The recently enacted Consolidated Appropriations Act offers valuable extensions and expansions of tax breaks for small-business owners. Below is a summary of the most relevant provisions to consider as you plan for the years ahead:

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✅ Business Expense Deductions & Credits

• 100% Deduction for Business Meals
  Business meals (dine-in or takeout) provided by restaurants are fully deductible in 2021 and 2022.

• Work Opportunity Tax Credit (WOTC)
  Extended through 2025 for employers hiring individuals from 10 targeted groups.

• New Markets Tax Credit
  Qualifying investments may claim a 39% credit through 2025.

• Empowerment Zone Incentives
  Extended through 2025, though:

  • Enhanced first-year depreciation

  • Capital gains tax deferral
    are both eliminated beginning in 2021.

• Section 127 Student Loan Assistance
  Employers may pay up to $5,250 toward employee student loans (principal + interest) tax-free through 2025.

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🏘️ Real Estate, Depreciation & Property Provisions

• 30-Year Depreciation (Elective)
  For residential rental property placed in service before 2018 (previously depreciated over 40 years), businesses may now use a 30-year straight-line schedule if they opted out of TCJA interest limitations.

• Motorsports Complex Depreciation
  Seven-year recovery period extended through 2025.

• Film, TV & Theater Production Write-Offs
  Qualified productions starting before 2025 are eligible for:

  • $15M first-year write-off limit

  • $20M limit in designated disadvantaged zones

• Racehorse Depreciation
  Racehorses two years old or younger placed in service in 2021 qualify for 3-year depreciation.

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🌱 Energy Efficiency & Clean Tech Incentives

• Commercial Building Energy Deduction
  The per-square-foot deduction is now permanent:

  • $1.80/sq. ft. for energy-efficient improvements

  • $0.60/sq. ft. for partial qualifications

• Residential Energy-Efficient Home Credit
  Homebuilders may claim:

  • $1,000 or $2,000 per qualifying home through 2021

• EV Refueling Property Credit
  Businesses installing non-hydrogen alternative-fuel stations (e.g., electric vehicle chargers) can claim up to 30% of the installation cost through 2021.

• Hydrogen-Powered Vehicle Credit
  Businesses may claim up to:

  • $4,000 to $40,000 for qualifying hydrogen-fueled vehicles through 2021.

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📉 Disaster Relief, Loans & Tax Treatment

• SBA EIDL Advances & Loan Assistance
  These funds are:

  • Non-taxable

  • Do not reduce tax attributes (like NOLs or basis)

• Farmer-Specific NOL Carryback Adjustment
  Farmers may elect a 2-year NOL carryback (instead of 5 years) retroactively, as if it had been in the original CARES Act.

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📞 Need Help Navigating These Opportunities?

We can help you determine which tax breaks apply to your business and how to take full advantage of them.

Contact our office at 561-995-0064 to schedule a consultation.

If you have not received a PPP loan before, First Draw PPP Loans may be available to you.

Two things to know about the Paycheck Protection Program (PPP) first draw enacted on December 27, 2020:

• The first draw is for those who missed getting in on the original PPP, which expired on August 8, 2020.
• Don’t think of a PPP draw as a loan. It’s not a loan. It’s a cash infusion. You have to repay a loan. You don’t have to repay the PPP funds.

Who qualifies for first-draw PPP money today? You, most likely—if you file a business tax return and have not yet received any PPP monies.

But don’t wait. The money is going to run out fast, and once it’s gone, so is the PPP. And the new PPP ends March 31, even if the money is not gone by then.

You qualify for the PPP if any of the following are true:

• You file your taxes on Schedule C of your tax return. Businesses that file on Schedule C include independent contractors (often called 1099 folks), single-member LLCs, proprietorships, and statutory employees such as life insurance salespeople.
• You file your taxes on Schedule F (ranchers and farmers).
• You are a general partner in a partnership, but the partnership asks for and receives the money based on your and the other partners’ combined self-employment incomes, as adjusted.
• You operate as an S corporation.
• You operate as a C corporation.
• You are the only worker in the business—and if you have employees in the business, you qualify on both your ownership worker status and your employees’ W-2 status.

 

 

With the victories of Jon Ossoff and Raphael Warnock in the Georgia Senate runoff elections, Democrats now control the Presidency, the House of Representatives, and the Senate. Although the Georgia results had not yet been officially certified at the time of writing, this political shift provides the Biden administration with a narrow governing majority.

