Year-End Tax Planning TipsDue to uncertainty over the pending “extender” legislation, this year may prove…
Quarantine Tips for Tax Savings
There have been many important favorable legal and tax changes over the past 2 weeks. The new laws are the most expensive (the government) tax laws ever passed by the government. In these trying times, we have compiled our top tips for people to use:
- Tax day Extended: the IRS has announced tax returns have a 90-day extension of time to file and pay to July 15, 2020 for all taxpayers. Also, there is no requirement to file an extension, and taxpayers do not have to be sick to qualify. Similarly, any tax installment plan payments due to the IRS after April 1 are now due July 15, 2020. We expect almost all states to follow suit.
- IRA contribution deadline extended: the IRS announced a 90-day extension of time for people to make a 2019 IRA contribution until July 15, 2020 (up to $6000 or $7000 (if over 50 years old). So consider a contribution over the next few months.
- No 2020 required minimum distributions to be taken. Hence, seniors can expect lower taxable income in 2020.
- New “Above the Line” Charitable Contribution Deduction to encourage charitable giving. All taxpayers are eligible for a charitable contribution deduction up to $300 (dollar-for-dollar deduction not subject to any other limits) in addition to their standard or itemized deduction for 2020.
- Charitable Contribution Deduction Limitation Eliminated. The adjusted gross income (AGI) limitation on charitable contributions is suspended for 2020. So more charitable contributions will be deductible for taxpayers who itemize deductions.
- Consider recommending/making Section 139 tax-free deductible (a rare combo) payments to workers to cover increased reasonable and necessary personal, family, living expenses incurred resulting from the coronavirus disaster. Reimbursable expenses could include unreimbursed medical expenses, increased utilities, home office expenses such as enhanced internet connections, computer monitors, laptops, printers, office supplies, etc. (even if such expenses would not otherwise satisfy the home office deduction requirements), housing for additional family members, (e.g., expenses for college students returning home including duplicative meal expenses), increased childcare expenses. Not taxable to worker: no payroll taxes, no withholding, etc. No $ limit. No plan document required.
- Consider recommending/making Section 127 tax-free deductible (a rare combo) payments up to $5,250 to workers (or directly to worker’s lenders) to pay off student loans. Not taxable to worker: no payroll taxes, no withholding, etc. But plan document required.
- Net Operating Loss (NOL) Rule Relaxation. There is a new five-year carryback of NOLs in 2018, 2019, and 2020 tax years (Congress did this before in the 2008 recession). Corporations can revisit tax returns for years dating back to 2013 to take advantage of the expanded carryback to get refunds of taxes paid. In other words, companies with unused losses arising in 2018, 2019 or 2020 that paid tax in the five preceding tax years will be able to immediately file to seek a refund of taxes paid. Clients with current/recent losses and prior years’ gains should explore a quick refund (Application for Tentative Refund not an amended return, which takes longer).
- No New Audits: New field, office, and correspondence IRS audits will generally not be started during this period except to preserve cases where the statute of limitations is about to expire. In-person meetings are being suspended, but remote (mail) examinations may continue. Any clients with current or pending audits can expect a significant slowdown.
- IRS Collection activities stopped: The IRS will suspend liens, levies, and seizures until at least July 15, 2020. Collection agents will continue to pursue some high-income nonfilers. However, the IRS will suspend new passport denial notifications for “seriously delinquent” taxpayers (even though there no place to travel). Thus most clients with unpaid taxes can expect a lengthy honeymoon period of no collection activity. No Passport Certifications to the State Department: IRS will suspend new certifications to the Department of State for taxpayers who are “seriously delinquent” during this period. Existing certifications will remain in place.
- Living Wills, do not resuscitate orders, and other healthcare-related documents should be carefully reviewed at this time for several reasons. Many of these documents (especially standard forms) may prohibit intubation under all circumstances. If you contract coronavirus, since it is a lower respiratory tract infection with symptoms felt in the chest and lungs, it is possible that you may need intubation. Many people who initially sign such prohibitive forms may have in mind an extended chronic illness in a hospital connected to numerous tubes being artificially kept alive, not a shorter-term traumatic infection. Read our complete list of coronavirus planning tips here.
- Consider POLST: For chronically ill clients, complete a POLST (Provider Orders for Life-Sustaining Treatment) with a healthcare provider. A POLST is a specific medical order(s) to be honored by health care workers during a medical crisis. This is a portable legal document for people with illnesses that specifies the type of care a person would like in an emergency medical situation. Most states have POLSTs.
- Have an electronic copy of an Advance Health Care Directive is crucial for clients during this time to have on hand. Some law firms (including ours) can email clients copies of their estate planning documents upon request. Basic estate planning is one thing that will allow concerned clients to rest easier. Of course, after these simple steps, they can later consider more sophisticated estate planning documents, like a trust or will, beneficiary designations, etc. But everyone should have these essential documents, regardless of their wealth or health: A power of attorney for property, which allows an agent to pay bills and make other time-sensitive decisions in case of incapacity; a healthcare power of attorney, which will allow an agent to make medical decisions in case of incapacity.
- Several months from now things will (hopefully) be back to normal, most people will likely reflect in the current quarantine and wish they completed a few projects. Some of these projects may include: tax return preparation, income tax planning, review of insurance coverages, debt consolidation, consolidation/closing of numerous accounts, review of estate plan, update beneficiary designations, family meeting to go over estate/business succession plan, cancel unused subscriptions, renew expiring passports, apply for Global Entry, scan important documents. Consider action now to avoid regret later.
- In light of the foregoing, low taxable income, low tax rates, and large deductions are expected for most clients in 2020 (and probably 2021). However, as we look forward, the large government fiscal stimuli may result in tax increases in the long term (probably after 2021 or the return to normalcy). Also, a Democratic victory in November could result in the same. So plan accordingly!
During this difficult time, we hope that you and your family stay safe and healthy. Please let us know if there is anything we can do to help you. In the meantime, take care and be safe.