2020 Year-End Tax Guide

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Certain persons are ineligible for the credit – a nonresident alien individual, a person who is a dependent of another, and possibly, incarcerated persons. In May, the IRS issued a release noting that payments may have been made to ineligible persons and requesting a return of payments. This included payments to anyone who died before the date of receipt. Retirement Plan Rules Required Minimum Distributions: The CARES Act waived Required Minimum Distributions (RMDs) for 2020. The Joint Committee on Taxation Report and IRS Notice 2020-51 confirms that this rule: X Applies to inherited IRAs, so that 2020 is not counted in the five-year payout period. X Waives the 2019 initial RMD payment, which could be deferred until April 1, 2020. X Waives the 2020 initial RMD payment, which could be deferred until April 1, 2021. However, the 2021 RMD will have to be made in that year. Since the CARES Act did not become law until March 27, 2020, many individuals may have already received their RMDs for 2020 and already be beyond the normal 60-day rollover period to avoid taxation. To address this, the IRS extended the rollover period for distributions made before the enactment date to August 31, 2020. The law generally limits the amount of IRA rollovers to one every 12 months. Given the unusual current circumstances, the Service states that repayments to an IRA through August 31 will not be considered a rollover with respect to this rule. This may require changes to be made to the plan, which can generally be done by the 2022 plan year (2024 for government plans). Coronavirus-Related Distributions/Loans Understanding the need that retirement plan participants could have for cash due to the pandemic, the CARES Act relaxed a number of rules related to distributions and loans:

X The 10% Premature Distribution Penalty (for distributions to a participant younger than 59.5) will not apply to a coronavirus-related distribution of up to $100,000. X Coronavirus-related distributions of up to $100,000 will be (a) subject to income tax over three years (i.e., one-third taxable in each year); and (b) can be repaid to the plan within the three-year period. Any tax paid in a prior year can be claimed on an amended return when the proceeds are rolled over during the three-year period. X Loans from qualified plans can be made up to $100,000 or 100% of the participant’s accrued benefit (considering prior loans), increased from the normal $50,000 or 50% of the accrued benefit, and not to be treated as distributions. Some deferral of payment terms is allowed. There is a coronavirus-related distribution or loan where: i) the taxpayer, spouse, or dependent is diagnosed with COVID-19; ii) the taxpayer suffers adverse financial consequences due to being quarantined, furloughed, laid-off, or had work hours reduced due to COVID-19; iii) there was a closing or reduction of business owned or operated by taxpayer due to COVID-19; or iv) other factors to be determined by Treasury. Plans can accept employee certification as satisfaction of these conditions. For non-corporate taxpayers, the TCJA limited the use of net business losses to the extent of $250,000 ($500,000 for married filing joint). The CARES Act provides that taxable incomes for 2018, 2019 and 2020 can be computed without this limitation. This creates opportunities to claim a refund for 2018, where the business loss may have been limited on the original filing. In conjunction with the Net Operating Loss carryback rule (discussed below), this can create a significant current benefit. The limitation is only suspended for 2018, 2019 and 2020. The limitation will continue to apply for 2021 and future years. Limitation on Net Business Losses Suspended