During his campaign, President Biden outlined a framework for tax reform focused on increasing taxes for corporations and high-income individuals. While broad in scope, many specifics remain uncertain. Areas of potential reform include:

• Corporate and individual income tax rates

• Capital gains tax treatment

• Estate and gift tax exemption levels

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How Tax Changes Could Take Shape

1. Part of a COVID-19 Relief Package

Tax changes may first appear in a broader COVID-19 relief bill. These could include:

• Temporary tax cuts or credits

• Expanded retirement contributions

• Measures targeting small businesses

Such provisions would likely be effective immediately and aimed at supporting recovery from the pandemic.

2. Repeal and Replace the TCJA

Biden could attempt a full rollback and replacement of the 2017 Tax Cuts and Jobs Act (TCJA). However, given the narrow Senate majority, this would be difficult unless Democrats eliminate or amend the legislative filibuster. This option is unlikely in the near term as the administration’s focus is on pandemic response.

3. Modify the TCJA

Rather than repeal the TCJA, Biden may pursue targeted changes. These could include:

• Raising the corporate tax rate from 21% to 28%

• Adjusting individual tax brackets

• Modifying specific provisions such as deductions and credits

This incremental approach is more politically viable and may be prioritized once the public health crisis is under control.

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Factors Influencing Tax Policy Direction

Legislative Filibuster

Without changes to Senate rules, most major tax legislation would require 60 votes. Budget reconciliation—which requires only a simple majority—may be used, but changes passed through this method typically expire after 10 years.

Key Treasury Appointments

Treasury appointees will shape the administration’s tax strategy. Critical positions include:

• Assistant Secretary for Tax Policy

• Deputy Assistant Secretary for Tax Policy

• Tax Legislative Counsel

Until these roles are filled, major legislative activity may be delayed.

Bipartisanship Outlook

Biden has expressed a desire to govern in a bipartisan manner. A compromise—such as a corporate tax rate increase to 28% instead of restoring the 35% pre-TCJA rate—may appeal to both parties.

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Business Implications

While tax reform is not the administration’s immediate priority, some short-term tax changes could be included in pandemic relief legislation. More significant reforms, especially tax increases, are unlikely before 2022.

Businesses should monitor:

• COVID-related relief bills for immediate tax implications

• Treasury appointments and Senate dynamics for timing and scope of future reforms

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Current vs. Proposed Tax Policy Overview

On December 21, 2020, Congress passed H.R. 133, the Consolidated Appropriations Act (CAA), 2021, which includes:

• Division N – Additional Coronavirus Response and Relief (ACRR)

• Division EE – Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR)

The bill passed with strong bipartisan support and is expected to be signed into law. Below is a summary of the most relevant provisions for individuals and small businesses.

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Individual Economic Relief

• $600 Stimulus Payments
  Individuals earning up to $75,000 (or $150,000 for married couples) will receive $600, plus $600 for each child dependent.

• $300 Weekly Unemployment Boost
  Additional federal unemployment benefits are reinstated through March 14, 2021, with eligibility extended through April 5, 2021, and maximum weeks increased to 50 weeks.

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Business Meals Deduction

To support the restaurant industry, businesses can now deduct 100% of restaurant meals (dine-in and takeout) for expenses incurred from January 1, 2021 through December 31, 2022.

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Paycheck Protection Program (PPP) Updates

• Second Round of Funding
  Eligible businesses may apply for a second PPP loan of up to $2 million, provided they:

  • Employ 300 or fewer employees per location

  • Have used or will use their first PPP loan

  • Experienced at least a 25% drop in gross receipts in any 2020 quarter compared to the same quarter in 2019

  Special Rule for Hospitality and Food Services:
  These businesses may borrow up to 3.5x average monthly payroll costs, still capped at $2 million.

• PPP Expense Deductibility Clarified
  PPP loan forgiveness is not taxable, and expenses paid with PPP funds are fully deductible, allowing for full tax benefits.

• EIDL Advance Adjustment Repealed
  PPP borrowers are no longer required to reduce their forgiveness amount by the EIDL advance they received.

• Simplified Forgiveness for Loans Under $150,000
  Borrowers can submit a simplified certification of eligibility and retain records for possible SBA review.

