This has been a year of economic and tax uncertainty with the impact of the COVID-19 pandemic, potential stimulus bills, and the presidential election. As a result, tax planning may be more important than usual this year. To help guide you, we will cover six year-end tax planning strategies – three for individuals and three for businesses.
Individual Year-End Tax Planning Tips and Strategies
1. Take advantage of above-the-line charitable deductions.
Unlike previous years, where taxpayers needed to itemize their deductions in order to see any tax benefit from charitable deductions, everyone can benefit on their 2020 tax return. The CARES Act created an above-the-line charitable deduction for taxpayers who don’t itemize. In order to benefit from the $300 cash contributions deduction, make sure to donate before the end of the year if you haven’t already.
2. Stimulus Check Impact
The CARES Act also created the stimulus payments of up to $1,200 per taxpayer and $500 per qualified dependent child. While the initial round of stimulus checks was based on 2018 or 2019 tax return filing information, these stimulus payments are technically pre-paid 2020 tax credits. As a result, your 2020 tax return will calculate the credit due based on your income level, and there’s nothing but good news here. If your 2020 return shows you should receive an additional credit, you can claim it on your return. But if your return shows a credit less than a stimulus check you’ve already received, there is no clawback.
3. Investment With Opportunity Zones
Congress created powerful incentives for investing in very specific geographic regions by creating special tax treatment for “opportunity zones.” Investments in opportunity zones offer taxpayers the potential to defer tax on gains until as late as 2026. Moreover, there is the potential to recognize only 90 percent of gains on investments held for at least five years; and no tax on those held for 10 years (there are other rules, but they are out of the scope of this article). As a result, investments in opportunity zones can provide tax-free potential and protect against future tax law changes.
Business Year-End Tax Planning Tips and Strategies
1. Accelerate AMT Refunds
The Tax Cuts and Jobs Act repealed the corporate Alternative Minimum Tax (AMT) and let companies claim all of their unused AMT credits in any taxable year beginning after 2017 but before 2022. The CARES Act accelerated the refund timeline, letting companies claim all their unused credits in either 2018 or 2019. For many, the most effective way to take advantage of this is to file a tentative refund claim on Form 1139, which must be done by Dec. 31, 2020.
2. Use Current Losses for Quick Refunds
The CARES Act brought back a tax provision that allows businesses to take current losses and offset them against income from prior years and receive refunds now. Net operating losses (NOLs) that are the result of 2018, 2019, and 2020 business activity can be carried five years back to claim refunds against taxes paid.
Careful consideration should be given to the strategy for claiming these NOL carry-backs because, depending on the type of business entity, your tax rate may have been higher in some of the five available years versus others. Make sure to leverage any tax rate arbitrage to maximize your benefit.
3. Payroll Tax Deduction Timing
Another provision of the CARES Act gives employers the option to postpone payment of their portion of Social Security taxes until the end of 2020. The deferred amounts are due half by the end of 2021 and 2022. This may be great from a liquidity perspective; however, depending on your business’s accounting, this could also mean a deferral of the deductibility of this expense as well. You should weigh the liquidity benefits of the deferral versus the value of a current year deduction – especially considering the accelerated NOL provisions discussed above.
Conclusion
These are just a few of the potential year-end tax planning strategies you can employ before the end of 2020. Make sure to consider these and speak with your tax advisor to see what makes the most sense for your situation.
Our Top 6 Year-End Tax Planning Tips
November 1, 2020 · Blog, Tax and Financial News, Uncategorized
⏱ 4 min read
This has been a year of economic and tax uncertainty with the impact of the COVID-19 pandemic, potential stimulus bills, and the presidential election. As a result, tax planning may be more important than usual this year. To help guide you, we will cover six year-end tax planning strategies – three for individuals and three for businesses.
Individual Year-End Tax Planning Tips and Strategies
1. Take advantage of above-the-line charitable deductions.
Unlike previous years, where taxpayers needed to itemize their deductions in order to see any tax benefit from charitable deductions, everyone can benefit on their 2020 tax return. The CARES Act created an above-the-line charitable deduction for taxpayers who don’t itemize. In order to benefit from the $300 cash contributions deduction, make sure to donate before the end of the year if you haven’t already.
