Jason Schuh CPA
2020 Year End Newsletter

Date:  January 13, 2021

Subject:  Items for the 2020 tax filing season

Dear Clients and Friends:

2020 has been quite a challenge, to say the least.  The COVID-19 crisis brought massive unemployment, business
closures, and an enormous amount of uncertainty.  All of this has made 2020 seem like the year that never ends.  In
fact, I am sure most of us are glad it is over.  Before I discuss the changes that have occurred in 2020, I wanted to
express my gratitude for your continued support over the years.  In 2021, I will be celebrating 20 years in business and
I appreciate very much your loyalty, support, and friendship over the years.  It would not have been possible without all
of you.  Thank You!   Now on to what you can expect for 2020.

The Economic Impact Payment (EIP) is actually an "advance payment" of the Recovery Rebate Credit that is allowable
on an eligible individual's federal return for 2020. Individuals who filed their federal returns and are eligible for the EIP
should receive their payments automatically provided the IRS has the correct direct deposit account details or the
current mailing address on file. Taxpayers can track the status of their EIP using the
Get My Payment tool available on
IRS.gov and should expect a
Notice 1444, which is mailed by the IRS within 15 days of making the EIP to notify each
taxpayer receiving the EIP of the amount paid and the method of payment; this notice should be retained as part of the
tax records for tax year 2020. We will require this amount in order to properly calculate your return.

If you have not yet taken your required minimum distribution (RMD) from you IRA, you do not have to do so in 2020
under the CARES Act. If you have already taken your RMD,  you can repay it (along with any taxes withheld) within 60
days of the distribution. By not taking the RMD, you can leave the funds in your IRA for another year to grow tax-free.
      

Although the CARES Act eliminated the RMD for 2020, the SECURE Act provides that these taxpayers may still make a
direct contribution to a charity through the trustee of their IRA of up to $100,000 in 2020 without including such a
distribution in their adjusted gross income.
                

The SECURE Act removed the age restriction on making traditional IRA contributions. Individuals over the age of 70
1/2 who are still working in 2020 are no longer prohibited from contributing to a traditional IRA. However, if you're over
the age of 70 1/2 and considering making a charitable donation directly from your IRA (known as a
Qualified
Charitable Distribution
or QCD) in the future, making a deductible IRA contribution will affect your ability to exclude
future QCDs from your income.


The Tax Cuts and Jobs Act (TCJA) largely reduced the number of taxpayers who itemize deductions to just slightly
more than 11%, based on the latest figures published by the IRS. If you are among those who claim standard
deduction, an above-the-line deduction of up to $300 for
cash contributions is available starting 2020 under the
CARES Act. It should be noted that this is a per return limit, which means spouses electing to file a joint return may
deduct only up to $300. In case you do itemize deductions, the limit for itemized charitable deductions of
cash
contributions is increased to 100% of adjusted gross income but only for 2020.


The 10% penalty on an early withdrawal from a retirement account is waived for up to $100,000 of distributions for
coronavirus-related purposes made on or after Jan. 1, 2020. A distribution is coronavirus-related if made to an
individual:

  • Who is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control
    and Prevention;
  • Whose spouse or dependent is diagnosed with SARS-CoV-2 or COVID-19; or
  • Who experiences, due to SARS-CoV-2 or COVID-19, adverse financial consequences because of being
    quarantined, being furloughed or laid off, having work hours reduced, or being unable to work due to lack of
    child care or the closing or reduced hours of a business the individual owns or operates.

A taxpayer who takes a coronavirus-related distribution can either report the distribution as ordinary income ratably
over a three -year period beginning in 2020 or can recontribute the funds to a retirement plan within three years to
avoid tax on the withdrawal altogether.

On December 21, 2020 Congress passed the Consolidated Appropriations Act, and on December 27, 2020 President
Trump signed it into law.


Individual Specific Items

  • Section 212 of the Act increases the cash contribution for non-itemizers to $300 per taxpayer ($600 maximum)
    starting in 2021. In 2020, it remains a maximum of $300. This deduction is only allowed for non-itemizers, for
    cash payments only, and a receipt is still required. This is a permanent change.
  • Section 275 of the Act allows teachers to include the cost of Personal Protective Equipment (PPE) in the $250
    front of the return educator expense deduction retroactive for expenses paid after 03/11/2020.
  • Lower income taxpayers may use 2019's earned income, by election, to calculate their 2020 earned income
    and child tax credit.
  • Section 210 of the Act allows a 100% deduction for business meals for amounts paid or incurred after
    12/31/2020 and before 1/1/2023.
  • Section 214 of the Act allows a health flex spending account or dependent flex spending account to carry over
    unspent amounts for 2020 or 2021 to the next year.
  • The medical expense deduction floor is now permanently 7.5% of AGI.
  • Repeal of deduction for qualified tuition and related expenses, replaced with increased income limitation on
    lifetime learning credit.

Items Extended through 12/31/2021 for the average taxpayer

  • Treatment of mortgage insurance premiums as qualified residence interest;
  • Nonbusiness energy property credit.

PPP Rules

Here is the updated PPP rules as a result of the new law signed 12/27/2020.

  • No PPP loan forgiven amount is included in gross income as debt forgiveness and
  • All related expense deductions are allowed in full, no tax attributes are reduced and no basis increase is
    denied for the forgiven amounts. The amounts will be treated (for flow-through entities) as if they were
    equivalent to municipal bond income and thus increase basis.
  • The above rules apply to PPP loans from before the new act and to new PPP loans after the act, without regard
    to the date forgiven.
  • There are no dollar limits- these rules apply to all loans.
  • Section 311 creates a new first or second PPP loan for businesses with less than 300 employees, at 2.5 times
    the last 12 months average monthly payroll (Farmers use 2019's gross revenues up to $100,000). The
    maximum loan amount is $2 million dollars. For the second loan the applicant must also show that their gross
    receipts must have declined by at least 25% when compared to the 1st, 2nd, 3rd, or 4th quarter of 2019 and
    extend the new loan period through 3/31/2021. The 2nd draw program also extends loan possibilities to new
    groups- check with your bank.