• Expanded Eligible Expenses
  In addition to payroll, rent, utilities, and mortgage interest, businesses can now use PPP funds for:

  • Personal protective equipment (PPE) and facility modifications

  • Supplier costs essential to operations

  • Software and cloud-based services

  • Accounting services

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Grants for Shuttered Venue Operators

$15 billion is allocated for grants to eligible live venue operators, theaters, museums, promoters, and talent agents.

• Must show 25% revenue reduction

• Tiered distribution prioritizes applicants with the most significant revenue losses (90%+ or 70%+ revenue decline compared to 2019)

At least $2 billion is reserved for venues with fewer than 50 full-time employees.

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Paid Leave Tax Credit Extensions

• Employer Paid Sick and Family Leave Credits
  Extended through March 31, 2021. Employers are not required to offer leave, but if they do, credits are available.

• Self-Employed Leave Credits
  May continue using 2019 earnings instead of 2020 to calculate credit amounts.

• Payroll Tax Treatment
  Qualified wages under this leave program are excluded from Social Security tax.

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Deferred Payroll Tax Repayment Extension

Employers that postponed the 6.2% employee Social Security tax in 2020 now have until December 31, 2021 to repay it, with penalties and interest delayed until January 1, 2022.

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Employee Retention Credit (ERC) Expansion

Changes apply to wages paid through June 30, 2021:

• Credit rate increased from 50% to 70% of qualified wages

• Per employee wage limit increased to $10,000 per quarter

• Applies to employers with 500 or fewer employees

• New employers that did not exist in 2019 may also qualify

Employers can now claim both PPP and ERC, subject to restrictions.

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Unemployment Insurance Enhancements

• Extended Pandemic Unemployment Assistance (PUA) through March 14, 2021

• $300/week federal supplement reinstated

• State reporting required to track individuals refusing to return to suitable work

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If you have questions about how these provisions affect your business or individual situation, contact our office at 561-995-0064 for assistance.

With the 2020 general election results mostly finalized, attention turns to what federal tax changes could be implemented under the Biden administration. While Democrats gained control of the White House and House of Representatives, control of the Senate hinged on Georgia’s runoff elections in early January. Even with a narrow Democratic majority, passing significant tax reform remains uncertain due to political dynamics and the ongoing economic impact of COVID-19.

Below is a summary of the most prominent proposals in the Biden tax plan, including both individual and corporate provisions.

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Individual Tax Proposals

Higher Maximum Individual Tax Rate

• Top rate would increase from 37% to 39.6%.

• Applies to those earning over $400,000 (specific income definition unclear).

Limit on Tax Savings from Itemized Deductions

• Limits tax benefit of deductions to 28% for higher earners.

• Reinstates phase-out of itemized deductions for high-income taxpayers.

• Likely supports repeal of the $10,000 SALT deduction cap.

Higher Tax Rate on Long-Term Capital Gains

• For income above $1 million, long-term capital gains and qualified dividends would be taxed at 39.6% (plus 3.8% NIIT).

• Maximum effective rate: 43.4% (up from 23.8%).

Increased Social Security Tax for High-Income Individuals

• Restarts 12.4% Social Security tax for income above $400,000.

• Creates a “donut hole” structure between the current cap and $400,000.

Elimination of Step-Up in Basis for Inherited Assets

• Would remove step-up in basis at death.

• Gains would be taxed on inherited assets as if sold at death.

Elimination of Certain Real Estate Tax Breaks

• Repeals the $25,000 rental loss allowance for active participants.

• Ends 1031 like-kind exchanges for real property.

• Eliminates QBI deduction and accelerated depreciation for certain real estate activities.

Phaseout of QBI Deduction

• The 20% deduction under Section 199A would phase out for incomes over $400,000.

Enhanced Child and Dependent Care Tax Credits

• Child tax credit increased to $3,000 ($3,600 for children under 6), fully refundable.

• Dependent care credit increased to $8,000 for one child, $16,000 for two or more; also fully refundable.

Health Insurance Credits

• Ensures no household spends more than 8.5% of income on premiums.

• Refundable credits would reduce cost for middle-income families.

First-Time Homebuyer Credit

• Up to $15,000 refundable credit at time of purchase.

Equalized Retirement Plan Contribution Benefits

• Would revise rules to provide greater benefit for lower-income earners, reducing current skew toward high earners.

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Corporate Tax Proposals

Higher Corporate Tax Rate

• Increase from 21% to 28%.

Minimum Tax on Book Income

• 15% minimum tax on book income for corporations earning $100 million or more.

International Tax Changes

• GILTI inclusion taxed at 21% on a country-by-country basis.

