Category Archives: Blog

2020-2021 Tax Planning Guide

September 22, 2020

Do your tax strategies need a refresh? With individuals and businesses coping with the impact of the COVID-19 pandemic and some new tax laws going into effect, you probably have questions about tax planning this year. To save the most on your 2020 taxes, you need to plan carefully and take advantage of all deductions, credits and other breaks that current tax law allows. This is exactly what our online tax planning guide can help you do. So, look through the guide then contact us to talk about ways to lighten your tax burden and better achieve your financial objectives.

2020-2021 Tax Planning Guide

 

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The Ins and Outs of the Easing of Loss Limitation Rules

September 22, 2020

To provide businesses and their owners with some relief from the financial effects of the COVID-19 crisis, the Coronavirus Aid, Relief, and Economic Security (CARES) Act eases the rules for claiming certain tax losses. Here’s a look at the — mostly temporary — modifications.

Liberalized Rules for NOL Carryforwards

The CARES Act includes favorable changes to the rules for deducting net operating losses (NOLs). First, it eases the taxable income limitation on deducting NOLs.

Under an unfavorable provision included in the 2017 Tax Cuts and Jobs Act (TCJA), an NOL arising in a tax year beginning in 2018 or beyond and carried forward to a later tax year couldn’t offset more than 80% of the taxable income for the carryforward year (the later tax year), calculated before the NOL deduction.

For tax years beginning before 2021, the CARES Act removes the TCJA taxable income limitation on deductions for prior-year NOLs carried forward into those years. So NOL carryforwards to tax years beginning before 2021 can be used to fully offset taxable income for those years.

For tax years beginning after 2020, the CARES Act allows NOL deductions equal to the sum of:

• 100% of NOL carryforwards from pre-2018 tax years, plus
• The lesser of 1) 100% of NOL carryforwards from post-2017 tax years, or 2) 80% of remaining taxable income (if any) after deducting NOL carryforwards from pre-2018 tax years.

As you can see, this is a complicated rule. But it’s more taxpayer-friendly than what the TCJA allowed. This favorable change is permanent.

Carrybacks Allowed for Certain NOLs

Under another unfavorable TCJA provision, NOLs arising in tax years ending after 2017 generally couldn’t be carried back to earlier tax years and used to offset taxable income in those earlier years. Instead, NOLs arising in tax years ending after 2017 could only be carried forward to later years. But they could be carried forward for an unlimited number of years.

Under the CARES Act, NOLs that arise in tax years beginning in 2018 through 2020 can be carried back for five years. For example, a taxpayer could carry back an NOL arising in 2020 to 2015 and recover federal income tax paid for that year. That could be very beneficial, because the federal income tax rates for both individuals and corporations were higher before the TCJA rate cuts took effect in 2018.

When advantageous, taxpayers can elect to waive the carryback privilege for an NOL and, instead, carry the NOL forward to future tax years. In addition, barring a further tax-law change, the no-carryback rule will come back into play for NOLs that arise in tax years beginning after 2020.

Excess Business Loss Rules Postponed

Another unfavorable TCJA provision disallowed current deductions for so-called “excess business losses” incurred by individuals and other noncorporate taxpayers in tax years beginning in 2018 through 2025.

An excess business loss is one that exceeds $250,000 ($500,000 for a married joint-filing couple). These limits are adjusted annually for inflation.

The CARES Act removes the excess business loss disallowance rule for losses arising in tax years beginning in 2018 through 2020.

Barring a further tax-law change, the excess business loss disallowance rule will come back into play for losses that arise in tax years beginning in 2021 through 2025. Any disallowed excess business loss for one of those years will be carried forward to the following year and can be deducted under the rules for NOL carryforwards.

Amended Return Opportunities

These taxpayer-friendly CARES Act changes can affect prior tax years for which you’ve already filed returns. Amended returns may be needed to benefit from the changes. Please contact our office if you would like more information.

 

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August 31, 2020 Deadline to Roll Back RMD’s Taken for 2020

June 26, 2020

The IRS issued new guidance this week regarding Required Minimum Distributions (RMD). Long story short: RMD not required for 2020 and if you have already taken your RMD, you have until August 31, 2020 to put it back in the IRA and not pay tax on the RMD.

As a reminder, in March the CARES Act was passed that suspended the Required Minimum Distribution for 2020. This applied to anyone that was required to take a distribution from their IRA or other defined contribution plans (does not apply to defined benefit plans). This was easy for taxpayers who had not taken their RMD at the time the CARES Act was passed, as they just had to let their advisor know not to distribute the money during the year.

Things were a little more complicated for taxpayers who had already taken their RMD because, under the rules at the time, you only had 60 days to roll a distribution back into the account. If a taxpayer had taken an RMD on January 2, 2020, by the time the CARES Act was passed, the 60-day period had passed and the taxpayer could not roll that amount back into their IRA. Under the new relief, the recipient may repay the distribution to the distributing IRA, even if the repayment is made more than 60 days after the distribution, provided the repayment is made no later than August 31, 2020. The taxpayer who took out their RMD in January now has until August 31 to roll the funds back into the account.

The notice also provides that this repayment is not subject to the one rollover per 12-month period limitation and the restriction on rollovers for inherited IRAs.

Please call us for more information or clarification.

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