Tax Savvy Moves to Consider Now
Within the coronavirus pandemic there are tax planning opportunities.
Here are a few to consider:
Who would ever have foreseen a time when petroleum companies would pay you to take their oil? This phenomenon underscores the concept that within every problem there is opportunity. Here are some tax strategies to think about during the coronavirus pandemic.
If you have high balances in tax-deferred retirement accounts, consider rolling them into lax-free Roth accounts. Since you have to pay tax on the funds you convert, the lower value of the accounts means less tax is due. Plus if your income is lower, the tax hit will also be lower. The good news here is that growth in these funds when the economy recovers will now be tax-free!
Stimulus payments help most families with kids, except if they are over age 16. By removing them as a dependent and them filing their own tax return, they may be eligible for a S1,200 stimulus payment from the federal government.
Have stocks you like long-term, but they took a hit? Consider selling it, then repurchasing after 30 days. This will avoid the wash sale rules in the tax code. This technique can raise your cost basis and it can also be used to offset other investments you sell at a gain.
The value of real property of all kinds will be moving. Some will move up, some down. So now is a time to think about buying or selling. If you currently own property, don't forget to look into the like-kind exchange rules to help defer any tax bite!
You may now take COVID 19 related distributions of up to $100,000 out of a retirement account and avoid the 10% early withdrawal penalty. Even better, the income tax on these withdrawals can be paid over three years and you can always repay the money over that same time period an avoid the tax. There may be planning opportunities around this added flexibility, but only if you review your options and correctly use the funds.
It is more important than ever to keep up with rule changes and he on the lookout for tax planning opportunities.
Should You Skip Minimum Distributions?
New law lets you forgo distributions in 2020:
The stock market boomed in 2019 — the Dow Jones increased 22%; the S&P 500 jumped 28%; NASDAQ
skyrocketed, coming in just shy of 35%. By March 23, 2020, the Dow plummeted 35%; the S&P dropped 31%; NASDAQ was down 24%. (Each market has now rebounded to a less catastrophic decline.)
The stock market rollercoaster did not bode well for retirement accounts, as required minimum distributions (RMDs) are normally calculated by dividing an account's December 31 balance by an IRS life expectancy factor. Enormous account balances on December 31, 2019 meant large RMDs for 2020 after the markets crashed.
The IRS recognized this problem, allowing withdrawals to be skipped for 2020. There are situations, however, where you may want to still take a distribution from your retirement account. Here are some tips for deciding whether you should forgo a distribution.
Why you should skip distributions:
Why you should consider taking distributions:
Tax Savings Can be Found in the Elections
That You Make!
Every year is an election year when it comes to making decisions on your annual income tax return. Here are four common examples that can create tax savings opportunities if you elect the correct option.
Tax Changes That Can Help You in 2020
Staying current with your taxes may be challenging this year. The IRS has made several changes to help as you finish your 2019 tax return and begin tax planning for next year. Here is a summary of these tax-related changes.
The IRS is suspending payments of all amounts due from April 1 through July 15, 2020. If you do not pay your IRS installment payment during this time your installment agreement will not be in default. Interest will continue to accrue on these installment agreements.
The IRS will allow you until July 15, 2020 to provide additional requested information for any pending offers-in-compromise (OIC) and will not close out the OIC during this time without your consent. The IRS is also suspending any payments due under an OIC until July 15, 2020.
The filing and enforcement of liens and levies will generally be suspended. However. IRS Revenue Officers will continue to pursue high income non-filers and initiate other actions when warranted.
The IRS will not initiate new audits during this time, but will act to protect the statute of limitations.
Thieves Get Creative With COVID-19 Scams
Thieves are getting creative with different ways to gain access to your checking account and personal information during the COVID-19 pandemic. Here are some of the reported schemes:
Mandatory online COVID-19 test. Individuals Nosing as workers from the U.S. Department of Health and Human Services or other federal departments use text messages to instruct the recipients to click on a link to complete a mandatory online COVID-19 test.
You've been in contact with COVID-19. This scam sends an e-mail to warn recipients that they came into contact with a colleague/friend/family member who has COVID-19. The e-mail instructs the recipient to download and print an Excel spreadsheet and bring it to the nearest COVID-19 testing site. After opening the spreadsheet, recipients are told they need to enable the content in order to view the spreadsheet's details. Malicious macros are then activated when the recipient clicks on the "Enable Content" button, infecting the computer.
SBA loan applications. Fraudulent e-mails are sent out as correspondence from the U.S. Small Business Administration telling recipients that they can apply for a small business disaster assistance grant. The recipient is instructed to sign an attached document and upload it to the SBA's website. When the attachment is downloaded, a remote access trojan is installed on the device.
Fake pop-up testing sites. Hands down the most brazen attempt to steal personal information are pop-up COVID-19 testing sites. The thieves tell passersby that they can be tested for COVID-19 for a S240 fee. They then pocket the cash and use the personal information gathered from individuals to make fraudulent Medicare and Medicaid claims.