The Premium Tax Credit (PTC) is a refundable tax credit that helps individuals and families afford health insurance purchased through a Marketplace under the Affordable Care Act (ACA). The American Rescue Plan Act of 2021 (ARPA) introduced several temporary but impactful enhancements to this credit.

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Expanded Eligibility for Taxpayers Over 400% of the Federal Poverty Level (FPL)

Before ARPA:
Taxpayers with household income above 400% of the FPL were not eligible for the PTC.

Under ARPA (2021–2022):
The income cap is eliminated. Taxpayers above 400% of the FPL can now qualify for the PTC.

Example:
A single 45-year-old with $58,000 in income (450% of FPL) would not have qualified under previous rules. Under ARPA, they may now receive a PTC of approximately $1,250.

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New Percentage Tables Increase PTC Amounts

PTC is calculated based on the cost of a benchmark health plan minus the taxpayer’s required premium contribution, which is tied to household income.

ARPA Changes:

• Reduces the maximum premium contribution to 8.5% of income (from 9.83%) for 2021 and 2022.

• Expands support for those at lower income levels.

Example:
A 21-year-old at 150% of FPL may see their PTC increase from $3,500 to $4,300 under ARPA.

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Special Rule for Unemployment Compensation Recipients in 2021

If you received (or were approved to receive) unemployment compensation for at least one week in 2021, the following applies:

• You automatically qualify as an eligible PTC recipient (unless you’re eligible for affordable employer coverage).

• Your household income above 133% of FPL is disregarded when calculating your PTC.

This effectively caps your required contribution and boosts your PTC, regardless of actual income above 133% of FPL.

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No Repayment of Excess Advance PTC for 2020

Under normal rules, if advance PTC payments exceed the actual calculated credit, the overage must be repaid as additional income tax (subject to a cap).

ARPA Exception (2020 only):
If advance PTC exceeded your actual credit in 2020, you do not have to repay the excess.

Important Note:
If you’ve already filed your 2020 return and repaid excess credit, the IRS advises not to amend your return yet. Guidance on refund procedures is forthcoming.

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Contact Us

Questions about your eligibility or tax return?
📞 Call us at 561-995-0064 to speak with a tax advisor.

On March 10, 2021, the House of Representatives passed the American Rescue Plan Act (ARPA), H.R. 1319. Below is a summary of key tax and benefit provisions included in the final legislation.

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Unemployment Benefits

• The first $10,200 in 2020 unemployment benefits is tax-free for taxpayers with adjusted gross income (AGI) under $150,000.

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Recovery Rebates (Third Stimulus Payments)

• Individuals receive a $1,400 recovery rebate credit, or $2,800 for joint filers, plus $1,400 per dependent, including college students and qualifying relatives.

• Income phaseout begins at:

  • $75,000 for single filers (fully phased out at $80,000)

  • $150,000 for joint filers (fully phased out at $160,000)

  • $112,500 for heads of household (fully phased out at $120,000)

• Eligibility determined using 2019 AGI unless the 2020 return has been filed.

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COBRA Continuation Coverage

• Provides premium assistance through September 30, 2021.

• Eligible individuals can receive 100% subsidy for COBRA premiums.

• Employers claim a refundable tax credit against Medicare payroll tax (Sec. 3111(b)).

• No income tax inclusion for COBRA premium assistance.

• Penalties apply for failure to notify cessation of eligibility (Sec. 6720C).

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Expanded Child Tax Credit (2021 Only)

• Increases credit to:

  • $3,600 per child under 6

  • $3,000 per child ages 6–17

• Fully refundable and available to 17-year-olds.

• Phaseout thresholds:

  • $150,000 (MFJ)

  • $112,500 (HOH)

  • $75,000 (others)

• Advance monthly payments to begin July through December 2021.

• Excess payments may need to be reconciled on 2021 return, with safe harbor protections for lower-income taxpayers.

