Changes in Tax Rules Could Affect Your Planning

Writer: Steve Dinnen

What with all the challenges that 2020 has thrown us on political, economic and medical fronts, why would it matter whether fiscal policy gets upended as well?

In response to the economic meltdown the pandemic caused, Congress and the president gave us the CARES Act and all those personal stimulus checks in March. That had followed by just three months the SECURE Act, which ushered in its own set of rules pertaining to taxes and individual investment decisions.

The result is that a lot of rules have changed, said Des Moines CPA Joe Kristan (pictured), of Eide Bailly. “It’s going to be a weird year,” he said.

Some of this information we’ve covered in past dsmWealth interviews with Kristan. Other info may be new; in either case, it can help you better plan for your taxes.

Pertaining to business taxes, Kristan said there are several changes that will have an impact. A key one relates to net operating losses, under the assumption that many businesses will lose money because of the pandemic’s economic shock. They can use that current year loss to offset profits for up to five previous years, thereby claiming refunds of previously paid income taxes. To help struggling businesses with cash flow, 2018 and 2019 losses may also be carried back for refunds.

A still unresolved issue is over the taxability of the PPP loans granted to millions of small businesses. The intent of Congress was that those loans, when properly used to support payrolls, would be forgiven. But Kristan said the U.S. Treasury views them in such a manner that may classify PPP dollars as taxable income to the recipient. Stay tuned on how that develops.

Noncorporate taxpayers with excess business losses got some good news with postponement of the $250,000 cap ($500,000 married filing jointly) on such losses. Excess business losses that would otherwise be disallowed for taxable years 2018 through 2020 will be permitted. This change is retroactive, allowing taxpayers to amend 2018 returns to claim the extra losses.

On the personal tax side, the SECURE Act lifted the age at which we have to withdraw money from IRAs to 72 (from 70 1/2). Three months later the CARES Act scrapped required minimum distributions (RMDs) for 2020. A lot of taxpayers got badly bruised by the stock market rout of early 2020, so this would give them time to recoup losses without having to fuss with an RMD.

That could have a negative impact on charitable giving, since such a gift offsets an RMD. To sort of make up for that shortfall, the law allows you to give cash equal to your entire adjusted gross income.

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