2. Stimulus Check Impact
The CARES Act also created the stimulus payments of up to $1,200 per taxpayer and $500 per qualified dependent child. While the initial round of stimulus checks was based on 2018 or 2019 tax return filing information, these stimulus payments are technically pre-paid 2020 tax credits. As a result, your 2020 tax return will calculate the credit due based on your income level, and there’s nothing but good news here. If your 2020 return shows you should receive an additional credit, you can claim it on your return. But if your return shows a credit less than a stimulus check you’ve already received, there is no clawback.
3. Investment With Opportunity Zones
Congress created powerful incentives for investing in very specific geographic regions by creating special tax treatment for “opportunity zones.” Investments in opportunity zones offer taxpayers the potential to defer tax on gains until as late as 2026. Moreover, there is the potential to recognize only 90 percent of gains on investments held for at least five years; and no tax on those held for 10 years (there are other rules, but they are out of the scope of this article). As a result, investments in opportunity zones can provide tax-free potential and protect against future tax law changes.
Business Year-End Tax Planning Tips and Strategies
1. Accelerate AMT Refunds
The Tax Cuts and Jobs Act repealed the corporate Alternative Minimum Tax (AMT) and let companies claim all of their unused AMT credits in any taxable year beginning after 2017 but before 2022. The CARES Act accelerated the refund timeline, letting companies claim all their unused credits in either 2018 or 2019. For many, the most effective way to take advantage of this is to file a tentative refund claim on Form 1139, which must be done by Dec. 31, 2020.
2. Use Current Losses for Quick Refunds
The CARES Act brought back a tax provision that allows businesses to take current losses and offset them against income from prior years and receive refunds now. Net operating losses (NOLs) that are the result of 2018, 2019, and 2020 business activity can be carried five years back to claim refunds against taxes paid.
Careful consideration should be given to the strategy for claiming these NOL carry-backs because, depending on the type of business entity, your tax rate may have been higher in some of the five available years versus others. Make sure to leverage any tax rate arbitrage to maximize your benefit.
3. Payroll Tax Deduction Timing
Another provision of the CARES Act gives employers the option to postpone payment of their portion of Social Security taxes until the end of 2020. The deferred amounts are due half by the end of 2021 and 2022. This may be great from a liquidity perspective; however, depending on your business’s accounting, this could also mean a deferral of the deductibility of this expense as well. You should weigh the liquidity benefits of the deferral versus the value of a current year deduction – especially considering the accelerated NOL provisions discussed above.
Conclusion
These are just a few of the potential year-end tax planning strategies you can employ before the end of 2020. Make sure to consider these and speak with your tax advisor to see what makes the most sense for your situation.
Disclaimer
These articles provide general information on tax, accounting, and financial topics for small businesses and individuals. They are educational in nature and are not specific legal, accounting, financial, tax, or other professional advice, and should not be relied upon as such. This content was prepared by Service2Client and may have been reviewed or edited by the website owner for accuracy and compliance. Look for a trust mark below for verification details. No representation is made that any approach described will achieve a particular result, and no regulatory or professional body has reviewed or endorsed this content. Because each situation is different, readers should consult a qualified professional about their specific circumstances before acting. Images accompanying these articles are protected by copyright and may not be copied or reused.
The Senate Republicans’ slimmed-down stimulus bill recently failed to materialize after receiving less than the 60 votes needed to move forward. The “skinny” stimulus bill, with a price tag of only $650 billion, was intended to be a way to quickly inject stimulus into the economy and bypass both the multi-trillion-dollar Republican HEALS Act and the Democratic HEROES Act.
The current stimulus limbo leaves millions of Americans in a position of uncertainty. Four main areas that the Senate bill intended to address but are now up in the air include a second round of stimulus checks and the impact on struggling tenants and homeowners, as well as the long-term unemployed.
Next Round of Stimulus Checks
The first stimulus bill, the CARES Act, sent more than $300 billion in stimulus checks to Americans back in March to help mitigate the effects of COVID-19 slowdowns. While this helped millions, many people’s jobs or businesses remain impaired due to the economic impact of the pandemic, and they are hoping for a second stimulus check to help them get by.
