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TAX SEASON 2020 - INCOME TAX PREPARATION
Your 2020 income tax returns are due Thursday, April 15, 2021. We can promise to have your returns completed and back to you in time for filing, only if your organizer and tax information are in our office by Monday, March 1, 2021. Please plan to return your signed E-file authorization forms to us no later than Monday, April 12, 2021. Please E-mail or fax the forms if returning in April.
Organizers - Please complete this data organizer as thoroughly as possible. The better organized you are, the faster your income tax returns can be completed which, in turn, will reduce the preparation time and costs. Please let us know if you would like your original tax data returned to you. We are planning to use CCH ProSystems to process your 2020 income tax returns. We have used CCH ProSystems services for over thirty-five years, and we have been very pleased with their confidential and professional processing of returns.
Portal Creation - The Portal is a web-based application that allows for the encrypted, bi-directional transmission and storage of electronic data. The Portal will continue to be our primary method of sending the Client Copy of your individual tax returns for your review in the upcoming tax season. We will continue to mail you hard copies of tax payment vouchers, estimated tax vouchers and E-file authorization forms. Please keep us informed of any changes to your email addresses or mailing addresses. Client copies of all entity tax returns will be emailed via Sharefile unless a paper hard copy is requested.
Appointments – Due to ongoing Covid-19 concerns, there will be no in office appointments until further notice. Zoom or phone appointments are available for planning or tax questions.
Please submit your data to our office by Monday, March 1, 2021 for individual, fiduciary & C Corporations and by Monday, February 1, 2021 for limited liability companies, partnerships and S Corps in order for us to prepare your 2020 returns by the due date or file an extension of time to file your tax return, if necessary. Our office is receiving mail and our staff is working remotely with visits to the office to pick up date and process returns. Please call our office if you have any questions. At this time the office building is closed to the public, but drop-offs and pick up of tax data and finished returns can be arranged by calling our office. All calls are forwarded to extensions if no one is present in the office. Please leave a message and a tax manager will return your call
Completing an Organizer - Please review your organizer carefully. Cross out any items that are pre-printed, but no longer apply to you (children filing their own returns, bank accounts, etc.). If you receive W-2's, 1099's, brokerage statements, K-1's, clip them to the appropriate pages in the organizer. There is no need to rewrite this information. The organizer is a guide for you to gather the paperwork we will need to prepare the return. Please keep your organizer until it is complete. If you always have a late K-1 however, send everything else and note what you are waiting for. If you upload data to your Portal, please let us know by email when everything is uploaded. Please upload in one large batch if possible.
Important this year - We need your Driver License number in order to E-file.
E-Mail & Website - Jorstad Incorporated's website provides company information, financial tools such as loan amortization calculators, newsletters and other articles concerning financial and tax matters and a calendar of important due dates and deadlines. Please take a minute to tour our web site. All staff members have e-mail addresses which appear on the website. www.jorstad.com
Mandatory Health Insurance (Individual Coverage Responsibility)
Prior to 2019 the IRS was handling the enforcement of mandatory health insurance coverage for individuals as previously enacted by the "Obamacare Act". The penalty for failure to maintain a minimum health insurance coverage was administered via the federal tax return. Starting in 2019 the IRS is no longer enforcing a required mandatory coverage. However please be aware that California and some other states have their own mandatory health insurance coverage provisions. Furthermore, please note that if you availed yourself of Advance Premium Credits for your health insurance and the amount of such credit taken is higher than the allowed based on your Modified Adjusted Gross Income you will still be required to repay the excess credit so taken on your 2020 federal tax return. Therefore, it is imperative to submit with your tax data to us any Form 1095-A, 1095-B or 1095-C you will receive from your health insurance provider so that we can correctly prepare the applicable form on your federal tax to reconcile the Advance Premium Credits. Failure to do so will result in delays of your tax return processing by the taxing authority and generally the IRS will issue a notice requiring you to submit the credit reconciliation form before your filed federal tax return can be processed.
Summary of Major Tax Provisions of the CARES and SECURE Acts
CARES Act Provisions
Retirement Plan Withdrawals and Loans
Individuals may withdraw up to $100,000 from qualified retirement accounts (IRA, as well as some 401(K) and 403(B) accounts) for coronavirus-related purposes without being subject to the 10 percent early withdrawal penalty. This assumes that the employer has opted into this provision. Additional relief is provided in that the income from these distributions is subject to tax over a three-year period. Individuals may recontribute amounts withdrawn to eligible retirement funds within three years (regardless of that year’s contribution limit).
The act also increases 401(K) retirement plan loans to the lesser of $100,000 or the participant’s vested account balance and allows participants to delay loan repayments for up to a year. Note that this assumes that the employer has opted into this provision.
Strategy Note: We highly recommend that withdrawals and loans from your retirement plans should be used as a last resort. Consider other options before pursuing this course of action.
For those tax filers who do not itemize: The Act creates an “above the line” deduction of up to $300 for charitable contributions for taxpayers who do not itemize. This means that if you do not itemize your deductions, and therefore would normally lose the tax-deductibility of your donations, and your charitable donation will be tax-deductible on your 2020 tax return. Please note, you cannot contribute to a Donor Advised Fund for the “above the line” deduction.
Strategy Note: If you a) do not itemize, and b) are charitably inclined, make sure to take advantage of this up to the$300 limit.
