Updates to Tax Law and 52 Weeks to Prosperity

It’s amazing how quickly tax rules change, and financial advice becomes dated. To help keep 52 Weeks to Prosperity current, I’ve created a table of updates for the book. Like the book, this table is an overview of the new rules. Please confirm any details with your own financial team before taking action. After the table, I provide blog posts discussing some of the changes in more detail.

As of July 15, 2020                        

p. 186 In 2020, IRA contribution limits are $6,000 with an age 50 catch-up of $1000.
p. 190 James can no longer “stretch” IRA distributions for his children over their lifetimes. Usually, they must be completed within ten years according the SECURE Act of 2019.
p. 194 According to the SECURE Act, some long-term, part-time employees are now eligible for company retirement plans.
p. 196 The SECURE Act has raised the retirement distribution age from 70 ½ to 72.
p. 226 The SECURE Act has raised the retirement distribution age from 70 ½ to 72.
p. 227 Although it’s not explicitly here in the book, inherited IRA RMDs changed in the SECURE Act. They are now generally distributed within 10 years unless inherited by a spouse or in other specific situations.
p. 232 James can no longer “stretch” IRA distributions for his children over their lifetimes. Usually, they must be completed within ten years according the SECURE Act of 2019.
p. 257 Inherited IRA RMDs changed in the SECURE Act. They are now generally distributed within 10 years unless inherited by a spouse or in other specific situations.
p. 268 In 2020, the gift tax exclusion amount remains $15,000.
p. 269 In 2020, the gift limit for a non-citizen spouse is $157,000.
p. 275 The CARES Act of 2020 allows an “above the line” charitable donation deduction of $300/single or $600/married filing jointly even if you take the standard deduction. Watch for this to revert in 20201.
p. 276 The CARES Act allows a charitable deduction of 100% of your AGI in some cases. Watch for this to revert in 2021.
p. 324 The SECURE Act allows $10,000 of a 529 plan to be used to repay certain student loan debt.
Chapter 52 The fiduciary landscape continues to change. The 2019 SEC’s Regulation BI (Reg BI) sets a higher standard than suitability but lower than fiduciary. The 2020 DOL adviser standards proposal accepts Reg BI as meeting the fiduciary threshold even though SEC wrote it with that as an exclusion. DOL will likely not go into effect until 2021 and is still subject to changes resulting from revisions, public comments, and political shifts.

 

CARES ACT IMPLICATIONS: COVID-19 CHANGES TO RETIREMENT ACCOUNT AND TAX RULES

June 2020

Have you had a financial crisis due to the coronavirus? Do you need to find funds to cover expenses? The good news is that Congress passed some useful legislation in March 2020. The CARES Act provides financial relief for people impacted by COVID-19. Be aware that to qualify for some of the benefits, you may need to prove the impact of the virus; however, the bar seems quite low. The resulting stock market decline also led to some additional benefits available for broader groups. Although some of these COVID-19 changes only apply to 2020, they are significant. Remember to talk to your financial team for details and any personal circumstances you could have that might impact your options. Here are some of the features:

  1. If you are younger than 59 1/2 and take a COVID-19 related withdrawal up to $100,000 from a retirement account in 2020, the 10% penalty is waived.
  2. If you need to finances to pay for COVID-19 related expenses, you can withdraw up to $100,000 from a retirement account in 2020 and defer paying taxes for three years. Right now, it appears that the entire tax liability can be postponed for three years. Additionally, you can replace the funds in the account during three years and owe no taxes. That never happens! To be safe, I would recommend checking with your CPA at the end of the year just to confirm nothing has changed.
  3. You are not required to take a required minimum distribution (RMD) from your retirement accounts in 2020.
  4. If you have qualifying student loans, you have a suspension of principal and interest through September 30, 2020. The interest does not accrue.

The CARES Act covers many additional changes that might be beneficial to you. Read the entire text here.

 

CLARIFICATION ON DEDUCTIBILITY OF BUSINESS MEALS PER TCJA

October 2018

Originally, the Tax Cuts and Jobs Act indicated that neither business meals nor entertainment expenses could be deducted by taxpayers. However, the IRS issued clarification in October that business meals were still deductible at the 50% level provided they were not lavish or extravagant. The meals can be provided to current or potential business customers, clients, consultants, or similar business contacts.

Entertainment expenses continue not to be deductible. If a meal is served at an entertainment event, the costs must be calculated separately for the meal to be deductible. For example, if a company sponsored an event that was a baseball game with hot dogs, Cracker Jacks, peanuts, and beer, for the company to deduct fifty percent of the food cost, the ball park would need to issue two invoices–one for the cost of the tickets and one for the cost of the hot dogs and trimmings.

For more information, check out the IRS clarification found on

https://www.irs.gov/newsroom/irs-issues-guidance-on-tax-cuts-and-jobs-act-changes-on-business-expense-deductions-for-meals-entertainment