With the failure of the Senate bill and the stalemate in the House, the chances of a second round of checks continues to diminish. On the bright side, the U.S. Treasury noted it is ready to print and mail the checks as soon as something is authorized.
Troubled Tenants and Homeowners
The economic fallout from the pandemic placed many tenants and homeowners in the position of being evicted or foreclosed. The CARES Act from March placed a temporary moratorium on evictions and foreclosures, sparing millions. Following this measure, President Trump issued an executive order in August granting the CDC authority to cease evictions as a measure to prevent the spread of COVID-19. The CDC took this order and announced a stop to all evictions until the end of 2020.
For homeowners with federally backed mortgages, the CARES Act moratoriums on single-family foreclosures were also extended until the end of 2020. Moreover, many states passed laws protecting those without federally backed loans from foreclosure.
For both renters and homeowners, these protections will disappear once we enter 2021 unless the government steps in with new legislation or regulations. Keep in mind that for both renters and mortgage holders, payments are being deferred and not canceled – so ultimately, they will still need to make the payments.
Long-Term Unemployment
Millions remain unemployed due to the pandemic; without federal help, their unemployment benefits will expire soon. The CARES Act gave an additional 13 weeks of benefits on top of the initial 26 weeks of unemployment insurance benefits; however, for those impacted on the front-end of the pandemic, these extended benefits will expire at the end of November.
The Senate bill included $300 per week of benefits through the last week of 2020; however, with this failing and without additional aid to state funds, the long-term unemployed won’t have anything to rely on if Congress does nothing.
Conclusion
Democrats responded with a smaller version of their original second-round stimulus bill, coming in a price tag of $2.2 trillion, down from the original $3.4 trillion. This is likely too high a price tag still to garner Republican support. If nothing happens before the mid-October recess, then we will all be waiting until after the Nov. 3 election.
What’s Next for a Stimulus Bill?
October 1, 2020 · Blog, Tax and Financial News, Uncategorized
⏱ 3 min read
The Senate Republicans’ slimmed-down stimulus bill recently failed to materialize after receiving less than the 60 votes needed to move forward. The “skinny” stimulus bill, with a price tag of only $650 billion, was intended to be a way to quickly inject stimulus into the economy and bypass both the multi-trillion-dollar Republican HEALS Act and the Democratic HEROES Act.
The current stimulus limbo leaves millions of Americans in a position of uncertainty. Four main areas that the Senate bill intended to address but are now up in the air include a second round of stimulus checks and the impact on struggling tenants and homeowners, as well as the long-term unemployed.
Next Round of Stimulus Checks
The first stimulus bill, the CARES Act, sent more than $300 billion in stimulus checks to Americans back in March to help mitigate the effects of COVID-19 slowdowns. While this helped millions, many people’s jobs or businesses remain impaired due to the economic impact of the pandemic, and they are hoping for a second stimulus check to help them get by.
With the failure of the Senate bill and the stalemate in the House, the chances of a second round of checks continues to diminish. On the bright side, the U.S. Treasury noted it is ready to print and mail the checks as soon as something is authorized.
Troubled Tenants and Homeowners
The economic fallout from the pandemic placed many tenants and homeowners in the position of being evicted or foreclosed. The CARES Act from March placed a temporary moratorium on evictions and foreclosures, sparing millions. Following this measure, President Trump issued an executive order in August granting the CDC authority to cease evictions as a measure to prevent the spread of COVID-19. The CDC took this order and announced a stop to all evictions until the end of 2020.
For homeowners with federally backed mortgages, the CARES Act moratoriums on single-family foreclosures were also extended until the end of 2020. Moreover, many states passed laws protecting those without federally backed loans from foreclosure.
For both renters and homeowners, these protections will disappear once we enter 2021 unless the government steps in with new legislation or regulations. Keep in mind that for both renters and mortgage holders, payments are being deferred and not canceled – so ultimately, they will still need to make the payments.
Long-Term Unemployment
Millions remain unemployed due to the pandemic; without federal help, their unemployment benefits will expire soon. The CARES Act gave an additional 13 weeks of benefits on top of the initial 26 weeks of unemployment insurance benefits; however, for those impacted on the front-end of the pandemic, these extended benefits will expire at the end of November.