Strategy Note: If you a) do not normally itemize, b) got a stimulus check, and c) want to help in this time of national crisis, consider using $300 of your stimulus as a charitable donation.
For those tax filers who do itemize: In normal years, the amount you can donate to charity, and be tax-deductible, is capped at 60% of Adjusted Gross Income (AGI). Under the CARES Act, there is no cap in the tax year 2020, and you can deduct current year cash charitable gifts to public charities up to 100% of AGI. By way of example, if your household AGI is $100,000, in normal years, you could claim a tax deduction for charitable donations of up to $60,000. This year your maximum cash charitable deduction would be $100,000. Please note that this does not apply to Donor Advised Funds or carryovers of excess contributions from prior years.
Strategy Note: If you a) itemize your deductions, b) are charitably inclined, and c) want to super-size your charitable giving, then 2020 is a great year to do so.
Please note that the CARES Act does not change Qualified Charitable Distributions (QCD) rules, which are tax-advantageous for those who wish to give to charity.
529 College Saving Accounts Refunds
Were your child’s college classes canceled? Were they asked to leave their on-campus housing? Did you receive a refund for tuition, housing, other fees? The bad news for taxpayers is that you may owe taxes and penalties on these refunds if they came out of a 529 account. The good news is that the CARES Act allows you to re-contribute that money back into a 529 account for the same beneficiary. Recontributed refunds will not have federal income taxes or penalties associated with them, provided you recontribute a refund within 60 days of receiving it, and the recontributed amount does not exceed the amount of the refund. Please note that your original withdrawal will trigger a 1099-Q tax form from your 529 provider. This will not be changed by the fact that you recontributed the funds.
Strategy Note: If you a) took money out of a 529 this year, and b) received a refund from the school you paid with the529 funds, then you must recontribute those funds to a 529 within 60 days of the refund to avoid tax consequences.
Required Minimum Distributions (RMDs)
Required Minimum Distributions (RMDs) for 2020 have been suspended. These are usually required in the year the account owner turns 72 years old (changed from 70.5 in 2019 by the SECURE Act). Congress deemed that many in retirement would be hurt by the requirement to take a distribution from their retirement accounts when the holdings are down in value. With RMDs being suspended this year, you can consider a Roth IRA conversion since your taxable income could be lower and it might be an attractive time to take advantage of this. Please see more information about Roth IRA conversions under the SECURE Act section below.
Strategy Note: Instead of taking your RMD this year, consider a Roth conversion of a similar amount (see more below).
SECURE Act Provisions
The SECURE Act was enacted into law in December 2019 and made some major changes to the tax code just weeks before they went into effect.
Loss of the Lifetime “Stretch” for Inherited IRA Accounts
The provision with the greatest effect (and which may present the biggest and most difficult planning challenge) is the elimination of the lifetime “stretch” option for IRAs. Prior to the SECURE Act, non-spouse beneficiaries were entitled to stretch out the withdrawal of their inherited retirement account in accordance with their life expectancy. Under the SECURE Act beneficiaries are required to withdraw their entire inherited retirement account within 10 years of the original owner’s death (with some limited exceptions).
In most instances, withdrawal over a 10-year period (rather than over the course of the beneficiary’s lifetime) will result in substantially less tax-deferred growth, as well as more taxes due (and more quickly) upon withdrawal from the account. This may possibly move the taxpayer into a higher tax bracket. Blindly spreading withdrawals even over a 10-year period may not be the most tax-efficient approach. Therefore, knowing the taxpayer’s year-by-year taxable income expectations (bonuses, bad years for business, exercising stock options, anticipated layoffs, projected year of retirement, etc.) will become critical if the goal is to minimize the taxation on the withdrawals.
Here are a few strategies to consider when planning for the loss of the lifetime “stretch” IRA option.
While it may not feel like it, tax rates are at historic lows, so it could be a good idea to accelerate Roth conversions so beneficiaries can avoid being taxed rapidly on distributions. This is an especially applicable strategy if the beneficiaries are in a higher tax bracket than the original account owner. However, individuals with legacy priorities (a grandchild, for example) may not be motivated to accelerate Roth conversions under the SECURE Act. That grandchild will not benefit from long-term tax-free growth from the inherited Roth because even beneficiary Roth IRAs need to be totally distributed within 10 years.
Qualified charitable distribution (QCD)
We think that the QCD is one of the smartest and underutilized strategies available to taxpayers. If an individual is older than 70½, he or she is entitled to make tax-free gifts of up to $100,000 per year from their IRA. To count toward the RMD, the contribution must be paid directly to the charity. QCDs may become more advantageous after the SECURE Act because IRAs will become a less attractive inherited asset. Therefore, tax-free depletion of the IRA may be more beneficial, instead of making contributions direction from your non-IRA assets.
General estate planning
It may make sense for account owners to revise their estate plans to take a more specific “asset-by-asset” approach, rather than simply splitting assets by percentage. For example, an account owner might earmark IRA assets to be distributed to minors or individuals in lower tax brackets (or charity) and designate a larger portion of non-IRA assets to those with higher incomes (and benefit from the step-up in basis). Also, of note, if you have minor children, there are some changes in the SECURE Act that may necessitate the update of your Trust document.
We are looking forward to working with you again this year.
Jorstad Inc. Staff Contact Information & Billing Rates
These are standard billing rates, higher rates may apply to special projects