The Cares Act, Tax Planning for End of Year and the Year Ahead: Part One

In Part One of this two-part blog series, we focus on the CARES Act of 2020 and what that might mean for your year-end review and tax planning efforts.

The CARES Act
Passed by Congress on March 27^th 2020, the CARES Act (Coronavirus Aid, Relief, and Economic Security) is an economic relief package designed to provide financial assistance to American workers, families, and small business owners who’ve faced economic hardships due to COVID-19.

There are several provisions within the CARES Act which may affect your financial planning, including:

• Retirement plan withdrawals and loans
• Charitable contributions
• 529 college savings accounts refunds
• Required Minimum Distributions

Retirement Withdrawals and Loans
Individuals can withdraw up to $100,000 from their retirement accounts (IRA and some 401K and 403B) for COVID-19 related expenses, to avoid paying the 10 percent early withdrawal penalty. However, our office recommends withdrawing from your retirement accounts only as a last resort, after considering all other options.

Charitable Contributions
For tax filers who do not itemize and normally lose the tax-deductibility of charitable donations, the CARES Act offers a deduction of up to $300 for charitable contributions for 2020.

For those who do itemize, you will be able to deduct all charitable gifts up to 100% of your Adjusted Gross Income for your 2020 tax return.

529 College Savings Accounts Refunds
If you received a refund from a 529 account for school tuition or housing for your college-aged child’s canceled classes and on-campus living due to COVID-19, the CARES Act allows you to re-contribute the refunds back into a 529 account for the same beneficiary. You will not have to pay income tax nor penalties on the refunded money, as long as you recontribute within 60 days of receiving the refunds.

Schedule time to work with your personal CPA to ensure that you receive the credit for the recontribution.

Required Minimum Distributions (RMDs)
RMDs are suspended for 2020. The U.S. government decided that many American citizens’ retirement would be damaged by the normal annual requirement to take a distribution from their retirement accounts.

Contact your personal CPA Paul Anderson to learn how you can take advantage of the provisions in these Acts and make the best possible tax-planning decisions.