New laws provide tax relief during COVID-19 pandemic

What you need to know!

Numerous new laws to address the coronavirus pandemic are now in the books and the IRS is providing guidance for navigating these new rules.

Included here is a round-up of tax-related laws and updates for 2019 and information to help with tax planning for 2020.

Tax Deadlines Move from April to July

  • The due dates for all tax filings normally due April 15 are pushed back 90 days to July 15, regardless of the amount owed. This applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax.
  • Payments are extended as well. Payments extended to July 15 include income tax payments and self-employment tax payments that are associated with the 2019 taxable year. Also extended are quarterly estimated income tax payments.
  • The 90-day extension from April 15 to July 15 is automatic. No additional forms must be filed to receive the 90-day extension.
  • Also extended to July 15 is the filing date for gift tax and generation-skipping transfer tax returns and corresponding payments.

What to do now: If you haven’t fully funded your retirement or health savings accounts for 2019, you now have until July 15 to do so.

Early distribution penalty waived

  • The 10% early distribution penalty on up to $100,000 of retirement withdrawals for coronavirus-related reasons is waived during 2020.
  • New provisions allow tax liabilities on these distributions to be paid over a three-year period.
  • The new rules also allow individuals to return these distributions to the retirement account over a three-year period and not be subject to annual contribution limits.

What to do now: If you need to tap your retirement accounts as a COVID-19 emergency fund, start talking with your financial advisor to initiate the withdrawal paperwork.

Required Minimum Distributions (RMDs) waived for 2020

Required minimum distributions (RMDs) in the year 2020 for various retirement plans is suspended. The corresponding 50% penalty associated with not taking an RMD is also suspended in 2020.

What to do now: Forecast your 2020 taxable income to see how much you could withdraw from your retirement accounts without getting bumped into the next tax bracket. Consider a smaller-than-normal distribution from your retirement accounts in 2020 if it results in a lower tax liability.

Existing Installment Agreements

The IRS announced suspension of payments of all amounts due from April 1 through July 15, 2020 and will not default any installment agreement during this period. Taxpayers under a direct debit installment agreement may suspend payments as well if they prefer. Interest will continue to accrue on all installment agreements.

What to do now: The IRS encourages you to promptly contact them and implement new installment agreements. It is anticipated that the IRS will be flexible regarding the terms of new installment agreements.

Offers-in-compromise

  • The IRS will allow you until July 15, 2020 to provide additional requested information for any pending offers-in-compromise (OIC) and will not close out the OIC during this time without your consent.
  • The IRS is also suspending any payments due under an OIC until July 15, 2020. The IRS will not default an OIC for an unfiled tax return for tax year 2018 until at least July 15, 2020 under the condition that the 2018 and 2019 returns should be filed by July 15, 2020.

What to do now: Submit an offer-in-compromise if you are unable to pay your full tax balances due.

Enforcement Activities Suspended? Not so fast…

  • The filing and enforcement of liens and levies will generally be suspended. However, IRS Revenue Officers will continue to pursue high income non-filers and initiate other actions when warranted.
  • The IRS will not initiate a new audit during this time, but will act to protect the statute of limitations.
  • The IRS will also continue to work on existing IRS audits without in-person meetings.

What to do now: Maintain communication with the IRS if you are currently under audit or are otherwise out of compliance.

Much is happening during this unique time in our country’s history. Rest assured, as changes are made you will be informed. In the meantime, please keep yourself and your family safe.

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