• Eliminates QBAI exemption.

• Adds penalties for offshoring jobs and new credits for domestic production (“Made in America” credit).

Financial Risk Fee

• Imposed on financial institutions with more than $50 billion in assets.

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Green Energy & Environmental Proposals

• Reinstates or expands tax incentives for energy-efficient commercial and residential investments.

• Reintroduces and expands electric vehicle credits.

• Eliminates deductions for fossil fuel development costs.

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Conclusion

While these proposals outline the Biden administration’s tax agenda, implementation depends on several factors:

• Senate control and use of budget reconciliation.

• Political appetite for tax increases in a post-COVID economy.

• Prioritization of public health, economic recovery, and bipartisanship.

Businesses and individuals should remain vigilant, as even incremental tax changes could significantly impact planning strategies. We will continue monitoring legislative developments and provide updates as more information becomes available.

Questions about how these proposals could affect you or your business?
Contact our office to schedule a consultation.

As 2020 comes to a close, employers should be aware that this year’s payroll and compensation reporting brings significant differences compared to prior years. The following summary highlights key year-end updates that employers need to consider.

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New Form for Reporting Non-Employee Compensation

Form 1099-NEC replaces Form 1099-MISC for reporting 2020 non-employee compensation. Businesses that paid independent contractors during 2020 must:

• Provide recipients with Form 1099-NEC

• File with the IRS by January 31, 2021

Form 1099-MISC is still used for royalties, rents, prizes, and other non-employee income, but its layout has been revised.

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W-2 Reporting of FFCRA Sick and Family Leave Wages

Employers must report qualified paid leave wages under the Families First Coronavirus Response Act (FFCRA) either:

• In Box 14 of Form W-2, or

• On a separate statement

See IRS Notice 2020-54 for detailed instructions.

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Discriminatory Flexible Spending Accounts (FSAs)

COVID-19 may have caused disparities in FSA usage between highly compensated employees (HCEs) and other employees. If HCEs disproportionately used FSA funds (e.g., for child care), nondiscrimination testing may fail, resulting in taxable income reported on the HCE’s W-2.

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Treatment of Unused Nonrefundable Airline Tickets

If an employee receives a nontransferable airline credit originally purchased for a business trip, the value of that credit may be considered taxable compensation under IRC Section 83. Employers should consult a tax advisor to determine the proper treatment based on the facts.

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Qualified Disaster Payments (IRC Section 139)

COVID-19 was declared a national emergency on March 13, 2020, which allows employers to make tax-free, tax-deductible payments for qualified expenses. These can include:

• Health supplies (e.g., hand sanitizer)

• Remote work costs (e.g., internet upgrades, office equipment)

• Childcare or tutoring expenses

• Uninsured medical or transportation costs

No W-2 or 1099 reporting is required for qualified payments.

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Leave Donation and Charitable PTO Conversions

Employees who donated unused paid time off (PTO) to other employees or charities may avoid taxation if IRS rules are followed. Under Notice 2020-46, employer-paid contributions to COVID-19 relief charities in exchange for forfeited PTO are not taxable to the employee and are not included on their W-2.

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Company Vehicles and Imputed Income

Employees with access to employer-provided vehicles may see increased imputed income for 2020. If a vehicle was parked at home during the pandemic, the IRS considers that personal use. Employers must:

• Withhold FICA on the value

• Report imputed income on W-2s

• Provide timely employee notification by January 31

No current IRS relief has been issued for pandemic-related use changes.

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Employer-Paid Student Loan Repayment

The CARES Act allows employers to pay up to $5,250 toward an employee’s student loans on a tax-free basis. This is only valid if offered through a non-discriminatory written plan under IRC Section 127.

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Employee Benefit Plan Elections

Employees should review their benefit elections carefully for 2021, particularly for:

• Health FSAs

• Dependent care FSAs (subject to “use it or lose it”)

• Commuter benefit plans under IRC Section 132(f)

Though transit elections can be updated monthly, year-end is a good opportunity to review overall elections.

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Payroll Tax Deferrals

Two deferral programs affect 2020 payroll taxes:

1. Employer Share of FICA (CARES Act)

   • Deferral period: March 27 to December 31, 2020

   • Repayment:

     • 50% due by December 31, 2021

     • Remaining 50% due by December 31, 2022

2. Employee Share of FICA (Presidential Memorandum)

   • Deferral period: September 1 to December 31, 2020

   • Repayment: January 1 to April 30, 2021

Normal withholding resumes for wages earned January 1, 2021, and beyond.