The Senate bill included $300 per week of benefits through the last week of 2020; however, with this failing and without additional aid to state funds, the long-term unemployed won’t have anything to rely on if Congress does nothing.
Conclusion
Democrats responded with a smaller version of their original second-round stimulus bill, coming in a price tag of $2.2 trillion, down from the original $3.4 trillion. This is likely too high a price tag still to garner Republican support. If nothing happens before the mid-October recess, then we will all be waiting until after the Nov. 3 election.
Disclaimer
These articles provide general information on tax, accounting, and financial topics for small businesses and individuals. They are educational in nature and are not specific legal, accounting, financial, tax, or other professional advice, and should not be relied upon as such. This content was prepared by Service2Client and may have been reviewed or edited by the website owner for accuracy and compliance. Look for a trust mark below for verification details. No representation is made that any approach described will achieve a particular result, and no regulatory or professional body has reviewed or endorsed this content. Because each situation is different, readers should consult a qualified professional about their specific circumstances before acting. Images accompanying these articles are protected by copyright and may not be copied or reused.
Back in July of 2019, France passed what was dubbed a “digital tax” targeting the largest tech companies. Impacting approximately 30 big companies such as Amazon, Google, Facebook and Apple, the tax applies to revenues earned from digital services of companies that earn more than $830 million in total and at least $27.86 million in France. The tax levy is a 3 percent charge on revenue from digital services.
The United States soon responded with threatening 100 percent tariffs on certain classes of French luxury goods, such as wine, champagne, cheese and makeup. These tariffs were estimated to cover more than $2.4 billion in French goods per year.
Responses on Both Sides
French President Emmanuel Macron came out to comment that the digital tax is not intended to be an anti-American move, and that big tech companies of all stripes could be covered by the tax. The criteria that determines who is subject to the digital tax, however, means that essentially only American companies are the ones being taxed.
Some in the United States claim it’s as simple as jealously over our strong technology sector, while others say that the main motivation for the French tax is a need to mitigate burgeoning budget deficits.
President Trump’s Reaction
Rarely one to back down on international trade issues, President Donald Trump criticized the digital tax for unfairly targeting American tech companies, going so far as to call out the European Union as behaving worse than China in its trading relationship with the United States. He reiterated his stance that he’s willing to fight tariffs with tariffs.
Negotiations with the EU
U.S. and European Union officials are negotiating an agreement over taxing big tech, but that didn’t stop the current treasury secretary from threatening more retaliatory tariffs. Steven Mnuchin, the treasury secretary, recently said that the United States will impose new tariffs on French automobile imports if the issue isn’t resolved to America’s satisfaction. He claimed the digital tax is purely arbitrary, hence his random call for taxing automobiles in response. Moreover, Mnuchin called the tax “discriminatory in nature” at the World Economic Forum in Davos Switzerland.
Taxes and Tariffs on Hold
For now, France is delaying the implementation of its digital tax through the end of 2020 in response to U.S. pressure on threatened luxury goods and automobile tariffs. They aim to come to a resolution before year-end with the Trump administration. French Finance Minister Bruno Le Maire is optimistic an agreement can be worked out and believes entering a trade war with the United States would be foolish.
The Future
Currently, other European countries, including Britain and Italy, are acting against big tech companies they believe don’t pay their fair share of taxes to their countries. Treasury Secretary Mnuchin said that the United States is willing to go to bat and protect its companies with retaliatory tariffs in these cases as well. For now, not much is settled – but we should see a clearer direction before the year is out.
This has been a year of economic and tax uncertainty with the impact of the COVID-19 pandemic, potential stimulus bills, and the presidential election. As a result, tax planning may be more important than usual this year. To help guide you, we will cover six year-end tax planning strategies – three for individuals and three for businesses.
The Senate Republicans’ slimmed-down stimulus bill recently failed to materialize after receiving less than the 60 votes needed to move forward. The “skinny” stimulus bill, with a price tag of only $650 billion, was intended to be a way to quickly inject stimulus into the economy and bypass both the multi-trillion-dollar Republican HEALS Act and the Democratic HEROES Act.