The past few months have brought many financial changes. And some of these changes may affect your 2020 taxes. With the continual release of new government guidance, it’s hard to know what to expect. This year, possibly more than ever, it’s important to plan ahead for tax season.
Here are a few things to start thinking about now.
- Due to the CARES act, required minimum distributions (RMDs) will not be required to be distributed in 2020. If a taxpayer has already taken their required minimum distribution for this year, it will be taxable as before. There is a limited period of 60 days after a distribution that a taxpayer can re-contribute the amounts back into the retirement account if it would otherwise qualify for rollover treatment.
- Standard deductions will change for 2020. The IRS reports the following amounts:
- Married filing jointly will go up by $400 to $24,800.
- Married filing separately will go up by $200 to $12,400
- Head of household will go up by $300 to $18,650
- Single will go up by $200 to $12,400
- As a result of the CARES act, donations to charity up to $300 will be allowable as an “above the line” deduction for taxpayers who normally take the standard deduction. Taxpayers who itemize their deductions will still be able to take their charitable deductions as before.
- While it doesn’t apply to all accounts, there will be increases to the contribution limits for some types of retirement accounts, including 401(k)s, 403(b)s, most 457 plans, and the federal government’s Thrift Savings Plans. The increased limits will also include 401(k) catch-ups, SEP IRAs and Solo 401(k)s, aftertax 401(k) contributions, SIMPLE retirement accounts, and defined benefit plans. IRA contribution limits will not change from 2019.
- Health savings accounts (HSAs) will also have increased contribution limits. For 2020, the individual coverage limit is $3,550 and family coverage is $7,100. These amounts will increase to $3,600 and $7,200 for 2021.
- Due to increased income limits, more taxpayers will be eligible for the Retirement Savings Contribution Credit, also known as the Saver’s Credit.
- The minimum adoption credit will go up from $14,080 to $14,300.
- The earned income tax credit will go up from $6,557 to $6,660 and the AGI limits have gone up from $55,952 to $56,844 for taxpayers who are married filing jointly and up from $50,162 to $50,594 for all other filing statuses.
- Social Security payroll tax income limits will go up to $137,700 from $132,900.
For individuals who received stimulus money, many questions have been raised about whether the payments will count toward taxable income for 2020 taxes. As a prepayment on a tax credit, the payments will not be taxable. In fact, taxpayers who have a drop in income in 2020 may even be eligible for a remaining stimulus payment. On the other side, taxpayers who will have a significantly higher AGI for 2020 than for 2018 and 2019, some of the stimulus money may need to be repaid.
Unemployment Insurance Benefits
Unemployment benefits are generally taxable, so this is also something to consider when planning for the upcoming tax season.
For businesses who received a PPP loan, there may be some tax considerations. Due to the ever-changing guidelines, there will probably be many questions surrounding tax filing. It will be important to consult a professional who can answer those questions.
These are just a few possibilities that may be different for 2020 taxes. There are additional considerations depending on your unique situation.
The tax professionals at BSB are following the changing guidance and staying updated on current tax policies to help you properly plan for the upcoming tax season. Don’t wait! Contact us sooner, rather than later, to plan for 2020 taxes.
By now, working from home has become a new normal for some employees. Even as some offices reopen, many individuals hope to continue working from home indefinitely. But before adjusting to a permanent work-from-home environment, both employees and employers should be aware of possible SALT (state and local tax) implications.
State tax issues are complex and changing. If you are working from home from a temporary residence for a company in another state, you could potentially be liable for taxes in both your state of primary residence and the state you are temporarily living in. Your company may also need to pay tax in the state where you are doing work from a home office.
Many factors affect taxability of income, including days in the home office, location of the company, and type of organization. While states have different guidelines, nearly all states require income taxes from workers who are temporarily employed in the state. For almost half of states, these taxes apply to even one day of work.
Due to COVID-19, 13 states and Washington, DC have agreed not to enforce tax rules. Additionally, some states, including Maryland, Virginia, and DC have agreements with neighboring areas. However, many states including New York and California, will still tax remote workers for 2020.