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If you have questions or need assistance with year-end reporting, compliance, or planning for 2021, contact our office for a consultation.

As 2020 concludes, employers should carefully review the treatment and reporting of fringe benefits, particularly for employees and 2% S corporation shareholders. Due to changes under the CARES Act and COVID-19 relief efforts, several new rules and exceptions apply.

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Key Year-End Reminders for Employers

Fringe Benefit Basics

Fringe benefits are generally taxable unless specifically excluded by law. The value of these benefits must be determined before December 31 to ensure proper payroll tax withholding and reporting on Form W-2 or 1099 by January 31, 2021.

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Common Employee Fringe Benefits

Group-Term Life Insurance

• First $50,000 in coverage is tax-free.

• Excess coverage is taxable and must be reported in Boxes 1, 3, 5, and 12 (Code C) on Form W-2.

Business Expense Reimbursements

• Non-accountable plan reimbursements are taxable.

• Accountable plan reimbursements (with adequate substantiation or per diem rates) are tax-free.

COVID-19 Qualified Disaster Payments (Section 139)

• Tax-free payments for unreimbursed COVID-related expenses.

• Examples: remote work supplies, child care due to school closures, and additional health costs.

• No W-2 or 1099 reporting required.

Employer-Paid Student Loan Assistance (CARES Act)

• Up to $5,250 is excludable if provided under a compliant Section 127 educational assistance plan.

PTO Leave Donation

• Properly structured leave-sharing plans allow employees to donate unused PTO without tax consequences to the donor.

• IRS Notice 2020-46 allows cash donations to COVID-19 charities through PTO conversion to be tax-free to the employee.

Personal Use of Company Vehicles

• Taxable as imputed income.

• Use special valuation methods and notify employees by January 31.

• FICA withholding required, FIT optional.

• COVID-related business travel changes may have increased personal use percentages.

Personal Use of Company Aircraft

• Value is based on the Standard Industry Fare Level (SIFL) formula.

• Imputed income is subject to FICA, FUTA, FITW, and SITW.

• Non-business entertainment use may also generate nondeductible expenses for the employer.

De Minimis Fringe Benefits

• Small, infrequent benefits can be excluded.

• Cash, gift cards, and event tickets are never de minimis.

• Frequent or lavish meals may be challenged by the IRS.

Employee Gifts and Awards

• Tangible personal property gifts may be excluded if they qualify under length-of-service or safety award rules.

• Limits: $400 for nonqualified plans, $1,600 for qualified plans.

• Non-cash gifts exceeding $25 are generally taxable.

Moving Expenses

• Taxable to employees unless for active-duty military under PCS orders.

• Employers may still deduct the expense.

Qualified Transportation Benefits

• Monthly tax-free limits for 2020: $270 for parking, $270 for transit/vanpool.

• Amounts exceeding these are taxable.

• Employer deduction disallowed under current law.

Noncompensatory Cell Phones

• Business use of employer-provided devices is tax-free.

• Must be provided for business reasons, not as a benefit or bonus.

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Special Fringe Benefit Rules for 2% S Corporation Shareholders

Certain fringe benefits that are excludable for regular employees must be included in taxable income for 2% S corporation shareholders. Failure to report them on Form W-2 disallows the corporation’s deduction.

Benefits Included in Wages:

• Health, dental, vision, and LTC insurance

• Section 127 tuition reimbursement

• Health savings account contributions

• Disability insurance premiums

• Group-term life insurance (entire premium)

• Transportation and adoption assistance

• Personal use of company assets and meals/lodging

Ineligible for:

• Participation in cafeteria plans

• Pre-tax reimbursements for health premiums

Fringe Benefits Not Taxable to 2% Shareholders:

• Qualified retirement plan contributions

• Educational assistance (limited by ownership rules)

• Dependent care assistance (with nondiscrimination limits)

• Retirement planning services

• No-additional-cost services

• Qualified employee discounts

• Working condition and de minimis fringe benefits

• On-site athletic facilities

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Final Thoughts

Year-end fringe benefit reporting and compliance require careful planning and documentation. Be sure to:

• Review all benefits provided to employees and shareholders.

• Ensure taxable benefits are included in W-2 reporting.

• Document and comply with the requirements for any exclusions.

