October 9, 2020
Dear Clients & Friends,
We hope that you are doing well during these strange times. As most of you are aware, our office has remained open. We are working diligently completing extended tax returns and assisting our clients throughout the COVID-19 pandemic. We are addressing any new legislation that is passed in response to the pandemic and are here to advise our clients on these new provisions.
Enclosed with this letter, you will find our year-end tax newsletter. There are new tax laws that were passed over the last year that could affect your 2020 tax situation. The 10% early distribution penalty is waived for up to $100,000 of retirement withdrawals for coronavirus-related reasons during 2020. New rules also allow tax liabilities on these distributions to be paid over a three-year period.
Also, the CARES Act temporarily waived Required Minimum Distributions for most types of retirement plans for the calendar year 2020. The waiver applies to defined-contribution retirement plans, including 401(k) or 403(b) plans and IRAs. This waiver does not apply to defined-benefit plans.
Additionally, the medical deduction threshold has decreased for 2020. Qualified medical expenses that exceed 7.5% of your adjusted gross income may be used as an itemized deduction. IRS Publication 502 has a full list of the medical expenses that are tax deductible. Publication 502 can be found online and is an excellent resource.
Beginning for the year 2020, Non-Employee Compensation will be reported on its own 1099 form, 1099-NEC. The new form will be used to report any payments received for your service fees, commissions, prizes and awards. The form 1099-Misc will still be used for rents, fishing boat proceeds, health care payments, attorney fees, crop insurance, and payments in lieu of dividends or interest.
Did you know that new parents can withdraw up to $5,000 out of their retirement funds without penalty to pay for the cost of a birth or adoption? The SECURE Act allows new parents to take this early retirement withdrawal.
Also, there are several new tax breaks for charitable donations in 2020. You can claim an above-the-line deduction of up to $300 for cash donations to qualified charities without itemizing. If you are feeling charitable this year, you can donate up to 100% of your 2020 income. The annual deduction for monetary donations is normally limited to 60% of your income but this has increased for 2020. Businesses can contribute up to 25% of taxable income., normally 10% of taxable income.
Please note the new 2020 amounts for standard deductions, mileage rates, Section 179 maximums, earned income tax credits and retirement plan contributions which are covered on the back page of the newsletter.
With all the new rules, it is more important than ever to do planning before the end of the year. Please call the office if you have any questions regarding the information contained in this letter. We look forward to hearing from you and we are just a phone call away from assisting you with all of your tax needs.
Starkey & Company, PA