Updates to Tax Law and 52 Weeks to Prosperity
CARES ACT IMPLICATIONS: COVID-19 CHANGES TO RETIREMENT ACCOUNT AND TAX RULES
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:
- 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.
- 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.
- You are not required to take a required minimum distribution (RMD) from your retirement accounts in 2020.
- 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
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