Tag: tax planning

Fast on the heels of passing the Families First Coronavirus Response Act (a law which ensures paid sick leave and unemployment benefits for employees affected by the COVID-19 pandemic along with payroll tax credits for affected employers), Congress passed and the President signed the CARES Act – a massive economic relief package with numerous tax breaks – on March 27, 2020.

For individuals, the most important form of tax-related relief may be the recovery rebate tax credits, which are direct payments (sometimes referred to as “stimulus checks”) the government will be making to those with income under a certain level. For businesses, key tax-related provisions include a payroll tax credit to encourage employee retention, an extension of the time for paying employment taxes, and a small business loan program with provisions for converting qualifying loans to grants (which do not have to be repaid).

The following are the key tax provisions of the CARES Act.

CARES Act Tax Relief for Individuals

Direct Payments: Single individuals and joint filers can expect to receive a payment of $1,200 or $2,400, respectively, plus $500 for each qualifying child. However, the rebate is reduced (but not below zero) by 5 percent of the amount by which the taxpayer’s adjusted gross income exceeds (1) $150,000 in the case of a joint return, (2) $112,500 in the case of a head of household, and (3) $75,000 in the case of a single taxpayer or a taxpayer with a filing status of married filing separately. Rebates will be issued based on 2019 income tax returns, or 2018 returns for individuals who haven’t yet filed in 2019. The rebates are eligible for electronic disbursement to any account to which the payee authorized, on or after January 1, 2018, the delivery of a refund of taxes or of a federal tax payment, including federal retirement benefits.

Note:  Qualifying child is generally dependents under the age of 17.

Using Retirement Funds Without Penalty: The CARES Act waives the 10% early withdrawal penalty for coronavirus-related distributions from retirement plans and provides the option of recontributing the funds for up to three years after such distributions are made. A “coronavirus-related distribution” is any distribution from an eligible retirement plan made: (1) on or after January 1, 2020, and before December 31, 2020, (2) to an individual (i) who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention, (ii) whose spouse or dependent is diagnosed with such virus or disease by such a test, or (iii) who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, the closure or reduction of hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury.

Required Minimum Distribution Rules Waived for 2020: The CARES Act waives the required minimum distribution rules for 2020 for defined contribution plans, including an eligible deferred compensation plan, and individual retirement plans.

Above-the-Line-Deduction for Charitable Contributions of Up to $300: Individuals, whether they itemize deductions or not, can take a deduction of up to $300 for charitable contributions made during 2020 and the limitations on the amount of charitable contributions that a taxpayer may take an itemized deduction for are loosened. In addition, the CARES Act loosens the deduction limitation on contributions of food inventory.

Repayment of Student Loan Debt Excluded from Income: The CARES Act excludes from income certain student loan debt repaid by an individual’s employer. It applies to repayments made after date of enactment and before 2021.

We are committed to serving your tax preparation and tax planning needs.  If you have questions or need assistance, please do not hesitate to contact our office.

Stay safe and healthy!

David K. Raye, CPA                  704-887-5298                          david@davidrayecpa.com

I hope you and your families are doing well and staying safe & healthy!

Just wanted to provide an update on our tax season operations given the extraordinary developments related to the coronavirus epidemic.

  • We are working as we normally would. I am in the Ballantyne office daily and my employee, Vicki continues to work from home.  You are welcome to set up an appointment, if needed and our receptionist is available if you wish to drop off your tax materials.
  • We successfully met the business tax filing deadline on Monday, March 16 and have now turned our attention to the individual tax deadline of April 15th.
  • Yesterday it was announced that Federal tax payments would be extended until July 15 without penalty. The April 15 filing deadline remains in place as of now.  It was unclear whether the payment extension applied to the first quarter estimated tax payments for 2020.  More information should be coming on that.
  • We are working diligently to prepare your tax returns on time. We will continue to monitor the situation and let you know if there are any other developments regarding this year’s tax deadline.

We are committed to serving your tax preparation and tax planning needs.  If you have questions or need assistance, please do not hesitate to contact our office.  We are still taking new clients and welcome your referrals as well.

Stay safe and well.  Our thoughts and prayers are with everyone during this crisis.

David K. Raye, CPA                  704-887-5298                          david@davidrayecpa.com

Roth Conversions

As more and more baby boomers continue to reach retirement age, many are looking at the benefits of converting traditional IRA accounts to Roth IRAs.  The way a Roth conversion works is that tax would be due on the converted amount since it was compiled with pre-tax dollars.  The Roth account would then grow tax-free and future distributions would be tax free.  Obviously, this only makes sense if you expect that your tax rates will go up in the future.

