In response to the unfolding COVID-19 global pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27. This is an emergency fiscal stimulus package with a wide range of provisions intended to ease the effects of the resulting economic impact of the crisis.
This stimulus package comes on the heels of the 2020 Retirement Reform & Tax Update (Secure Act and tax extenders) and the 2018 Tax Reform (Tax Cuts and Job Acts of 2017).
Below are a few highlights from the CARES Act and other recent relief provisions that we believe are most likely to apply to our clients:
- Refundable income tax credit (recovery rebate) against 2020 income of up to $2,400 for married couples filing a joint return ($1,200 for individuals) plus up to $500 for each child under the age of 17.
- Phase-outs begin when Adjusted Gross Income (AGI . . . or “the line,” referenced again below) exceeds $150,000 (married) and $75,000 (individual).
- The phase-out is $50 per $1,000 over the AGI thresholds mentioned above.
- Rebates will be estimated and “fronted” based upon 2018 or 2019 AGIs (whichever tax return is the most recently filed) and then “settled up” once your 2020 return is filed.
- If you were shorted, you will be made whole. And if you received an excess payment, you get to keep it.
- Phase-outs begin when Adjusted Gross Income (AGI . . . or “the line,” referenced again below) exceeds $150,000 (married) and $75,000 (individual).
- Required Minimum Distributions (RMDs) are waived in 2020.
- There can be options to consider for returning distributions that have already been processed.
- This could create opportunities for Roth conversions; however, be aware there remain Reasons NOT to Convert to a Roth IRA.
- There is a new, $300 “above the line” deduction for Qualified Charitable Contributions (QCCs).
- This is helpful to those who no longer itemize their deductions and instead take the recently increased standard deduction.
- This contribution must be made in cash, as The Win-Win of Donating “In Kind” does not apply.
- Extended deadline for making 2019 IRA and Health Savings Accounts: Triple Tax Benefit (HSA) contributions.
- The IRS has confirmed these contribution deadlines, to align with the Treasury’s extended due date for tax-return filing and payments from April 15 to July 15.
There are many other provisions related to coronavirus-related retirement plan distributions, student loans, unemployment compensation benefits, small business benefits, big business bailouts, etc., which would be worth researching further if they potentially apply to you or someone you know.
While we at BCWM are not legal or tax professionals, we are always available to work with our clients and their professionals to consider how current laws may have an impact on their investment strategies and plans.
This information is provided for general information purposes only and should not be construed as investment, tax, or legal advice. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.