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Fisher & Sauls, P.A. Providing Personal and Business Legal Services Since 1936
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Opportunities under the CARES Act for Taxpayers with Retirement Plans and/or IRAs

This has been a challenging year so far, especially for small businesses and workers. Loss of income from business closures, furloughs, unemployment, wage decreases, and market instability is currently challenging many individuals and their families. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), enacted on March 27, 2020, provides opportunities for relief for those taxpayers with a retirement plan and/or an IRA. So, what are these opportunities?

  • Reduce Your Income Tax Burden for 2020 by Foregoing RMDs.  The CARES Act waives the usual requirement that individuals who have reached the required age must take a required minimum distribution (RMD) from their 401(k), 403(b), and 457(b) retirement plans and/or individual retirement accounts (IRAs). Because such RMDs are taxed as income to the individual who takes them, foregoing your 2020 RMD will reduce your 2020 income taxes. Although you can still take your annual RMD in 2020, if you want, you will not be penalized for electing not to do so. If you have already taken your 2020 RMD and would have preferred not to have done so, you may be able to return those funds to your retirement plan or IRA – however, there are strict guidelines and requirements for this, so please seek the advice of a tax professional.

  • Take a Penalty-Free Coronavirus-Related Withdrawal from Your Retirement Plan or IRA. If you have been diagnosed with COVID-19, you have a spouse or dependent who has been diagnosed with COVID-19, or you have suffered financial hardship due to being quarantined, furloughed, or laid off, then you may be eligible to withdraw up to $100,000 total from your retirement plans and/or IRAs in the 2020 calendar year, with no penalty for doing so – even if you are under 59 ½. Please note that this withdrawal IS taxable as income to you, although you can reduce your tax burden by repaying the coronavirus-related distribution back within 3 years or you can spread your tax liability for taking the coronavirus-related distribution over a 3-year period.

  • Take Advantage of Changes in Charitable Deductions. If you take the standardized deduction on your 2020 tax return (do not itemize), then a charitable deduction is still available ($300 for individuals, $600 for married couples) on top of the standard deduction. Please note that charitable contributions to a donor advised fund do not qualify for this deduction. This is an above the line deduction that reduces adjusted gross income(AGI) and, therefore, taxable income. If you do not take the standardized deduction (that is, you itemize your deductions), then individuals and corporations can take greater charitable deductions than previously available. Individuals can elect to deduct donations up to 100% of their 2020 AGI (up from 60% previously). Corporations may deduct up to 25% of taxable income, up from the previous limit of 10%. To qualify, charitable donations must have been made to public charities, as donations to private charities and donor advised funds do not qualify for the higher deduction and will be governed by the previous rules.

We welcome you to contact Fisher & Sauls to discuss the CARES Act or any other aspect of your estate and tax planning. We remain open and ready to help you, whether in-person, by telephone, or virtually.

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The attorneys at Fisher & Sauls, P.A. are experts in the areas of estate planning, probate, real estate transactions, business law, and litigation. Please contact our offices to schedule a consultation regarding your legal concern.

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