This information is provided an overview, not all inclusive and for informational purposes only by McLean & Associates, Certified Public Accountants (M&A). M&A does not warrant this information for any purpose. This presentation shall not constitute legal &/or tax advice. The laws referenced in this presentation may change, could be affected by case law developments and continues to be subject to interpretation. Do not rely on this presentation or your interpretation of same for any purpose. If you have a legal&/or tax questions, you should consult with a properly licensed lawyer &/or certified public accountant.
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020 – seems so long ago. In addition to improving access to health care treatments during the coronavirus (“COVID-19”) pandemic, the new law will provide roughly $2 trillion in financial relief to individuals, businesses, not-for-profit organizations, and state and local governments. We are watching for additional economic assistance legislation during this difficult time while everyone’s life is impacted.
Tax Provisions in CARES Act
The following is intended to provide you a “heads-up” of many other provisions (but not all) in the CARES Act:
- Individual taxpayers who claim the standard deduction on your Federal income tax return can claim an above-the-line deduction of up to $300 for cash contributions to qualified charities like the Village during 2020 (only).
- The CARES Act provides the opportunity for the possible increase of Federal charitable contribution deductions by individuals who itemize and corporations (in 2020 only):
- For corporations, the 10% limit is increased to 25% of taxable income.
- Individual taxpayers who itemize deductions can make qualified cash contributions up to 100% of the contribution base for 2020 (generally adjusted gross income), with any excess contributions available to be carried over to the next five years.
Note: an individual taxpayer can make cash contributions to qualified organizations, along with contributions of publicly traded stocks and possibly experience little or no Federal income tax! See your tax advisor for additional information and planning.
- The CARES Act also rolls back several provisions of the Tax Cuts and Jobs Act:
- Net operating losses (NOLs);
- Business tax losses sustained by individuals; and
- Business interest expense.
- IRA owners and qualified retirement plan participants who are adversely affected by the COVID-19 pandemic (e.g. furloughed, work hours reduced due to such virus or disease) may withdraw in 2020 up to $100,000 and then recontribute the withdrawn amount within three years with no federal income tax consequences or spread the income recognition over three years, without incurring early withdrawal penalties.
- Waives required minimum distributions (RMDs) from IRAs and retirement plans that would otherwise have to be taken in 2020 to avoid an expensive penalty.
Note: It is important to mention that the State of California (“CA”), like most all states, did not conform with most all of the tax provisions of the CARES Act. Several of the Federal tax benefits will continue to be limited on your individual CA income tax return (e.g. the removal of the Federal limitation of cash charitable contributions during 2020 is not changed for CA). Although tax professionals will need time to further interpret the provisions of the CARES Act and legislation enacted before 2020 tax filings, we encourage you to review the tax implications with your tax advisor.
