|Happy New Year Everyone!
As is customary this time of year, we’ve been busy preparing for the upcoming tax filing season. We have seen our firm grow over the last year, with new faces and continued success for our clients. We would like to say thank you to you all for your continued support and referrals that made our growth possible. We hope you all enjoyed a pleasant holiday season, and we look forward to a safe and prosperous 2021!
The 2020 tax filing season begins in just a few weeks. The IRS will open the e-filing window in the next couple of weeks, but we can start on your return as soon as you start sending tax documents to us.
A list of the information we’ll need to prepare your taxes can be found here.
If you prefer us to send you a tax organizer based on last year’s return, this may be helpful as you gather your documents. Please reach out to Records@HSTaxCPAS.com for tax organizer requests. All of tax documents can be sent to us electronically by logging into your client portal account. If you need help logging into your portal account, please reach out to Records@HSTaxCPAS.com and someone will be in touch to assist you. For returning clients, we already have your personal information so we will just need your 2020 documents and an update of any important life changes e.g. moving to a new home, marriage/divorce, new dependents, etc.
Regardless of where you are living or working in the world, we will do our best to minimize your tax bill and provide you with relevant advice. Please feel free to forward this to anyone you know who could use some tax assistance.
What follows are tax highlights from 2020. We look forward to working with you again this year
Chris, Mason, and Brian
What’s New in 2020:
There have been many new tax law changes in 2020 relating to Coronavirus relief passed in March and December. Here are a few highlights. Keep in mind this list is not comprehensive so we will analyze additional benefits for each client when preparing your tax return.
We will keep you updated on any new changes that come out with subsequent newsletters. We do expect more changes to become law as the Pandemic continues to impact the US economy and daily life.
Waiver of Time Requirement for Claiming the Foreign Earned Income Exclusion: See our April newsletter for the discussion of the waiver relating to 2020 and the foreign earned income exclusion. As a quick reminder, it is possible to claim the foreign earned income exclusion if you did not do the full 330 days abroad, but otherwise would have, if not for Coronavirus disruptions to your overseas contract.
Retirement Contribution/Distribution Updates:
Under the CARES Act and for 2020 distributions from IRAs and workplace retirement plans, if the taxpayer is impacted by COVID-19, they can take a distribution up to $100,000 and not be subjected to the 10% early withdrawal penalty. In addition, the tax can be spread over three years. This was discussed in our August newsletter.
- If you were affected by Covid-19 and took a loan from a qualified retirement plan on or after March 27, 2020 and before Sept 23, 2020, you now have 6 years to repay the loan instead of 5.
- Under the SECURE Act and for contributions made for tax years beginning after 2019, individuals of ANY AGE can make contributions to a traditional IRA, assuming there is enough compensation.
- Under the SECURE Act and beginning in 2020, taxpayers can take up to $5,000 (for each spouse) of penalty-free retirement plan distributions for expenses related to the birth or adoption of a child.
- RMDs were suspended for 2020.
Round One $1,200 Stimulus Checks – Recovery Rebate Credit/Economic Impact Payment. Taxpayers who received an Economic Impact Payment should keep Notice 1444, Your Economic Impact Payment, with their 2020 tax records. They may be eligible to claim the Recovery Rebate Credit on their tax year 2020 federal income tax return if:
- they didn’t receive an Economic Impact Payment, or
- their Economic Impact Payment was less than $1,200 ($2,400 if married filing jointly for 2019 or 2018), plus $500 for each qualifying child they had in 2020.
Round Two $600 Stimulus Checks – Economic Impact Payments (EIP) – A new coronavirus relief bill was passed by Congress in December and has been signed into law by the President as of the end of 2020. The Coronavirus Response and Relief Supplemental Appropriations Act of 2021 provides for an additional economic payment to certain individuals and is currently being issued; you may have already received this payment.
- Direct payments
- $600 for individuals making up to $75,000 per year
- $1,200 for married couples making up to $150,000 per year
- $600 per dependent child under 17 years old
- Advance payments are based on information on 2019 tax returns.
- Taxpayers without a social security number are not eligible.
- If the credit determined on the taxpayer’s 2020 tax return exceeds the amount of the advance payment, the taxpayer will receive the difference as a refundable tax credit. Taxpayers who receive an advance payment that exceeds the credit do not need to repay the amount.
Check the status of your stimulus payments here: Economic Impact Payments | Internal Revenue Service (irs.gov)
Paycheck Protection Program (PPP) Loans – Round 1 and Round 2
- Businesses are now allowed to deduct expenses associated with their forgiven PPP loans for Round 1 and Round 2.
- Round 2 approved – The new law The Coronavirus Response provides $284.45 billion to reopen and strengthen PPP for first and second time borrowers and reauthorizes the program through March 31, 2021.
- Round two requirements high level – Develops a process for a small business to receive a second PPP if the small business has less than 300 employees and can demonstrate a revenue reduction of 25 percent when comparing any quarter from 2020 to the same quarter in 2019.
- Round 1 Forgiveness simplified – Creates a simplified PPP loan forgiveness application for loans under $150,000 whereby the borrower signs and submits a one-page certification that requires the borrower to list the loan amount, the number of employees retained, and the estimated total amount of the loan spent on payroll costs.
- Expands the list of eligible expenses to include covered operations (software, cloud computing and other human resources and accounting needs), PPE, covered supplier costs and damage costs due to public disturbances.
- Repeals the CARES Act provision that requires borrowers to deduct their EIDL Advance from their PPP loan forgiveness amount.
- The Affordable Care Act individual mandate penalty no longer applies at the Federal level for 2020. However, 5 states still have an individual mandate. California, Massachusetts, New Jersey, Rhode Island, Vermont and the District of Colombia have an individual mandate and may levy a penalty if you do not have health insurance.
- For 2020, all taxpayers may take a charitable deduction up to $300 for cash contributions to qualifying organizations.
- Due to shutdowns and understaffing, the IRS is taking months to process paper filed returns and notice responses. We encourage all clients to e-file if at all possible and be patient for processing of notice responses and paper filed tax returns.
• March 15, 2021 – Returns for S corporations, multi member LLCs, and partnerships are due.
• April 15, 2021 – Returns for Individuals, FinCen Form 114 and C corporations are due. Remember that an extension of time to file is not an extension of time to pay your taxes. Keep this in mind if you plan to extend and you think you might owe.
• June 15, 2021 – Returns for Individuals outside of the country on April 15, 2021, are automatically granted an extension of time to file and of time to pay until June 15, 2021. Please let us know if you intend to be out of the country on April 15, 2021.
Frequently Asked Questions – please see FAQs on our website
Tax Preparation Fee
We are continuing the same method of fee collection from last year, when you send your 2020 documents to us to prepare your return, one of us will acknowledge receipt of the information within 24 hours and will provide a link through the Client Portal to pay our tax preparation fee in advance using a credit card, debit card or e-check. PayPal is also an option if requested.
As we say every year, THANK YOU FOR THE COUNTLESS REFERRALS! We know it is difficult to obtain reliable tax advice and preparation services when working overseas and domestically, and your referrals tell us that we are doing a good job. If you know anyone who needs tax assistance, we will gladly assist.
We look forward to serving each of you this coming tax season!