Tax News In a Nutshell - 12.7.20
What’s Up in Washington, D.C.
After a lull in discussions, last week saw a renewed interest in helping Americans still struggling from the pandemic. A time crunch for passing such legislation is escalated by the expiration of emergency unemployment programs at yearend, as well as a government funding bill needed by December 11 that may be a vehicle for stimulus provisions.
Framework of a new $908B bipartisan stimulus bill was released by a group of Senators but, the plan was subsequently ignored by Senate Majority Leader Mitch McConnell, who instead announced his own, less costly, $500B relief package. A day later, House Speaker Pelosi and Senate Minority Leader Schumer grabbed the $908B bipartisan plan as the basis for their bicameral negotiations.
Below is a look at some of the highlights of both plans (no official text yet released):
The fact that neither plan included a second round of direct payments to individuals drew criticism, so there’s still a chance for its inclusion, but lawmakers crafting the bipartisan bill say it’s more likely to be part of a later package under new administration instead. Opposing sides are still far apart, but several congressional members have spoken optimistically and feel it is essential to complete before year end. Legislative text of the bipartisan bill will reportedly be released this week.
Don’t forget the annual pushback of tax extenders either! More than thirty provisions expire soon and will need to hitch a ride somewhere. Be on the lookout for some or all to be included in upcoming legislation.
Full Disclosure: PPP Information Has Gone Viral!
The SBA released additional identifying information on PPP participants after a lawsuit was filed by the media. Data was previously publicized for loans greater than $150,000, but the remainder were off limits. Now, borrower names, addresses, and loan amounts are available in the newly disclosed data for those smaller loans, as well as for those partaking in the EIDL program.
Marijuana Bill Passed
Marijuana had a good week, seeing a bill to remove it from schedules of controlled substances passed primarily left but with reportedly no chance of passing right. The Marijuana Opportunity Reinvestment and Expungement Act of 2019 (MORE Act) approved in the House is highly unlikely to get any action in the current Senate, but it’s an important step towards federal legalization and decriminalization. The bill provides a five percent federal tax on the sale of cannabis products that would supply an Opportunity Trust Fund to help pay for law enforcement programs and small business loans.
Interest rates for the first quarter of 2021 will remain the same as Q4 for 2020.
Payments associated with Form 7200, Advance Payment of Employer Credits, will be delayed if claims are processed between late December and mid-January. As part of the IRS’s normal yearend close out, these forms will continue to be processed, but payments will not go out until January 21st, 2021.
Passive foreign investment companies (PFICs) received final and proposed regulations. Insurance companies and the look-through rules saw changes in the final rules from previously released proposed regulations, and two safe harbors from having to apply the principal-purpose anti-abuse rules were provided in the new proposed regulations.
The official day of the year reminding us to give came and went last week, but charitable incentives remain. Knowing the coronavirus pandemic would hit charities hard, the CARES Act provided a much-needed boost to encourage taxpayer generosity during 2020.
An exciting provision of the CARES Act provides that taxpayers no longer need to itemize to see a benefit from their charitable giving; an above-the-line deduction for donations makes its debut on the 2020 tax return! Those who take the standard deduction can deduct up to $300 for cash donations to qualifying charities. Beware that noncash donations, or cash amounts made to donor advised funds or supporting organizations will not qualify for this new deduction.
If itemizing is on the horizon, make sure to take advantage of a one-year threshold increase. For 2020, the adjusted gross income (AGI) limitation for cash donations to qualifying charities may be increased upon election to 100%, up from 60%. To enable a maximum tax advantage, the election to use this higher threshold can be made by the taxpayer to include either selected or all qualifying donations made during the year. Excess contributions will carry over for up to five years, subject to the normal 60% AGI limitation. Donations to donor advised funds, supporting organizations, and private foundations will not qualify for the AGI increase.
Corporations have an increased charitable giving incentive as well for 2020, with the ability to deduct up to 25 percent of taxable income rather than the normal 10 percent.
In addition to the 2020 incentives, traditional giving strategies can still be advantageous too. Consider bunching donations into one year to get over the standard deduction threshold, instead of giving smaller amounts year over year. Or donate appreciated property, such as stock, held greater than one year to see a multi-faceted tax benefit. With these appreciated property donations, a taxpayer can take a deduction of the fair market value of the asset and there is no tax liability for the increase in value over the original cost. Charitable trusts may be a valuable option as well.
And even though required minimum distributions were suspended for 2020, a qualified charitable distribution (QCD) from an IRA of a taxpayer aged 70 ½ or older still makes sense for the charitably inclined. QCDs are beneficial for the charity receiving the donation and for the donor, as the otherwise taxable distribution from the IRA is not included in the taxpayer’s income. Reducing AGI can benefit other areas as well, such as the taxation of Social Security income, decreasing Medicare premiums, and helping to avoid taxes that kick in at certain income levels, such as the Alternative Minimum Tax and Net Investment Income Tax.
These charitable giving strategies, like all tax-planning, should be reviewed for each taxpayer’s unique set of facts. So be sure to consider the entire picture, as well as taxpayer goals when implementing!
Have a great week!
Information provided is for educational purposes and attempted humor, not to be considered as tax advice.