Before 2020 wraps up, a few tax planning moves are worth considering for Individuals and Businesses, which we outline below. Also, be sure to join us for next week’s Tax webinar. Tim Horan is moderating as panelists will cover tax law changes occurring over the last few months and review other critical year-end update items. Topics will include individuals, estates and trusts, business tax developments, the CARES Act, and potential tax changes resulting from the recent election. Click here to register and submit your questions.
Harvesting Capital Losses to Offset Capital Gains OR Harvesting Capital Gains to Offset Capital Losses
· Capital Gains rates are taxed at 0, 15, or 20 percent. They are generally subject to the 3.8% Net Investment Income Tax for married couples with Adjusted Gross Income greater than $250,000. The “0” capital gains rates apply to taxpayers with a total taxable income of $80,000 ($40,000 for single filers) or less for married joint filers. The 15% rate is for joint filers with taxable income up to $496,600, $441,450 for single filers, and $248,300 for married filing separate filers. The 20% rate applies to taxable income greater than those amounts.
· When harvesting capital losses, beware of the “Wash Sale” rules that disallow losses on the purchase of identical securities 30 days prior and 30 days after a loss sale. Wash sales only apply to stock sold at a loss.
Expensing Deduction for Real Estate Improvements and Depreciation
· For qualified non-residential property building component additions such as roofs or HVAC units, you can make an election to expense up to $1,040,000 under Code Section 179. Most used and new machinery and equipment additions qualify for a 100% bonus first-year depreciation deduction.
Itemized Deduction Planning
· With the increased standard deduction limit of $24,800 and limits on deductions, many taxpayers only claim the standard deduction unless they have significant charitable contributions. A strategy of bunching tax and charitable contributions may help taxpayers itemize deductions every other year. Gifts of appreciated stock or securities result in the deduction of stock’s fair market value without recognizing the appreciation as capital gain.
· A donor-advised fund is an investment account held for charitable purposes. Donors take tax deductions when they put money in, then recommend grants to charities over time. Using such a fund allows the taxpayer to benefit from bunching while allowing them to postpone making decisions as to which charities they will contribute.
· Even though the CARES Act suspended required minimum distributions, individual taxpayers who are at least 70½ years old can contribute up to $100,000 annually to charities directly from their IRAs without having the amount of their contribution included in their gross income. By making this move, some taxpayers reduce their tax liability even more than they would have if they had received the distribution from their IRA and then contributed the amount distributed to charity.
Retirement Plans and Health Savings Accounts
· Make or increase contributions to 401(k) plans, SIMPLE pension plans, and Keough Plans.
· Individuals covered by a qualifying high deductible health plan (and are generally not covered by any other health plan that is not a qualifying high deductible health plan) may make deductible contributions to an HSA, subject to certain limits. Distributions from an HSA to pay qualified medical expenses are not taxable. Distributions used for nonmedical purposes are taxable, and if made before age 65, are subject to a 10% penalty tax.
Deferring Income and Accelerating Deductions to Next Year
· Cash method taxpayers can defer billing for products or services in December. Accrual method taxpayers can delay shipping products or delivering services.
· Cash method taxpayers can deduct expenses paid by or charged to credit cards by December 31st.
· Accelerate employee bonuses. Cash method taxpayers have to pay bonuses by December 31st, while accrual method taxpayers have until March 15th, 2021 to pay bonuses.
· Accelerate contributions to qualified benefit plans.
Expensing Deduction for Real Estate Improvements and Bonus Depreciation
· For qualified non-residential property building component additions such as roofs or HVAC units, an election can be made to expense up to $1,040,000 under Code Section 179. Most used and new machinery and equipment additions qualify for a 100% bonus first-year depreciation deduction, which is allowed for a property with a recovery period (life) of 20 years or less. With the technical corrections provided in the Cares Act, qualified improvement property like leasehold improvements are eligible for bonus depreciation.
Maximizing the Section 199A QBI Deduction
· The deduction for QBI from pass-through entities can be up to 20% of the owner’s QBI, subject to restrictions applicable to higher income levels and the owner’s taxable income. Because of these limitations on the QBI deduction, pass-through entities need to analyze their tax planning moves as it affects the available QBI deduction.
Moderator: Tim Horan, Tax Partner
Tim has more than 35 years of experience in public accounting, equipping him to deal effectively on behalf of his clients on issues related to federal and state income tax planning and compliance. Through cost segregation studies, research and development tax credit studies, state income tax nexus studies, acquisition planning and other tax strategies, Tim has worked closely with clients on tax minimization.
Panelist: Brad Marckx, Tax Partner
Brad started his career approximately 25 years ago working as a revenue agent with the Internal Revenue Service (IRS). The background with the IRS and a Masters Degree in Taxation (MT) from the University of Denver provides a solid foundation in helping businesses, both private and public. Brad’s areas of concentration include federal and state tax planning and compliance, ASC 740, Accounting for income taxes (including documentation of uncertain positions), entity choice, and strategic plans and forecasts.
Panelist: Marci Stanley, Tax Director
Marci has more than 21 years of tax compliance and consulting experience. Her clients include high net worth family groups, closely-held businesses, real estate, and mortgage banking companies. Other industries of focus are manufacturing and distribution, retail, and service sectors. She proactively works with her clients to identify opportunities and risks from a federal, state, and international tax perspective on both business and personal matters.
Panelist: Jill Carrier, Tax Senior Manager
Jill is a senior tax manager and has more than 18 years of tax accounting experience providing tax compliance and consulting services to a wide variety of industries with an emphasis on real estate and entrepreneurial businesses. Jill also spent five years as a tax manager for one of the nation’s largest investment firms while focusing on large institutional investors and a large family office client, and another five years as tax manager at a hedge fund dealing with tax compliance/implementation issues for private equity/investment funds.