In some situations, remote workers receive credits for taxes paid in other states. But when the state taxes are higher in the state where the remote work was performed these credits may not be enough to cover taxes owed.
Businesses must also be aware of tax implications since employees working remotely could trigger nexus rules that raise the business’s state taxes.
Now is the time to meet with a tax professional. Contact us today to discuss the specifics of your situation and determine what you need to do to protect yourself or your company from an unpleasant tax surprise.
More than a year after sweeping federal and state tax reform were enacted, businesses of all sizes are still wrapping their arms around the changes. Additional guidance and regulations have been issued nearly every month—indeed, change is the new normal. Strategic tax planning now is key to lowering businesses’ total tax liability. Read on for eight top planning opportunities and considerations businesses should review as part of their 2019 strategy.
1. The GILTI, the FDII, and the BEAT – The 2017 tax reform package introduced several international tax packages that will either create tax liabilities or opportunities. Very generally, the anti-deferral regime is expanded under GILTI, which taxes U.S. shareholders of CFCs on certain types of income earned by the CFCs, similar subpart F income. The BEAT imposes an additional tax on certain corporations that erode the U.S. tax base through certain types of payments made to related foreign persons that meet certain thresholds. And the FDII deduction provides a deduction for certain domestic corporations that service foreign customers or markets when the requirements are satisfied. For 2019, estimating the impact of GILTI, FDII, and the BEAT on their tax liabilities and deductions is a key international tax planning consideration.
2. Section 199A Deduction – The new Section 199A deduction may reduce a pass-through owner’s maximum individual effective tax rate from 37 percent to 29.6 percent. Taxpayers should determine whether they qualify for the 199A deduction when estimating their future taxable income and while evaluating choice of entity considerations post-tax reform. With proper tax planning under the recently-issued final regulations, a number of opportunities exist to possibly separate non-qualifying Specified Service Trade or Businesses (also known as “SSTBs”) from qualifying trades or businesses in order to take advantage of the reduced rate of tax on eligible activities that would otherwise have been recast as a SSTB given the relationship to the underlying activity.
3. Interest Deduction Limitation – Taxpayers now face significant new limitations on their ability to deduct business interest paid or accrued on debt allocable to a trade or business pursuant to Section 163(j). Section 163(j) may limit the deductibility of business interest expense to the sum of (1) business interest income; (2) 30 percent of the adjusted taxable income (ATI) of the taxpayer; and (3) the floor plan financing interest of the taxpayer for the taxable year (applicable to dealers of vehicles, boats, farm machinery or construction machinery). ATI is defined as the taxable income of the taxpayer computed without regard to items not attributable to a trade or business, business interest income or expense, net operating loss and capital loss carryovers and carrybacks, depreciation, amortization and depletion, certain gains from the sale of property and certain items from partnerships and S corporations. For taxable years beginning before 2022, deductions for depreciation, amortization and depletion will not be taken into account in calculating adjusted taxable income. Certain exceptions exist for small business taxpayers whose average annual gross receipts over the past three years do not exceed $25 million, certain electing real property trades or businesses, electing farming businesses, and certain utilities.
4. Economic Nexus/Wayfair – The South Dakota v. Wayfair decision means that states are now free to subject companies to state taxes based on an “economic” presence within their state. Taxpayers must now determine their nexus and filing obligations in states and localities, where compliance was not required before. This landmark decision presents an opportunity for taxpayers to enhance their technology solutions and update their reporting tools as they comply with state law changes.
5. Bonus Depreciation – Expanded bonus depreciation rules allow taxpayers full expensing of both new and used qualifying property placed in service before 2023, creating significant incentives for making new investments in depreciable tangible property and computer software. Bonus depreciation allowances increased from 50 to 100 percent for qualified property acquired and placed in service after September 27, 2017, and before 2023 (January 1, 2024, for longer production period property and certain aircraft). Plan to purchase eligible property to assure maximum use of this annual asset expense election and bonus depreciation, as the 100-percent bonus depreciation deduction ends after 2023. Since bonus depreciation is not allowed on certain long-term property of an electing real property trade or business for Section 163(j) purposes, an analysis should be performed to measure the cost of the forgone depreciation relative to the marginal benefit for the additional interest expense that would otherwise be allowed.
