2020 Year-End Tax Planning

I hope this message finds you safe and healthy. I wanted to provide a few tax planning notes before we get to the end of 2020. If you have any questions please reach out to me. I hope to work with you in the upcoming tax season.

INDIVIDUALS

Charitable Contributions:

Taxpayers can deduct up to $300 of qualified charitable contributions made in cash as an above-the-line deduction in 2020. This means that you don’t need to itemize deductions in order to take this deduction, thereby making the deduction available to nearly every taxpayer.

Please make certain that you obtain a receipt or acknowledgment letter from the charity before filing the return and retain a canceled check or credit card receipt.

Unfortunately, this is capped at $300 so married couples filing jointly do not get an extra $300 benefit.

Medical Expenses:

If you have an HSA, Archer MSA, Health FSA, or HRA, you can use the funds to cover over-the-counter drugs and medicines in 2020. Expenses now covered include pain relief medications, cold and flu products, allergy products, heartburn medication, menstrual products, etc. If you have further questions as to what expenses are covered, please check with your plan sponsor.

Economic Impact Payments:

You may have received an Economic Impact Payment this year. The Economic Impact Payment is a refundable tax credit on the 2020 return. Individuals qualify for up to $1,200, married couples qualify for up to $2,400, and a taxpayer is entitled to $500 for each qualifying child (dependent child under age 17).

If you received a payment in 2020, the payment is not taxable and therefore not included in your gross income. However, please keep the notice you received regarding your Economic Impact Payment with your 2020 tax records. These notices were mailed to each recipient’s last known address within 15 days after the payment was made.

If you did not receive a payment or did not receive the maximum amount this year, you may be eligible to claim the Recovery Rebate Credit when you file your 2020 tax return. The credit begins to phase out for married filing joint at $150,000, head of household at $112,500, and all others at $75,000. If you already received the payment back in the spring based on your 2018 or 2019 tax returns, this will reduce the credit amount. If the payment you received exceeds the 2020 credit, you will not have to repay the difference.

Retirement Plan Distributions:

If you received a coronavirus-related distribution from a retirement account in 2020, the 10% early withdrawal penalty does not apply if you are under age 59 ½. The distributions will be included in your taxable income over a three-year period (2020, 2021, and 2022). If you decide to repay any or all of the distribution during the three-year period, this will decrease the amount of the distribution that will be included in your taxable income over three years (you may have to amend prior year returns).

If you received a coronavirus-related loan from your retirement plan, the due date may be delayed for up to one year.

Educational Assistance:

Employers can pay the principal or interest of an employee’s qualified education loan and exclude the benefit from the employee’s taxable income, up to $5,250, for payments made after 3/27/20 and before 1/1/21.

Social Security Payroll Taxes:

In response to the Presidential Memorandum and IRS Notice issued in August 2020, some employers (including the U.S. Army) deferred withholding social security taxes from employees’ checks in September through December 2020. The taxes that were not withheld in 2020 will be collected between January 1 and April 30, 2021. If your employer deferred withholding these taxes, you will notice double the amount of social security taxes coming out of your paychecks in January through April (social security withholding for Sep-Dec plus the regular withholding amount).

BUSINESSES

Paycheck Protection Program:

A PPP loan is generally forgiven if at least 60% of the proceeds are used for payroll costs and no more than 40% are used for mortgage interest, rent, or utilities.

However, if you expect the loan to be forgiven, you can't deduct business expenses you paid using the loan proceeds. This is an unintended consequence of a hastily drafted provision in the CARES Act, as recognized by the members of Congress. We are watching the situation closely and hope that Congress will revise the law prior to the time when impacted tax returns need to be filed.