We hope you and your family are doing well and staying healthy during these unprecedented times. With 2020 rapidly coming to a close soon (thankfully!), we are once again reaching out to share our annual Tax Planning Guide with you. The 2020/2021 Tax Planning Guide is available here.
The massive changes brought to us in the Tax Cuts and Jobs Act (TCJA) will continue to affect 2020 and future tax years until 2025 and will continue to have a significant impact on tax planning, along with the new CARES Act and of course the PPP loans and forgiveness.
• Tax rates will stay consistent with 2019, with small increases to the taxable income brackets.
• The standard deductions have slightly increased again.
• The higher alternative minimum tax (AMT) phase-out increases again, further decreasing the number of individuals subject to AMT.
• The 20% Qualified Business Income Deduction for income individuals received from pass-through entities such as partnerships, limited liability companies, and S corporations continues, with inflation adjustments to the phase-out thresholds.
• State and local tax deductions are still limited to $10,000, and mortgages obtained in 2018 or later continue to be limited by a $750,000 ceiling of qualified acquisition indebtedness.
• And with the passing of the 2020 spending bill, medical expenses will continue to be limited to a 7.5% floor.
• There is uncertainty around the extent of PPP (Paycheck protection program) loan forgiveness and whether there are allowable deductions. As of now, no deductions are allowable in 2020 unless Congress enacts legislation in 2020 to allow the deductions.
• Under the CARES Acts, net operating loss carrybacks are back for Federal! NOLs incurred in 2018, 2019, or 2020 may be carried back to five tax years, preceding the tax year of such loss.
• Under the CARES Act, an eligible individual may take a qualified charitable contribution deduction of up to $300 against their AGI in 2020.
• The CARES Act temporarily suspends the AGI limitation of 60% for qualifying cash contributions. The CARES Act allows qualified charitable contributions to be deducted up to 100% of AGI for 2020.
• The CARES Act waives required minimum distributions during 2020 for IRAs and retirement plans, including beneficiaries with inherited accounts.
As always, these significant tax law changes, coupled with ever-evolving changes in accounting rules and financial planning strategies, make it important to help clarify and simplify these issues for you, and we feel that the Tax Planning Guide is an excellent tool for us to help do that for you.
In addition to 2020 tax planning, under a Biden administration, and if the Democrats assume control of both the House and the Senate, taxpayers are likely to see increases to the corporate tax rate and the top tax rate for individuals. However, should the Republicans retain control of the Senate, it would be difficult to effect any tax rate changes and most provisions in the Tax Cuts and Jobs Act (TCJA) (as passed during the Trump administration) would continue until they generally expire after 2025. The summary of what does this mean for the taxpayers’ planning is available on our blog.
Feel free to share the link to the Tax Planning and Estate Planning Guides with friends and family who you think might find the information interesting or helpful. We hope these will prove to be convenient sources of information for you in the coming months. If you have any questions after reviewing the information presented, please do not hesitate to give us a call.
We wish you all a wonderful holiday season and prosperity in the New Year. For those of you who are clients of Bregante + Company LLP, your 2020 Tax Organizers will be coming your way in mid-January. We look forward to seeing you or hearing from you in early 2021.
