Special Release - Tax Relief and CARES Act
The only constant in life is change.” — Heraclitus
U.S. businesses and households have faced challenges with creating new routines and altering daily operations after realizing the dire effects of COVID-19. Whether working from home, shopping online, or interacting with the new social distancing rules, life in America as we know it has changed. But the American resolve is strong and ingenuity is thriving. From online classrooms, fundraisers for the affected, client video conferences, virtual happy hours, birthday parades, and neighborhood teddy bear hunts, it seems nothing can keep Americans down for long! Multiple efforts are being implemented by our federal, state, and local governments to help businesses and individuals affected by this virus. We outline two of these efforts below: tax relief and an overview of benefits offered by the CARES Act.
In response to the COVID-19 pandemic, the Internal Revenue Service (IRS) extended the deadline for filing 2019 federal income tax returns by three months, from April 15 to July 15, 2020. In a previous announcement, the IRS extended the tax payment deadline to July 15, 2020. Now, filing and payment deadlines are the same date: July 15, 2020. (Notice 2020-18)
Taxpayers can defer federal income tax payments, and estimated tax payments that were due on April 15, 2020, until July 15, 2020, without interest or penalties. This deferment applies to individuals, trusts, estates, partnerships, associations, companies, corporations, and those who pay self-employment tax.
States have varying tax filing extensions. For example, the Commonwealth of Virginia is not following the federal government’s 90-day delay. Virginia will allow all individuals and businesses to delay filing their 2019 income taxes until May 1, 2020. Individual income and corporate tax payments are due June 1, 2020. Virginia is also extending the payment deadline for state sales taxes until April 30th. This allows retailers a 30-day extension.
Maryland has a filing and tax payment deadline for individual income and corporate taxes of July 15, 2020, mirroring the federal tax filing and payment deadlines.
The District of Columbia has a filing and tax payment deadline for individual income tax of July 15, 2020. Business income tax returns are due, as is normally required, by the 15th day of the 3rd month after the end of the tax year. If you cannot file your business tax return on time, you can obtain a Washington, D.C. tax extension of up to 6 months.
Many tax professionals advise that 2019 contributions to individual retirement accounts and Roth IRAs are now automatically extended to July 15, 2020. However, the IRS has not issued definitive guidance. We recommend contacting your relationship manager before April 15th to check that contributions before or on April 15th are credited to the 2019 tax year. Your relationship manager can also recommend a strategy that they believe is appropriate for investing your contributions in the current market based on your individual situation.
For contributions made after April 15th, communication with your relationship team is especially critical for you to specify which tax year you are contributing to — 2019 or 2020. Some financial institutions may have systems that code any IRA contribution made after April 15, 2020, as an IRA contribution for tax year 2020. Since there generally is no extension for making a prior year IRA contribution beyond the April 15th filing date for that year’s tax return, we will need to coordinate proper crediting of your contribution with the custodian.
If you are making an IRA contribution and have mailed, or plan to mail, a check to us, please notify your relationship team directly. With proper notification, our staff can monitor and process your check.
On March 27th, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion emergency fiscal stimulus package. This legislation is aimed at helping ease effects of the resulting economic damage from COVID-19. The most newsworthy component for the majority of Americans is that the bill authorizes direct, one-time payments of $1,200 to individuals who are U.S. citizens with adjusted gross income (AGI) up to $75,000 in 2019. Married couples with AGI up to $150,000 will receive $2,400. Those with an AGI between $75,000 and $99,000 or couples with an AGI between $150,000 and $198,000 will receive reduced amounts. (Payments are reduced by $50 for every $1,000 in AGI.) Individuals who reported over $99,000 and couples who reported over $198,000 in AGI are phased out completely. If you have not yet filed your 2019 taxes, your 2018 AGI will be used. Parents of dependent minors may also receive an additional $500 for every child in the household. To qualify, your child must meet the same eligibility guidelines for the child tax credit. Treasury Secretary Steven Mnuchin stated checks should arrive within three weeks.
The CARES Act also allows for the suspension of required minimum distributions (RMDs) in 2020 from a variety of retirement accounts, including IRAs, SIMPLE IRAs, SEP IRAs, retirement plans, such as 401(k) accounts, and inherited IRAs. Retirement plan owners and beneficiaries may recontribute current-year distributions within certain parameters (we await additional guidance not addressed in the law). Additionally, the waiver applies to first time RMDs that are deferred from 2019 to April 1, 2020. This suspension may be welcome news for seniors who are concerned about required distributions from their retirement accounts with the market down sharply for the year.
The CARES Act includes several provisions that encourage charitable giving. Adjusted gross income limits on charitable deductions are suspended. Donors can deduct 100 percent of their gift against their 2020 adjusted gross income. For example, if you have $1 million in income, you may give $1 million to a public charity and deduct that full amount in 2020. This deduction is restricted to cash gifts to a public charity. Also included is a universal charitable deduction, which allows all taxpayers to claim a charitable deduction for cash donations up to $300 through December 31, 2020, even if the taxpayer does not itemize.
Other provisions of the CARES Act include providing up to $500 billion in loans to distressed businesses, $350 billion for small businesses to retain employees and $100 billion for hospitals.
The IRS will soon clarify and issue guidance with more details on this recently passed bill. Before you move forward with any action, we recommend you frequently check current information at irs.gov/coronavirus.
Contact us with any questions or concerns at 703-847-2500. We remain open and available to help you and your family through these difficult times.
Stay home…and stay healthy.
West Financial Services, Inc. (“WFS”) offers investment advisory services and is registered with the U.S. Securities and Exchange Commission (“SEC”). SEC registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the firm has attained a particular level of skill or ability. You should carefully read and review all information provided by WFS, including Form ADV Part 1A, Part 2A brochure and all supplements.
Certain information contained herein was derived from third party sources, as indicated, and has not been independently verified. While the information presented herein is believed to be reliable, no representation or warranty is made concerning the accuracy of any information presented. We have not and will not independently verify this information. Where such sources include opinions and projections, such opinions and projections should be ascribed only to the applicable third party source and not to WFS.
This information is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept. This information is not intended to be tax advice and, because each individual’s tax situation is different, we encourage you to consult with us and/or a qualified tax professional about the effects of the CARES Act on you and your tax situation.