 payouts from your retirement accounts.  The Cares Act has waived the 10% penalty on distributions to folks under aged 59.5 for up $100,000 of “Coronavirus related payouts”.   In addition, these funds taken can be repaid to the account within a three-year period and treated as a tax-free rollover with no tax consequence.   If you keep the funds, the tax on your distribution is spread and paid over a three-year period.

>401k Plan Loans – if your 401k plan allows for loans, maximum loans have been increased to the lesser of $100,000 or 100% of the account balance and repayments back on the loan have been delayed for one year.   Prior to the Cares Act, the loan maximum was $50,000 with immediate monthly payments.

Roth IRA Conversions for 2020 are something you should consider – if you have room in a lower tax bracket, consider a Roth IRA conversion to maximize that lower tax bracket as well as to benefit from the potential for market growth in a tax-fee Roth setting. As always, please consult with your financial advisor in regards to the above items to make sure it makes good financial sense in your individual situation.

In addition to these changes, several key extensions came about that you should be aware of:

>The April 15th tax return due date was changed to July 15th – this includes individual income tax returns and 2020 1st quarter and 2nd quarter estimated tax payments for federal and most states.   This extension was automatic, so no additional filing was necessary.

>The July 15th extension also applies to 2019 IRA contributions and 2019 Health Savings Account contributions – if you haven’t made these contributions you still have time.

>Payments on federal student loans were automatically suspended from March 13 until September.  You can keep making your payments if you are able to.  It should be noted that the loan is paused, not forgiven, and the 6 months of payments will still be due.

>For businesses and self-employed, employers can defer payment of their 6.2% share of Social Security tax on pages paid March 27 through December 31.  Half of the deferred amount is due on 12/31/21 and the remainder on 12/31/22.   There is no deferral on the “employees” share of the taxes.   If you are self-employed, you can defer 50% of SECA tax.   As business changes come out, we will provide another supplement explaining the changes and opportunities.

As always, we recommend that you please consult your tax advisor to discuss any of the above items or strategies to ensure that they are proper for your individual situation.  If you have further questions on these items or any others, we are more than happy to answer them – please email us at info@boalcpas.com or call us at 301-334-4007.   Thank you, Deep Creek Times for allowing us to disseminate this information to your readers!!”