2020 Year-End Tax Guide

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THE MARCUM 2020 YEAR-END TAX GUIDE

Overcoming Challenges for the Modern Family

This year brought more obstacles than ever for families—from health concerns, finances and unemployment, to education and childcare. At increasing rates, unmarried couples are choosing to forego marriage, while married couples are deciding to divorce. These matters are all the more complicated for “modern families.” Previously the minority--but increasingly the norm--LGBTQ+ couples, unmarried partners and

II. Adoption Credits A special adoption tax credit is available to unmarried, blended families that is not available to married couples. If you completed an adoption in 2020, you can deduct up to $14,300 of qualified expenses related to the adoption. For the adoption of a child with special needs, the full deduction may be taken, even if the adoption costs are less. This could help save tax dollars for blended families if one partner adopts the other partner’s child. For couples planning to marry, consider adopting each other’s children before the wedding in order to benefit from this special tax credit. III. Modernizing the Tax Code The Internal Revenue Code, like many laws passed prior to the legalization of same-sex marriage, needs a “modern” update. The Promoting Respect for Individuals’ Dignity and Equality Act, or “PRIDE Act” (House Resolution 3299), attempts to do just that. If signed into law, the PRIDE Act may allow same-sex married couples to amend their income tax returns to file as married for all prior years in which they were legally married. As of now, individual taxpayers who wish to amend their returns to file jointly with their spouses are limited to a three-year look-back statute of limitations. Passage of the Act could potentially bring more than $60 million in tax refunds to same-sex couples. In addition, the PRIDE Act attempts to update the Code for modern families by making it gender neutral and by removing references to male, female, husband, and wife. IV. Removal of the Alimony Deduction With the passage of the Tax Cuts and Jobs Act of 2017 (TCJA) came the elimination of the alimony deduction. For divorce agreements effective as of January 1, 2019 or later, the spouse paying alimony can no longer deduct the cost, while the spouse receiving the alimony no longer is required to claim it as income. The deduction was removed because many more were claiming the deduction than reporting the payment on their income tax returns. As a result of the elimination, negotiating divorce settlements has become more arduous.

blended families face unique challenges that may require additional planning.

LET’S REVIEW I.

Potential Tax Rebates for Families with Older Children The Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, passed by the House on May 15, 2020, includes a second tax rebate for certain eligible individuals. The bill mirrors the tax credits contained in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, with one important change that benefits parents of older children. While the CARES Act provides a tax credit for each child under the age of 17, the HEROES Act provides parents the additional $500 tax credit regardless of the age of their dependent. This could provide much needed relief for families (and multi-generational families) with dependents especially considering that there is no longer an exemption for dependents.