The 2020 tax season is just around the corner and there are many things to keep in mind relative to the $2.2 trillion Coronavirus Aid Relief and Economic Security Act (CARES ACT), signed into law on March 27, 2020.  There are other important tax matters to be aware of too.  Below are a handful of the ones that apply to many of our clients.

1. UNEMPLOYMENT INCOME IS TAXABLE:  If you received or are receiving unemployment income in 2020, that income is taxable on your 2020 Federal tax return.  California is one of only 15 states that doesn’t tax unemployment income, so you’re okay on your California return.  However, please plan on the Federal taxes that will be due on your 2020 unemployment income.  We recommend that you have Federal taxes withheld on the unemployment income but you can either make estimated tax payments or pay the tax when you file your 2020 tax returns.  I think this might be among the biggest surprises coming for tax year 2020.     

2. 2019 TAX FILING DEADLINE AND 2020 ESTIMATED TAX PAYMENT DUE DATES:  Because of the COVID-19 challenges, the 2019 tax filing due dates and 2020 estimated tax payment dates were scrambled up like never before.  July 15^th became the due date for filing your 2019 individual tax returns, which we’ve extended to October 15^th for a number of you.  For those of you making estimated tax payments, the 2020 due dates were changed accordingly:
   • July 15, 2020 – Voucher #1
   • July 15, 2020 – Voucher #2
   • September 15, 2020 – Voucher #3
   • January 15, 2021 – Vouchers #4

3. RETIREMENT ACCOUNT DISTRIBUTIONS:  For the year 2020, to help cover pandemic-related emergency expenses you may withdraw up to $100,000 from your retirement accounts without penalties for early withdrawal.  The distributions will still be subject to income taxes.

4. REQUIRED MINIMUM DISTRIBUTIONS (RMD):  For tax year 2020, you do not have to take RMD distributions from retirement accounts.  This applies to taxpayers over 70½ years old and can be a smart tool for keeping taxable income lower and possibly reducing the taxable portion of social security distributions. 

5. STIMULUS CHECKS:  Hopefully most of you received a Stimulus check in 2020; $1,200 for individuals and $2,400 for families.  The good thing is that this income is not taxable.  Some of you may be receiving a second Stimulus check in the near future, pending legislative action.

6. CHARITABLE CONTRIBUTIONS:  The CARES Act provides that the Adjusted Gross Income (AGI) limit for making cash contributions has increased from 60% to 100%.  This means that up to 100% of your AGI can be deducted on Schedule A with a carryover for any unused portion (for up to 5 years). 

7. CHARITABLE CONTRIBUTIONS UP TO $300:  The CARES Act allows for an additional “above-the-line” deduction for charitable gifts made in cash or check of up to $300.  If you don’t itemize your deductions, you can still claim this deduction.

8. SOCIAL SECURITY INCOME IS TAXABLE:  As has been the case in prior years, the Federal Government taxes up to 85% of your social security taxes when your combined income is above $34,000 for individual taxpayers or above $44,000 for married couples.  Social security income is not taxed in California.  Please plan accordingly.  You can opt to have Federal taxes withheld on your social security income or make estimated tax payments on this income.

9. PAYCHECK PROTECTION PROGRAM (PPP) and ECONOMIC INJURY DISASTER LOANS (EIDL):  The CARES Act provides for significant benefits to small business to maintain payroll and cover applicable overhead costs (PPP) and to help overcome the temporary loss of revenue(EIDL).   Loan forgiveness paperwork will be taking shape in the next few weeks, for those loans that qualify.     

10. NEW FORM W-4:  If you’re working for just one employer, you simply provide your name, address, filing status and sign the new W-4.  If, however, you have two or more employers, go to www.irs.gov/W4app and complete the withholding estimator.  Taking no action may lead to unexpected balances due when you file your 2020 tax returns.

11. THE CARES ACT:  The CARES Act is lengthy and continues to have refinements made.  If so inclined, here’s a link to the entire HR 748 CARES Act: https://www.congress.gov/116/bills/hr748/BILLS-116hr748enr.pdf

If you’ve got questions or need any clarification, please don’t hesitate to contact us.