6. Corporate Alternative Minimum Tax (AMT) Rescinded – This change presents a tax planning opportunity, as AMT credits can offset the regular tax liability for years after 2017. Going forward, any prior AMT liabilities may offset the regular tax liability for any taxable year after 2017. In addition, the AMT credit is refundable for any taxable year beginning after 2017 and before 2022 in an amount equal to 50 percent (100 percent for taxable years beginning in 2021) of the excess credit for the taxable year subject to a 6.2 percent sequestration rate. A recent IRS announcement reversed the 6.2 percent holdback by stating that “for tax years beginning after December 31, 2017, refund payments and credit elect and refund offset transactions due to refundable minimum tax credits under Section 53(e) will not be subject to sequestration.”
7. Federal Research Credit – The credit is now even more valuable to businesses after tax reform due in part to the repeal of the corporate AMT and new rules related to net operating loss (NOL) limitations. Now that AMT has been repealed, companies that paid AMT may now be paying regular income tax, which can be offset by the R&D credit, and income tax that can no longer be offset by NOLs, the R&D credit may help offset. Taxpayers seeking to maximize the benefit of immediately deducting R&E expenditures should consider the effective date of the required amortization rule and, if possible, accelerate their R&D activities prior to December 31, 2021.
8. Opportunity Zones (O-Zones) – New O-Zone tax incentives allow investors to defer tax on capital gains by investing in Qualified Opportunity Funds. Taxpayers can defer taxes by reinvesting capital gains from an asset sale into a qualified opportunity fund during the 180-day period beginning on the date of the sale or exchange giving rise to the capital gain. Once rolled over, the capital gain will be tax-free until the fund is divested or the end of 2026, whichever occurs first. The investment in the fund will have a zero-tax basis. If the investment is held for five years, there is a 10-percent step-up in basis and a 15-percent step-up if held for seven years. If the investment is held in the opportunity fund for at least 10 years, those capital gains in excess of the rollover amount (i.e., not the original gain but the post-acquisition appreciation) would be permanently exempt from taxes. To maximize the potential benefits, taxpayers must invest in a Qualified Opportunity Fund before December 31, 2019.
Rather than looking at each credit and new tax provision in a vacuum, we advise clients to look at all the changes holistically to assess their impact and develop their tax planning strategies. It’s important to determine your company’s total tax liability and structure your planning to address the full picture of your organization.
Please contact us if you have any questions or concerns regarding your tax planning for 2019. 703.591.5200 or firstname.lastname@example.org
As the year is coming to an end, we have put together the 2018 Year-End Tax Planning Guide to help you plan for your upcoming tax filing. Please contact us if you have any questions or concerns.
Planning for year-end 2017 presents a unique set of challenges for taxpayers due to the proposed tax reform legislation. With uncertainty regarding the bill’s changes and final passage, the best an individual or business can do is to go with what we know for 2017, and be prepared to act quickly should passage occur before year-end. And as always, if circumstances in your life or the life of your business have occurred, make sure you’ve considered the impact of those changes on your tax situation.
Attached you’ll find the Wolters Kluwer November, 2017 Special Report for year-end planning. While changes have been made to the proposed tax reform since this was published, many of the planning tips will still apply. Please contact us at BSB if you have any questions or concerns about your situation.
Download Our 2017 Year End Tax Planning Here
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I came to BSB initially for corporate tax help. That was 10 years ago. I am using BSB more now than ever. As my company evolved, BSB was able to grow right along side of it. Tom Crutchfield at BSB, has been very knowledgable and great resource for Consequent Solutions for tax, accounting, and auditing related services.Government Contractor
As an owner of a rapidly growing small business, we needed an experienced bookkeeping & business advisory partner to keep up with all of the changes my organization was going through. We found that partner in Burdette, Smith & Bish. They are an integrated part of our team and an invaluable resource for us as we go through our growth phase.Michael Delpierre Conversion Pipeline