COVID-19 Update: Beaird Harris has shifted a significant number of our team members to work remotely.
We continue to serve and care for our clients, just as we always have, and are available by phone, video or email.
Beaird Harris will be closed on Friday, July 3rd in observance of the Independence Day holiday.
April 10, 2020
1) Some Retirement Account Rules Have Been Relaxed
The CARES Act offers some help to those with retirement accounts.
If a participant has already taken his or her 2020 RMD, this distribution is now eligible to be rolled over to an IRA or an eligible retirement plan – if it can be rolled over within 60 days of the distribution.
The affected participant or IRA owner (including a spouse or dependent) would need to either be diagnosed with SARS-COV-2 or COVID-19 or experiencing adverse financial consequences as a result of an event, including but not limited to quarantine, furlough, lay-offs, reduced work hours, no available childcare, business closing or reduced business hours (self-employed), or other factors determined by the Secretary of the Treasury.
In addition, the income tax on the distributions may be spread evenly over three years or the distribution may be repaid to an eligible retirement plan within a three-year period.
Loan repayments for affected participants in workplace retirement plans may be delayed for one year.
These changes will be in effect through 2020.
2) This Could Be a Good Time to Consider a Roth IRA Conversion
Several factors have converged to make Roth IRA conversions more attractive.
3) Above-the-line Deduction for Charitable Contributions
The CARES Act allows for a $300 above-the-line deduction for charitable contributions made to 501(c)(3) organizations for taxpayers who take the standard deduction.
The Act also relaxes the limit on charitable contributions for itemizers—increasing the amount that can be deducted from 60% of adjusted gross income to 100% of adjusted gross income. These changes go into effect beginning in the 2020 tax year.
The legislation does not provide for enhanced deductions to 509(a)(3) charitable organizations (commonly known as sponsoring organizations) or donor advised funds.
4) Deadlines Have Changed
The deadline for filing and payment of 2019 federal income taxes has been moved from April 15 to July 15, 2020. The IRS confirmed that July 15, 2020 will also be the deadline to make 2019 contributions to IRAs and health savings accounts (HSAs). Deadlines associated with contributions to workplace savings plans are not affected. The IRS has also extended the deadline to make first and second quarter estimated tax payments for 2020 from April 15, 2020 and June 15, 2020, respectively, to July 15, 2020. Stay up-to-date with upcoming cutoff and deadline dates by bookmarking www.bh-co.com/dates to your favorites.
5) Direct Payments to Many Americans
The CARES Act includes a provision to send most Americans direct payments of $1,200 for single filers, or $2,400 for joint filers, plus $500 for each child. The amount of the payments will be reduced for those with higher incomes. For individuals filing taxes as single, the reduced amount begins at an adjusted gross income (“AGI”) of $75,000 per year and is completely phased out at $99,000. For joint filers, the reduced amount begins at $150,000 and payment is eliminated at $198,000. AGI will be determined by your 2019 tax filing (or 2018, if 2019 is unavailable). The phase out range is expanded for taxpayers with dependent children. StimulusCalculator
6) Tax Credits for the Self-Employed May be Available
The Families First Coronavirus Response Act includes help for people who are self-employed. It includes a tax credit for sick leave and family leave of up to $200 a day or 67% of average daily pay. It also allows for up to $500 a day for emergency paid sick leave for quarantine or testing for COVID-19, or 100% of average daily pay.
7) Paid Sick and Family Leave Available for More Workers
Paid leave is required for more employees by the Families First Coronavirus Response Act. These provisions apply to businesses of 500 employees or less. Businesses with 50 employees or less may be exempt from the paid leave provisions.
Full time eligible employees must be allowed up to two weeks (or 80 hours) of paid sick time:
The CARES Act caps these payments at $200 or $511 per day or an aggregate payment of $2,000 or $5,110, depending on the reason for leave.
Family leave was expanded under the Families First Coronavirus Response Act. Affected employees are entitled to up to ten weeks of leave with job protection and at least two-thirds their regular rate of pay, to recover from illness, to care for sick family members, or to care for school-age children whose school has been closed.
The CARES Act capped family leave payments at $200 per day and $10,000 in aggregate.
8) Expansion of Unemployment Insurance
The new rules ease the benefits application process, which can be done online or via telephone. Individuals can apply through their state. Each state runs its own unemployment insurance program.
The Act also eliminates waiting periods so that unemployment benefits reach affected workers more quickly. It gives states greater flexibility to address coronavirus-related unemployment, to account for employers that are temporarily closed and employees who are quarantined or who must leave a job to care for a family member. In addition, federal law does not require an employee to quit in order to receive benefits due to the impact of coronavirus.
When in doubt, contact your state for details.
9) Federal Student Loan Provisions for Borrowers and Employers
The CARES Act suspends payments on federal student loans for six months. The Act waives any interest on the loans for six months as well. The missed months of payments will be recorded as if the borrower had made a payment for the purposes of loan forgiveness programs.
The Act makes emergency financial aid available to some students, up to the amount of the maximum federal Pell Grant for the year.
Federal work-study payments can be made to qualifying students who have been unable to complete their work under the program due to COVID-19.
Students who are forced to withdraw from school due to the outbreak may have the portion of their loan covering that semester canceled. Requirements to return portions of grants or loan assistance will be waived for students who had to withdraw from school as well.
Self-employed individuals may contribute toward an employee’s loans, but not their own.
10) Net Operating Losses
The CARES Act temporarily repeals the 80% income limitation imposed by the Tax Cuts and Jobs Act of 2017 for net operating loss deductions for years beginning after December 31, 2017 and before January 1, 2021.
For net operating losses arising in 2018, 2019, and 2020, a five-year carryback is allowed (taxpayers may elect to forgo the carryback).
These are just a handful of the strategies we are currently discussing with our clients. If you think these strategies may benefit you, please contact your advisor to discuss the logistics and any potential downsides.
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