Tax-Related Identity Theft

Tax-related identity theft has become more common over the last few years with thieves filing fraudulent tax returns to
claim illegal refunds.  Too often victims are unaware of any problem until well after the damage is done.  While the IRS
reported nearly 275,000 fewer victims in 2016 than 2015, it's still important to be vigilant and take every opportunity to
protect your personal information.  The following are some ways that identity theft can help be prevented:
  • Monitor your credit report.                                                      
  • Shred financial documents when no longer needed.  
  • Protect personal computers using anti virus software, security patches, and firewalls.
  • Secure wireless networks.
  • Create strong passwords and change them regularly.
  • Contact the IRS immediately if you notice suspicious activity, such as receiving a call from someone asking you
    to pay back taxes with a credit card or receiving a letter about a refund when you didn't yet file your return.

New Repairs and Supplies Regulations

On September 19, 2013 the Internal Revenue Service issued new final Regulations which go in to effect for tax years
beginning on or after January 1, 2014. These incredibly complex Regulations require you to keep much better records
for repairs, maintenance and supplies, and require you to specifically analyze each of these items costing over a
certain amount. You are now allowed to write off any individual supply costing $200 or less, lasting less than 12
months, or fuel, lubricants or similar items that will be used in 12 months or less. You are now allowed to write off any
individual equipment item or equipment repair or maintenance item costing $2,500 or less.  Anything costing more
than that in either category will need to be individually analyzed under the new rules to determine if they are qualified
expenses or treated as equipment that must be depreciated over several years.

IRA Invested in Limited Partnerships

When a taxpayer invests their IRA, SEP-IRA, or Simple-IRA in a limited partnership a number of potential tax problems
may arise of which the broker who sold you the investment may not be aware or may not have informed you.

When an IRA is invested in certain types of partnerships, such as oil & gas or real estate, those partnerships issue an
IRS Form K-1 reflecting the items of income or loss allocated to the IRA. This income is NOT reported as income on
your personal return because it is inside the IRA. However, the income in these partnerships is often considered
under the Internal Revenue Code to be a unique type of income known as unrelated business income or loss (UBI).
When the UBI is a loss, or is greater than $1,000 the IRA’s trustee is required to file a special tax form known as Form
990-T.

Failure on the part of the trustee to file the Form 990-T could even potentially disqualify the entire IRA, making the entire
balance subject to tax in a worst-case situation. Because this K-1 is not part of your personal 1040 and because I am
not your IRA trustee, nor do I prepare Forms 990-T, I suggest that you request a copy of the 990-T your broker may
have been required to file for you, so that you are aware of the additional tax risks and costs associated with this
investment. If the K-1 reflects a loss, or UBI income greater than $1,000 and your IRA trustee does not provide you with
a copy of the 990-T, I suggest you seek legal counsel to protect your IRA balance from the above worst-case scenario.

Other Items to Consider

In regards to charitable contributions, ALL deductions of any amount must have a receipt.  Any individual contribution
over $250 must also have an acknowledgement letter from the charity, and the letter must be dated by the date I file
your return.  The letter should show the date and amount of any individual contribution over $250, and should also
state that no goods or services were received in return for the contribution.

In general, capital losses are more tax effective if they can be used to offset income taxed at higher tax rates such as
short-term capital gains and ordinary income.  Long-term losses used against short-term gains are tax-efficient.  Short
term losses used against long-term gains are tax inefficient.

I may need to remind you that you may not re-purchase a stock sold at a loss for 30 days after the sale.  Also, your
losses on stock sales are limited to a maximum of $3,000 per year.

Many clients overpay taxes by not maxing out their 401K or 403B plans at work.  At the very least you should contribute
up to whatever the company is matching.  Even without a matching program, Uncle Sam is pitching in for your  
retirement whatever your tax bracket is - a free gift for your retirement!  The same planning applies to clients who don't
have IRAs.  You can open and contribute to a Traditional IRA before 4/15/2021 and take it on your 2020 tax return.

For 2020, the amount you may give to one person in one year without any return filing requirements is $15,000.  

The IRS is becoming more aggressive in challenging business travel, entertainment, other miscellaneous
deductions, along with charitable contributions and medical expenses.  Make sure you keep contemporaneous
records for all your deductions, detailing dates, locations, amounts, individuals involved and if applicable, business
purposes.  Maintain all receipts to prove expenses.

If you do not pay enough income tax through quarterly installments or income tax withholding, you may be assessed
an "estimated tax penalty."  But no penalty applies if payments equal at least 90% of your current liability or 100% of the
prior year's tax liability.  The 100% threshold is increased to 110% if your adjusted gross income (AGI) for last year
exceeds $150,000.

All clients will be required to sign an engagement letter with my firm.  This engagement letter will clearly define
what my role as your CPA is.

Please remember, in order to have your tax returns timely filed by April 15, I must have your information in the office by
March 31.

I thank you for your past business and hope that your faith in me will continue.  I will utilize my best resources to once
again provide you with timely, complete, and accurate services while keeping your tax burden to the lowest legal
amount.  Thank you again for your continued support.

Sincerely yours,


Jason Schuh, CPA and staff