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Earned Income Tax Credit (EITC) Enhancements

• Expands eligibility for childless individuals:

  • Lowers age to 19 (or 18 for certain youth); no upper age limit.

• Increases phaseout amounts and disqualifying investment income threshold to $10,000.

• Taxpayers may use 2019 income instead of 2021 income for a higher credit.

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Child and Dependent Care Credit (2021 Only)

• Fully refundable for 2021.

• Credit covers 50% of eligible expenses up to:

  • $4,000 for one qualifying individual

  • $8,000 for two or more

• Credit begins to phase out at $125,000 household income.

• Employer-provided dependent care exclusion increased to $10,500.

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Paid Sick and Family Leave Credits

• Extended through September 30, 2021.

• Employers may claim credits under Sections 3131–3133.

• Paid leave includes:

  • COVID-19 illness, quarantine, testing, or vaccination

• Maximum credit for family leave increased to $12,000.

• Self-employed individuals may use up to 60 days.

• Leave reset for additional 10 days after March 31, 2021.

• Credits extended to 501(c)(1) government organizations.

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Employee Retention Credit

• Extended through December 31, 2021.

• Credit allowed against Medicare tax (Sec. 3111(b)).

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Premium Tax Credit (Health Insurance Marketplace)

• Enhanced for 2021 and 2022.

• No repayment of excess advance premium credits for 2020.

• Anyone approved for unemployment compensation in 2021 is treated as an applicable taxpayer for PTC eligibility.

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Student Loan Discharge Exclusion

• Loan forgiveness between January 1, 2021, and December 31, 2025, is excluded from gross income.

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Other Provisions

• Section 162(m): Expands $1 million deduction cap for executive compensation to include the five highest-paid employees (effective after 2026).

• Section 461(l): Extends the limitation on excess business losses for noncorporate taxpayers through 2027.

• Repeal of Section 864(f): Eliminates worldwide interest allocation election.

• Targeted EIDL Grants and SBA Restaurant Grants:

  • Excluded from gross income

  • No deduction denial, basis adjustment, or attribute reduction

• Multiemployer Pension Plans: Temporary relief for certain designation statuses and funding changes.

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For assistance in understanding how these provisions impact your tax situation or business, contact our office to schedule a consultation.

The U.S. Internal Revenue Service (IRS) has launched a new initiative, Operation Hidden Treasure, to increase enforcement efforts related to unreported cryptocurrency income.
This marks a significant step in the agency’s evolving approach to crypto tax compliance.

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A Dedicated Crypto Enforcement Effort

Operation Hidden Treasure is a joint effort between:

• The IRS Office of Fraud Enforcement

• The IRS Criminal Investigation Division

The program will train agents to use blockchain analysis to identify tax evasion patterns. It’s part of a broader strategy by the IRS to address emerging financial threats.

At a Federal Bar Association tax conference, Damon Rowe, Director of the Office of Fraud Enforcement, confirmed that cryptocurrency fraud is a top priority for the agency.

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How the IRS Will Uncover Crypto Tax Evasion

According to Carolyn Schenck, National Fraud Counsel for the IRS:

• The IRS is partnering with blockchain analytics firms to identify “signatures” or red flags of fraudulent activity.

• IRS employees are training alongside Europol to enhance investigation techniques.

Agents will look for:

• Structuring transactions just below reporting thresholds (e.g., multiple $9,999 transfers)

• Use of shell corporations to disguise ownership

• Patterns of moving assets on and off blockchain networks

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Taxable Events & Reporting Guidance

While guidance around cryptocurrency tax reporting has sometimes been unclear, the IRS has reaffirmed that:

• Buying virtual currency with U.S. dollars is not a taxable event and generally does not need to be reported.

• Cashing out, trading, or spending cryptocurrency is taxable and must be reported.

Operation Hidden Treasure will focus on identifying such unreported taxable events and linking them back to individual taxpayers.

