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Tax Strategies for 2020 and Beyond: FAQs

December 03, 2020

If you missed our webinar, here are some helpful Q&As from the presentation that will help with your tax planning in 2020 and beyond.

Did you miss our recent webinar, Tax Planning Strategies for 2020 and Beyond? Have no fear, here are some of the questions and answers we covered, and don’t forget to check out our recorded presentation.

FAQs

What is the future for the QBI deduction?

Something will likely change with it, but we don’t see it going away, entirely. Under current tax law, the tax deduction for qualified business income (QBI) from pass-thru entities is equal to 20% of QBI, and is set to expire after 2025. Biden’s plan calls for expanding and simplifying the deduction, excluding rental real estate activities and limiting deductions for individuals earning more than $400k.

Any chance that expenses for PPP loan forgiveness will be deductible?

The only way this will happen is through an act of Congress.

If the estate tax exemption goes down, would it be retroactive to 2020?

No, but it’s possible any change could be retroactive to 1/1/21. It would be unlikely however. If people made plans/gifts prior to the enactment of a tax law change, it would be really difficult to make that tax law retroactive. It would basically eliminate the benefit people thought they were going to get when they were making these gifts.

If a spouse has not contributed to an employer 403b, can they create and contribute to a Roth IRA and what would be maximum allowed?

The answer is yes, if your income is below the allowable threshold. For 2020, your modified adjusted gross income must be under $139,000, if single and under $206,000, if married filing jointly.

We sold the house and moved to Florida, can we write off moving expenses?

No, moving expenses are no longer deductible. They are only deductible if you are active in the military and the move is required to change your station.

I became a consultant this year with no retirement option (wife has and we file jointly). Should I open an SEP (simplified employee pension) to lower taxes?

There are several options to open retirement accounts. The common options are SEP IRAs, Solo 401ks, and SIMPLE IRAs. If you have taxable income and contributing to this retirement account would help you save taxes and save for retirement, it’s probably wise, but we encourage you to talk to your tax and investment advisors beforehand, so they can help you understand which plan might be your best fit.

Should we be looking into R&D tax credits?

Absolutely, even if your company is not profitable this year, you could still qualify for some of those credits, and the benefit of that is you can either carry them back a year or carry forward. If you’re doing research and development work, definitely worth looking into.

I believe that due to COVID, we are not required to take an IRA distribution this year, is this true for beneficiary IRAs too?

Yes, the RMDs for 2020 have been suspended for all IRAs. Even if you are under age 70 ½ and were previously required to take an RMD because you inherited an IRA, you are eligible to waive the requirement for 2020.

Is it likely that capital gains will be taxed as regular income?

Currently, short term capital gains are already taxed as regular income. For long-term capital gains, it’s possible, we will have to wait and see. If that did happen, it would likely be limited to taxpayers with taxable income above a certain threshold. (Biden has mentioned a $1M threshold option.)

Is there any hope that the "stretch" IRA will return?

Pre SECURE Act, IRA non-spouse beneficiary owners could take distributions out over their lifetime. Under the SECURE Act, you can no longer have a stretch IRA, distributions have to be taken out over a 10-year timeframe. There has been no indication that it will return, as of now.

I turn 70 in 2021 and will be required to start mandatory IRA withdrawals in January 2022. Are there any changes to this requirement planned for 2021-2022? If so, how should I plan for this?

You now have until age 72 to take your first RMD under the SECURE Act. You will want to make sure you have the appropriate amount of taxes withheld from those distributions, and/or adjust your quarterly estimated taxes. You also want to talk to your investment advisor to see if there is a better investment strategy to change the type of income you’re getting once those RMDs start flowing.

Should seniors' strategy now be to convert IRAs to Roths and make large charitable contributions to avoid higher future tax rates?

Every situation depends. You will want to analyze how close you are to taking distributions, what your investment strategy is, what your cash flow needs are (among other things).

What are the tax consequences for PPP loan proceeds that are forgiven for an S-Corp?

As of right now, PPP loan forgiveness is not considered taxable income, however, expenses paid with PPP proceeds are not deductible. Net effect is that taxable income is increased by the disallowed deductions. We are hopeful Congress will pass a “fix” on the legislation to clarify that expenses are deductible. Politicians from both parties have indicated the intent was for the expenses to be deductible, but until that is put in stone through new legislation, our planning is based on the premise that the expenses are non-deductible.

Does someone have the ability to carry 2020 losses back over previous years?

Yes, if you’re a C corp definitely. If you’re an individual, pass-through losses are first used to offset other income on your 1040 (i.e. wages, interest and dividend income, capital gains, retirement distributions, etc.). If there is still a loss amount remaining, then you can carry it back on the individual level. It’s important to note that the carryback rule is only allowed for losses incurred in 2018, 2019 and 2020. After 2020, we return to the carryforward only rules.

Questions? Contact us. Don’t forget to checkout our webinar recording.

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