If you have questions about the reporting of fringe benefits, proper treatment for S corporation shareholders, or CARES Act provisions, contact your tax advisor to ensure compliance and avoid missed deductions or penalties.

As year-end approaches, individuals, business owners, and family offices should evaluate tax planning strategies in light of provisions from the CARES and SECURE Acts, and ongoing tax reform discussions. This guide outlines planning areas and 2021 inflationary adjustments based on available projections as of October 15, 2020. Please consult your advisor for updated guidance and personalized recommendations.

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Election-Year Policy Considerations

Although no formal plans were published during the campaign, then-candidate Joe Biden spoke in favor of:

• Increasing the top individual income tax rate to 39.6%

• Raising the capital gains tax rate to 39.6% for those earning more than $1 million

• Eliminating step-up in basis at death

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Federal Income Tax Rate Brackets

2020 & Projected 2021 Brackets:

Social Security and Medicare Taxes

• OASDI wage base:
  • $137,700 (2020)
  • $142,800 (2021)
• FICA rates:
  • 6.2% (employer) + 6.2% (employee)
• Medicare tax:
  • 1.45% each (no wage cap)
  • Additional 0.9% Medicare tax on earned income above $200,000 (single), $250,000 (joint), or $125,000 (MFS)

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Long-Term Care Insurance Deduction Limits

Age	2020	Projected 2021
≤40	$430	$450
41–50	$810	$850
51–60	$1,630	$1,690
61–70	$4,350	$4,520
>70	$5,430	$5,650

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Retirement Plan Contribution Limits

• 401(k)/403(b): $19,500 + $6,500 catch-up (age 50+)
• IRA Contributions: No age cap for traditional IRA contributions under the SECURE Act
• RMDs begin at age 72 for those born on or after July 1, 1949

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SECURE Act Highlights

• Penalty-free withdrawals up to $5,000 for birth/adoption expenses
• 10-year distribution rule for most non-spouse inherited IRAs
• Eliminates age cap on traditional IRA contributions
• Five-year payout rule retained for non-see-through accumulation trusts

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CARES Act Highlights

• Waives 10% early withdrawal penalty for up to $100,000 COVID-related distributions
• Amount can be taxed over three years or repaid within three years
• RMDs suspended for 2020

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Other Key Planning Considerations

• Foreign Earned Income Exclusion:
  • $107,600 (2020)
  • $108,700 (projected 2021)
• Alternative Minimum Tax (AMT) Exemption Amounts:

Filing Status	2020	Projected 2021
Single/HOH	$72,900	$73,600
MFJ	$113,400	$114,600
MFS	$56,700	$57,300

• Kiddie Tax:
  Reverts to being based on parents’ tax rate (retroactively applicable to 2018 and 2019 with amended returns)

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Charitable Contributions

• CARES Act allows 100% AGI deduction for 2020 cash contributions to public charities
• Excludes donor-advised funds and private foundations
• Excess contributions can be carried forward 5 years

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Estate and Gift Tax Exemption

• $11,580,000 (2020)
• Projected $11,700,000 (2021)
• Gift exclusion for non-citizen spouse: $157,000 (2020) / $159,000 (projected 2021)

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Simplified Employee Pension (SEP) Plans

• Contribution limit: $57,000 (2020) / $58,000 (projected 2021)
• SEP contributions due by employer’s tax return filing deadline (including extensions)

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Net Operating Loss (NOL) and Excess Business Loss Provisions

• CARES Act: Allows NOL carrybacks for 2018–2020 (five years) and suspends 80% limitation
• Excess Business Loss (Section 461(l)): Suspended for 2018–2020; projected reinstatement in 2021 with thresholds of:
  • $262,000 (single)
  • $524,000 (joint)

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For full details and planning strategies, download the PDF:

Click here to download the full PDF – 2020 Year-End Tax Planning for Individuals

We encourage you to work with your tax advisor to evaluate the impact of these changes on your personal tax situation.

QR Codes will now show up on some IRS documents for the first time! The IRS has included this barcode technology to new notices going out to millions of taxpayers. CP14 and CP14 IA balance-due notices that inform taxpayers that they owe money on unpaid taxes and their payment options are now equipped with QR barcodes to assist in navigating to IRS.gov.

Simply use your smartphone to scan a QR code in the CP14 or CP14 IA to go directly to IRS.gov and securely access your account, set up a payment plan or contact the Taxpayer Advocate Service. Scanning the QR code on the CP14 or CP14 IA will give the taxpayer direct access to the information they need on IRS.gov to resolve their account balance online without the need to call or interact with the IRS directly.