Of course, future tax rates are the big wild card!  No one can predict for sure where rates will go.  Some feel that with the national debt growing and massive Social Security liabilities coming due, that higher rates are inevitable.  They argue that folks should be taking advantage of today’s historically low rates.   The lower rates that came in with the Tax Cut and Jobs Act are temporary and generally have an end date of December 31, 2025.  So, could this be the day of reckoning?  Maybe.  But then again, President Trump has already floated the idea of making the TCJA tax cuts permanent, so maybe there is still hope?

The bottom line is that we have to work with the facts as they are now and determine if your particular situation is ideal for a Roth conversion.  Generally, if you are in the two lowest brackets of 10% and 12%, it would be wise to do only enough conversions to stay in that bracket.  The 12% bracket jumps up to 22% at taxable income of $ 78,950 for joint returns.

Another downside of conversions is that converted amounts need to be held five years to avoid a 10% penalty on withdrawals.  So, you would need to pay the taxes out of other funds, not the converted funds.  This could be a deal breaker for some.

Therefore, if you are wondering if a Roth conversion is right for you, the answer is the same as for most other tax situation: IT DEPENDS!  Every situation is unique so if you are considering this tax move, please give me a call.

David K. Raye, CPA                  704-887-5298                          david@davidrayecpa.com

*The information in this blog post is general in nature and not intended as specific advice.  Please consult a tax advisor to see how this information applies to your specific situation. 

Stretch IRA strategy curtailed under new law

Last month, in the midst of all the impeachment proceedings, Congress quietly passed legislation that would make significant changes to the tax laws governing retirement plans.

The most significant provision would require many beneficiaries of inherited IRAs to take out distributions over 10 years rather than their life expectancies.  This would significantly accelerate the taxation of these benefits and prohibit IRA owners from deferring taxes for long periods of time by leaving their accounts to young beneficiaries – the so-called Stretch IRA.  There would be exceptions to these distribution rules for surviving spouses, minor children, and heirs within 10 years of age of the original IRA owner.  IRAs inherited before 2020 would remain under the old law but the new law takes effect for IRA owners who die after December 31, 2019.

Here are some of the other highlights of the new legislation:

  • Starting in 2024, part-time employees would be allowed more access to 401(k) plans. Employers would be required to offer these plans to employees who work at least 500 hours per year for three years.
  • The age for making required minimum distributions from IRAs or 401(k) plans would increase from the current age 70 ½ to age 72. The new age limit would only apply to individuals who turn 70 ½ after December 31, 2019.
  • The age cap for making IRA contributions would be removed. This would allow workers to continue making retirement plan contributions after age 70 ½.
  • The bill would make it easier for employees to convert their retirement savings into a lifetime stream of income by purchasing annuities in a 401(k) plan. Employers would also be required to report to participants on an annual basis how much of an income stream that their retirement account balance represents.
  • In a move to assist families, the bill would allow penalty-free distributions of up to $ 5,000 from retirement plans if made within one year of the birth or adoption of a child.

This new legislation presents some tax planning opportunities.  With the Stretch IRA losing some of its punch, this may be a good time to review your beneficiary selections on IRA accounts.  Also, the new law does not require annual withdrawals during the 10-year payout period.  This would allow Roth IRA heirs, for example, to wait the full ten years before taking a withdrawal, which would allow for maximum tax-free growth.

As always, I am here to answer your questions about how these tax laws will affect you personally.

David K. Raye, CPA                  704-887-5298                          david@davidrayecpa.com

*The information in this blog post is general in nature and not intended as specific advice.  Please consult a tax advisor to see how this information applies to your specific situation. 

As the end of the year approaches, you may be looking for ways to lower 2019 taxes.  With the stock market near record highs, you may also be sitting on significant unrealized capital gains.  This may be the perfect time to turn your investments into tax deductions.

Her are two simple and often overlooked methods of accomplishing this.

Donation of appreciated stocks – Donations of appreciated stocks can be a tremendous tax saver.  Here’s how it works:  The appreciated stocks must be eligible for long term capital gain treatment which generally means they must be held for more than one year.  If given directly to the charity, you can deduct the full fair market value of the stocks and avoid capital gains taxes on the appreciation.

Qualified Charitable Distributions – These are direct transfers from an IRA directly to a qualified charity.  This tax break is only available to those age 70 ½ or older and is capped at an amount of $ 100,000 per individual per year.  QCDs are not included in the individual’s taxable income making the distributions tax-free.  There are two additional bonuses: QCDs can count toward the individual’s required minimum distributions and the donation can be made whether you are itemizing or not.

For more information about these and other tax saving moves, please contact my office at 704-887-5298 or david@davidrayecpa.com.

Contact

13850 Ballantyne Corporate Place, Ste. 500 Charlotte, NC 28277 Ph:704-593-9695

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