January 8, 2021
Dear Clients and Friends:
What a relief it is that 2020 is finally behind us. The COVID pandemic has affected all of us in some way. Many lives have been lost because of the virus and our economy has been hit hard with many small businesses on the brink of disappearing. As we enter 2021, there is a glimmer of hope that the new vaccine can get life back to some semblance of normal by late summer. I think we can all agree that getting back to normal will be the best thing to happen since sliced bread.
We were expecting 2020 to be a quiet year in terms of tax laws, however, that wasn’t the case. The government funding bills that were signed by President Trump in December 2019 included a lot of tax provisions. Then, the economic stimulus packages enacted to help boost the economy also added more tax changes. One of these changes include the addition of recovery rebate credits under the CARES Act. Most Americans received a stimulus check in early 2020 for $1,200 plus $500 more for each child under the age of 17. On December 27, 2020, another bill was signed that included additional stimulus in the amount of $600 per taxpayer plus $600 for each child. See the attached Client Stimulus Statement.
There are a lot of changes in 2020 relating to retirement plans. The SECURE Act and the CARES Act significantly impacted Required Minimum Distributions (RMDs). Under the SECURE Act, the beginning age for taking RMDs increases from 70 ½ to 72 (this applies to account owners who turn 70 ½ after 2019). The CARES Act allowed seniors to skip their RMDs in 2020 without penalty. The SECURE Act also allows owners of traditional IRAs to make contributions past the age of 70 ½ starting in 2020. The CARES Act includes a few other key retirement-related tax breaks for 2020. It waives the 10% penalty on pre-age 59 ½ payouts from retirement accounts for up to $100,000 of coronavirus-related payouts. A coronavirus-related distribution can also be included in income in equal installments over a three-year period, and you have three years to put the money bank into your retirement account and undo the tax consequences of the distribution.
Additionally, more charitable contributions can be deducted for 2020 under the CARES Act. The 60%-of-AGI limit on deductions for cash donations by people who itemize is suspended. The relief applies only to charitable cash contributions that you make this year and deduct on the Schedule A for 2020. Non-itemizers can also write off up to $300 of charitable cash contributions, $600 if you have a joint tax return.
When you have gathered all your tax information, please call our office to set up an appointment to meet with us to go over your tax information. You may also drop off or mail your information to our office if you do not wish to have appointment. This year, we are utilizing a new portal which gives us the capability to securely share QuickBooks backups and other documents along with electronic copies of your tax returns. If you are interested in utilizing our portal, please let us know and we will initiate this by sending you an invitation to access your portal.
We look forward to hearing from you soon and assisting you with your tax and financial needs. As always, contact us if you have any questions.
Starkey & Company, PA