“These codes will give taxpayers immediate access to the most important information for them to pay their balances, set up payment agreements or reach out for help,” said Darren Guillot, the IRS Small Business/Self-Employed deputy commissioner for collection and operations support, in a statement. “We understand there’s a lot of information on the web, and we want to give taxpayers more secure tools that can more easily help them resolve their tax situations.” Generally sends more than 8 million CP14 notices to taxpayers annually. These are the first legal notice alerting taxpayers that they have a balance due. “This will help make the entire process easier for taxpayers,” Guillot said.
Stay tuned, the IRS is assessing the possibility of adding QR codes to other balance-due notices in the future.

As we move through the final months of this very uncertain year, you may be considering some year-end charitable giving. It might be a good idea for a refresher on charitable tax law, seeing how these laws have had an overhaul of new changes over the last 3 years.

The 2017 Tax Cuts and Jobs Act: 2017 Tax Cuts and Jobs Act increased the deductibility of cash contributions. Before the TCJA, cash gifts were deductible only to the extent of 50% of the donor’s adjusted gross income. TCJA increased that to 60%.
This 60% contribution obviously makes cash gifts more appealing for individual donors. However, it also can act to reduce the unrelated business income tax that certain charities pay. Charities in trust form can take a 60% deduction for cash contributions as well, which may significantly mitigate the UBIT they incur from donated assets like S-corps, debt-encumbered real estate, and certain pass-through interests (think LLCs and partnerships).

The standard deduction increased by the TCJA to $12,200 (for 2019) for individual taxpayers and $24,400 for married couples filing jointly. This has the effect of making itemized deductions less common, including for charitable contributions – current estimates suggest only 13.7 percent of taxpayers will itemize their 2019 taxes. One approach many taxpayers have taken is donation “bunching” where they contribute a large amount in a single year to ensure that they can take the itemized deduction, instead of smaller amounts that would not allow itemizing.

Estate Tax Exclusion: This tax excluding increased up to $11 million for a single individual, and $22 million for a married couple. Which means fewer estates will be subject to tax, and many large life insurance policies intended to provide tax-free cash to heirs now do not serve their original purpose. These policies can now be repurposed by designating other tax-challenged assets to charity (e.g., IRAs, commercial annuities or qualified retirement plans) and then “replace” those assets to beneficiaries in a tax-wise way.

The Qualified IRA Charitable Contribution (QCD) was reinstituted prior to the TCJA. A QCD is a direct contribution to charity from an IRA for individuals over 70.5, which counts towards the IRA holder’s required minimum distribution. The maximum donation each year is $100,000. The increased standard deduction means that taxpayers should consider charitable giving through use of a QCD. This contribution avoids increasing their income (because the distribution goes directly to charity) while also allowing the donor to still take the standard deduction.

The SECURE Act was passed in late 2019 attracting less attention than the TCJA. Financial planners noted one key change to IRAs. Previously IRA account holders were able to designate non-spousal beneficiaries on the accounts, and on death, that beneficiary would be able to “stretch” the required IRA withdrawals over their lifetimes. This allowed young family members to receive the IRAs, take small distributions initially, and grow the accounts over many decades. The SECURE Act instead made such beneficiaries complete the withdrawals in 10 years.

A charitable workaround for the IRA change is to designate a lifetime-income charitable vehicle as the beneficiary. This usually means either a charitable remainder trust or a charitable gift annuity. These vehicles can be funded with the IRA account proceeds, and the account holder can designate a beneficiary to receive income over that beneficiary’s lifetime. On death, the remaining amounts are distributed to a charity the original IRA account holder designates during life. This gift structure can also work with life insurance policies.

The CARES Act: In 2020, to provide relief to the pandemic the CARES Act was passed. Among its many other provisions, it increases the 60% limit for cash donations during 2020 only to 100% in some circumstances. This deduction is available only for cash gifts to charities that are not donor advised funds or supporting organizations. Nonetheless, it provides a considerable benefit for certain cash-rich donors. It may also benefit trust-form charities accepting S-corporation stock, since the significant tax bill incurred by the sale of those assets may be counteracted by a corresponding (and deductible) grant to a qualifying charity.
These new laws can provide new ways for many donors to give. With a bit of additional planning, they can even provide enhanced benefits, like lifetime income for a family member or increased charitable dollars.

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