Current Tax Issues

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Below is a synopsis of new tax laws and changes that were passed at the end of 2020 that we feel will be most relevant for our clients/prospects. Click any link below for a more complete explanation. Click here for frequently asked questions about existing tax issues.

ECONOMIC IMPACT PAYMENTS (EIP)

The CARES Act provides for payments to qualifying individuals in 2020. If you have not received your payment in 2020 visit the IRS Website to learn more about who qualifies and how to received your rebate if you have not yet done so.

BUSINESS MEALS DEDUCTION

The Consolidated Appropriations Act signed into law December 27, 2020, temporarily (for 2021 and 2022) allows businesses to deduct 100% of business meals provided by a restaurant with clients, up from 50% in 2020. We expect more guidance to be forthcoming. Click here for frequently asked questions about meals and entertainment rules.

SETTING EVERY COMMUNITY UP FOR RETIREMENT ENHANCEMENT (SECURE) ACT

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed in to law December 20, 2019 enacted several significant changes to retirement accounts. Beginning in 2020 the SECURE Act:

  1. Eliminated the age limit for traditional IRA contributions. Starting in 2020, those who are still working and otherwise eligible, may contribute regardless of their age.
  2. Raised the Required Minimum Distribution (RMD) beginning age increased from 70½ to 72 starting in 2020. IRA owners reaching age 70½ in 2020 catch a break and will not have to take their first RMD in 2020 now that the RMD deadline has been extended to age 72.
  3. Changes the “stretch” IRA rules. For non-spouse inherited IRAs the IRA stretch rules previously allowed non-spouse beneficiaries to limit their required distributions from the inherited IRAs thereby minimizing taxes and maintaining the tax deferred growth. Beginning for deaths after December 31, 2019, non-spouse IRA beneficiaries will not be required to take any distributions until the 10th year after the death but will require to completely empty the inherited IRA accounts by the end of the 10th year. Exceptions to this new rule are surviving spouses, minor children, disabled or chronically ill, and beneficiaries that are not more than ten years younger than the IRA owner.

W-4's for EMPLOYMENT

Due to the new Tax Cuts and Jobs Act (TCJA), the new redesigned Form W-4 no longer relies on the concept of withholding allowances, since there is no longer a deduction for personal exemptions).  A new W-4 is not required at your current job. It is only required if you are newly hired after 12/13/19, or if you wish to make a change.  To complete the form, always complete Steps 1 and 5 and, if your income will be under $200,000 ($400,000 or less if married filing jointly) also complete, Step 3. Also, do the following:

  1. If you just want the standard deduction and no adjustments – Complete Steps 1 and 5 only
  2. If you want to reduce your withholding due to having itemized deductions greater than the standard deduction – Complete Step 4(b) after completing the worksheet for Step 4(b)
  3. If you (not including your spouse) will receive more than one W-2 – Complete the Step 2(b) worksheet and Step 4(c)
  4. If you want to increase your withholding to cover other income – Complete Step 4(a)

Go to https://www.irs.gov/individuals/tax-withholding-estimator, for a fairly comprehensive withholding estimator created by the IRS.  

INFLATION-ADJUSTED INCOME TAX RATES, LIMITS AND MORE

Review this comprehensive document that provides income tax rates, standard deduction limits, mileage allowances, luxury depreciation limits, employee benefit plan limits, IRA limits, HSA limits, education credit limits, high income individual thresholds and more.

TAX EXTENDERS

Many tax breaks had expired but recent legislation retroactively extends over 30 provisions through 2020. These are the few that we find to be most relevant for our clients/prospects. 

  1. The two-wheeled plug-in electric vehicle credit.
  2. The deduction for mortgage insurance premiums associated with a principal residence.
  3. The deduction for qualified tuition and related expenses
  4. The tax credit for energy-efficient improvements to your principal residence.

ENERGY-CONSCIOUS PURCHASES CREDIT

Qualifying property can be found here. The credit is 10% of the cost, up to a $500 lifetime credit. In addition, solar electric, solar water heating or qualified small wind energy or geothermal property are eligible for a 26% tax credit if purchased in 2020. It then drops to 22% for 2021.

ILLINOIS PERSONAL TAX CREDIT FOR OUT OF STATE WAGES

In the past, Illinois allowed a tax credit to residents for wages and taxes paid to non-reciprocal states. This allowed such employee to not be taxed in two states when their work in the other states was considered temporary. For the past few years, however, Illinois became aggressive and did not allow the tax credit, causing double state tax for these employees. For 2020, Illinois passed a tax law allowing employees to take a tax credit in order for there not to be this double tax. So, if you have a 2020 W-2 with wages in other states (in addition to Illinois) you will NOT be subject to this double state tax. 

Contact us if you would like to discuss how these laws might impact you.