Charities have been busier than ever since the COVID-19 pandemic hit back in March as millions of people lost their jobs and went on unemployment. Food banks, utilities help, rent and mortgage assistance, and other similar non-profits are dispensing everyday aid to needy citizens.
You may have been led to donate to charities, both local and national, to help others who have fallen into serious financial straits. *** So, if you are able to give during this pandemic, there are some deductions for charitable organizations that you need to know during this time:
- Required Minimum Retirement Distributions Waived in 2020: For 2020, the IRS has waived mandatory distributions from retirement accounts such as IRAs. This waiver was allowed for IRA account holders to have time to recover what may have been lost during the year. You may be planning to donate retirement assets to charity, too. The minimum age for making a tax-free transfer from an IRA to a non-profit is still 70½. The $100,000 annual limit has not changed. There is still time to increase donations to charitable organizations and offsetting an IRA withdrawal with a deduction.
- Non-itemizers have a new $300 Charitable Deduction: Taxpayers who do not itemize deductions can now deduct up to $300 single filing or $600 for a married couple. The CARES Act was amended so that donors to charities could give a little more cash gifts which are above the standard deduction.
- 100% of Adjusted Gross Income Available in 2020 for Cash Gift Deductions: Charitable donors can 100% of their adjusted gross incomes for cash gifts that are made to public charities. This is for 2020 only as, historically, the largest share of income that a donor could deduct was 60%. It is a 40% increase. Just note that this is for 2020 only.
- Donations of appreciated securities or other property: These donations do not qualify for the new charitable contribution provisions in the CARES Act as they are not considered Qualified Charitable Contributions. The only exception is for food inventory for C Corporations.
- Carryover Contributions: Charitable contribution carryovers from previous years and not for the 2020 tax year are different. Now, the current year contributions are deducted first, then the carryover contributions are subject to the normal ordering rules.
- Philanthropic taxpayers with traditional IRA accounts: It may be more advantageous to do a 2020 ROTH IRA conversion. Qualified Charitable Contributions for 2020 may offset 100% of the income recognized on such conversions.
This year has been a difficult year for us all. We will persevere! These tax law changes benefit charitable organizations and donors. As always, before making a significant financial decision, we recommend that you discuss these changes with an experienced financial advisor.
A.K. Burton, PC, has experienced financial advisors who can help you navigate through the numerous tax changes in 2020 due to the COVID pandemic. Call us at (301) 365-1974 for a consultation. Our office is open! We serve the Bethesda, Rockville, and Montgomery County. MD area. *** For more on the losses charities have sustained, click here.
As we write this blog, unfortunately, the whole CVOID-19 pandemic is still with us and maybe for a while, though we are hopeful it ends soon.
Here at AK Burton PC, we are working with our clients to create tax plans tailored to their unique situation. Now, during the uncertainty that the pandemic has caused; it is important to answer the questions business clients have now and plan for their future. Here are a few examples of some business tax planning strategies:
- Depreciate idle business equipment (idle asset): The pandemic has caused a lot of business equipment to become idle. The business owner needs to show that they plan to use them again as soon as the business returns to full operations. It is known as the “idle asset” rule. If the equipment is abandoned or disposed of then the rule is no longer in effect.
- Automatic changes in accounting method: A business owner can make accounting changes right up to the due date of the tax return. Such changes may include: changing the treatment of prepaid expenses, accrued compensation, advanced payments received, reviewing the class lives used for depreciation, and reviewing the application of the uniform capitalization rules on inventory.
- Transfer-pricing arrangements: Due to the pandemic, businesses have lost thousands or millions in sales. This has decreased cash flow. So, now customs declarations or adjustments must be revised. Thus, the transfer-pricing for goods may not be relevant due to the three-month (or longer) cessation of business due to the COVID-19 pandemic which did not provide U.S. multinational companies a way to shift tax burdens between jurisdictions. (As we always say, consult with your professional and licensed tax planning consultant.)
- Review business receivables to see if there are any write-offs: A “bad debt deduction” is only allowed for debts that are worthless during the tax year that the deduction is taken. The true worthlessness of the debt and the fact that is was taken during the tax year must be determined.
- Inventory values: Lower-of-cost-or-market (LCM) inventory valuation may bring inventory write-downs before the inventory is sold. (See your accountant about regulations.) All inventory items must be considered separately so correct values can be determined. (A percentage write-down is allowed for accounting.)
- Verify that there is adequate stock and debt basis for S Corps/Partnerships: Coronavirus Aid, Relief, and Economic Security (CARES) Act may result in increased deductions and taxes paid for potential refunds. Relief provisions come from a partnership or S corporation and the partner/shareholder must have an adequate tax basis for any deduction or loss that comes from the entity to benefit in the current year from these favorable provisions. if an additional basis needs to be created by making additional capital contributions or loans before the end of the year.
These are just a few examples that may apply to your 2020 business tax planning strategy. While COVID-19 has made tax planning even more challenging, you and your accountant can still work within the guidelines to maximize the benefit of tax planning for your business.
A.K. Burton, PC, has experienced tax advisors who can help you with your 2020 COVID-19 business tax planning. Call us at (301) 365-1974 for a consultation. Our office is open! We serve the Bethesda, Rockville, and Montgomery County. MD area.
*** For more information on the forms and other IRS documents, click here.