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What This Means for Taxpayers

The message from the IRS is clear: Crypto transactions are not invisible, and non-compliance can lead to significant consequences.

If you have crypto holdings or have engaged in transactions involving digital assets:

• Review your transaction history carefully

• Understand what constitutes a taxable event

• Ensure accurate reporting on your tax return

Questions about crypto tax compliance?
📞 Contact our office at 561-995-0064 for expert guidance on reporting, planning, and minimizing audit risks.

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.

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

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.

2020 has been a year of unprecedented challenges. As businesses continue to manage the impacts of COVID-19, many are also looking ahead to 2021, with uncertainty surrounding the public health crisis, a new administration taking office, and potential changes in tax policy.

Regardless of your business’s stage of recovery, now is the time to evaluate year-end strategies that may reduce tax liability and strengthen your position moving into the new year.

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Strategic Considerations Based on Income Projections

Scenario 1: Income or Tax Rates Are Expected to Remain Constant or Decrease in 2021

• Defer Income

  • Cash-basis taxpayers can delay billing into 2021.

  • Accrual-basis taxpayers may take advantage of the Tax Cuts and Jobs Act (TCJA) provision allowing deferral of advance payments for up to one year if aligned with financial reporting.

• Accelerate Deductions

  • Cash-basis businesses can pay 2020 expenses now.

  • Accrual-basis businesses can leverage accounting strategies to recognize deductions in 2020.

• Expense Capital Assets

  • Place eligible assets in service before year-end to take advantage of 100% bonus depreciation.

• Close on Taxable Acquisitions

  • Closing deals in 2020 may allow for immediate expensing of tangible property included in the purchase.

Scenario 2: Income or Tax Rates Are Expected to Increase in 2021

• Accelerate Income

  • Cash-basis businesses recognize income upon receipt; accrual-basis businesses can complete work and bill clients now.

• Defer Expenses

  • Delay asset purchases or expense recognition into 2021 when tax rates may be higher.

• Delay Business Acquisitions

  • Consider waiting to finalize acquisitions until 2021 to maximize related deductions under higher anticipated rates.

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Additional Year-End Tax Planning Opportunities

Research & Development (R&D) Credit

• Consider accelerating R&D efforts before 2022, when amortization rules will begin to limit immediate deductions.

Section 199A Deduction

• Pass-through entities should evaluate W-2 wages and income thresholds to optimize the 20% qualified business income deduction.

Bonus Planning

• Accrual-basis corporations may deduct bonuses paid by March 15, 2021, if properly accrued in 2020 and employees do not own more than 50% of the company.

S Corporation Planning

• Shareholders may contribute capital or make loans to the business to increase basis and deduct current year losses.

Partnership Loss Deductions

• Basis can be increased by additional contributions or assuming partnership liabilities. Carefully manage liability allocations.

Distributions of Appreciated Property

• Delaying distributions until 2021 can defer capital gains tax recognition.

Business Interest Deduction

• The CARES Act increased the limitation from 30% to 50% of adjusted taxable income for 2019 and 2020. Consider how this may impact interest deductibility.

Section 382 Studies

• Certain restructuring techniques can increase net operating loss (NOL) usage limitations.

Entity Simplification or Restructuring

• May create loss deductions or enhance interest deductibility by combining closely held businesses or restructuring corporate groups.

Transaction Cost Analysis

• Evaluate capitalized deal costs for potential deduction or reclassification.

Qualified Small Business Stock (QSBS)

• Taxpayers may exclude gains on QSBS held for more than five years if the corporation and stock qualify under Section 1202.

IRS Account and Interest Recovery Services

• Identify IRS processing errors and recover interest to reduce year-end tax obligations.

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Conclusion

While each business’s circumstances are unique, these strategies may help reduce tax liability and position you for a stronger financial year ahead. Consult with your tax advisor to determine which actions are best suited to your goals.

For personalized planning assistance, contact our office to schedule a year-end review.

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 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.

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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