Year-End Tax Letter 2020
By Hoffman & Associates
Dear Tax Clients,
What a year! We think everyone agrees that 2021 can’t get here soon enough and, unlike the drag of the first half of 2020, it is quickly approaching. And, in regular fashion, there is a heightened sense of significance on year-end financial and tax planning.
Tax planning for individuals and businesses may have become more complex than the same old “Same as Last Year” mentality. In addition to reviewing your 2020 tax position, we are also encouraging clients to think about planning for the 2021 tax year and the potential changes that could come in the new year as well. The provisions of the Tax Cuts and Jobs Act (TCJA), which came into effect in 2019, have had substantial impact on how individuals and businesses approach their tax planning by offering many favorable tax savings opportunities. And this year’s Coronavirus Aid, Relief and Economic Security Act, otherwise known as the CARES Act, has only increased the importance of that planning (and the size of our typical year-end letter) and the potential tax saving opportunities.
This year, more than ever, we would like to emphasize the importance of year-end estate planning as well. Estate planning is an area of tax that is convoluted, constantly changing and often overlooked, however, it is another important aspect of your financial well-being. Taxpayers with significant assets should consider taking advantage of the higher gift and generation-skipping exclusions now since there are rumblings of significant changes coming to these higher exemption amounts. We take pride in our advantageous approach to proactive estate planning and are always here to discuss how we can help our clients plan for the future.
Now with planning in mind, we would like to provide some general annual tax reminders, tax updates and items of interest, along with valuable business and estate planning notes, to help you plan and prepare for the year’s end and the coming of 2021.
As always, after reviewing the notes below and checking our website for regular updates, please do not hesitate to call with any questions or concerns regarding year-end tax planning.
Sincerely,
The Hoffman & Associates Tax Team
INDIVIDUALS
Annual Reminders
- Estimated Payments
- Tax Withholdings
- Accelerate Deductions/Defer Income
- Maximize Retirement Contributions
- Sell Your “Losers”
General Planning Information
- Tax Rates
- Qualified Business Income Deduction
- Personal Exemptions & Child Tax Credit
- Alternative Minimum Tax (AMT)
- 529 Plans
- Kiddie Tax
Itemized Deductions
- Standard Deduction
- Medical Expense Deductions
- Taxes Paid Deduction
- Mortgage Interest
- Charitable Contributions
- Miscellaneous Deductions Subject to 2%
Additional Tax Planning Opportunities
- Consider Converting Your IRA
- Year End Donations
- 8 Percent Net Investment Tax
- Capital Gains/Losses and Dividends
The Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
The coronavirus pandemic and natural disasters have had a significant impact on the tax situation for many taxpayers. In response to the health and economic impact of the coronavirus pandemic, Congress passed two major pieces of legislation – the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act. More relief may be forthcoming. In addition, we might expect future tax law changes following the election. As such, each individual taxpayer should consider the unique challenges and opportunities that this year presents.
- Economic Impact Payment
- Retirement
- Charitable Deductions
- Student Loans
- Kiddie Tax
- Disaster Relief
- Protective Claims
Expiring Provisions
Taxpayers might consider taking advantage of these tax benefits in 2020 before they expire. In some cases, these benefits were retroactively applied. In which case, it might be useful to amend prior year’s returns if the savings are significant enough.
- Exclusion from income for the forgiveness of debt on a principal residence
- Mortgage insurance premium deduction
- Above-the-line deduction for tuition and fees
- Non-business energy property credit
- Reduced 7.5 percent threshold for medical expense
- Health coverage tax credit (HCTC)
BUSINESS PLANNING
General Planning Information
The changes due to the Tax Cuts and Jobs Act has allowed for many tax advantages for businesses and especially small businesses. Planning for how to efficiently maximize these advantages to your business’s benefit now will help pay dividends in the long run.
- Qualified Business Income Deduction
- Meals & Entertainment
- Alternative Minimum Tax (AMT)
- Section 179 Expense
- Bonus Depreciation
COVID Relief
In addition to providing resources to the health community to help contain and combat the virus, the Families First Coronavirus Response Act offered employees and self-employed individuals affected by the pandemic with guaranteed paid sick leave. Provisions of the Coronavirus Aid, Relief and Economic Security (CARES) Act also included numerous tax benefits for businesses. Here are highlights for tax planning consideration at 2020 year-end.
- The Paycheck Protection Program (PPP)
- Employee Retention Credits
- Deferred Payroll Tax Payments
- Executive Memorandum on Withholding
Tax Cuts and Jobs Act modified under the CARES Act
Several tax provisions under the Tax Cuts and Jobs Act were modified by the CARES Act for 2020 and earlier years providing opportunities to amend prior year returns.
- Qualified Improvement Property
- Net Operating Losses (NOLs)
- Business Interest Deduction
- Excess Business Losses Limitation for Noncorporate Taxpayers
Expiring Provisions
You might consider taking advantage of the following tax benefits in 2020 before they expire. In some cases, these benefits were retroactively applied. In which case, it may be useful to amend prior year’s returns if the savings are significant enough.
- The Work Opportunity Credit
- Energy Savings
- Energy Efficiency
ESTATE PLANNING
- Estate and Gift Tax: The 2020 estate and gift tax rate is 405 with an exemption of $11.58 million per individual and $23.16 million per married couple. For 2021, those amounts will increase to $11.7 million and $23.4 million. Taxpayers with significant assets should consider taking advantage of the higher gift and generation-skipping exclusions now as there are already talks of changing the exemption amounts.
- Annual Gift Tax Exclusion: The annual exclusion for gifts free of any gift tax is $15,000 for 2020 and 2021 (married couples can gift up to $30,000) to each individual. Also to note is that there is no limit on gifts for medical or qualified education expenses.
Additional Items To Note
- IRS “Phishing” Scams
- Audits
Because of the retroactive changes to tax rules, the possibility of more changes after the election and with the continuing challenge of the pandemic, there is no one size fits all for tax planning and any strategy may have unintended consequences if your situation is not evaluated holistically considering the changing landscape. Please call us today to discuss year-end tax planning at 404-255-7400 or email us at info@hoffmanestatelaw.com.
