AUSTIN, Texas, Oct. 1, 2020 /PRNewswire/ — With the implementation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act during 2019, businesses and individuals will experience changes to the tax filing process for 2020. There are several changes to be mindful of, but HighFiveTaxes highlights five key changes to help individuals and businesses begin planning.
Between January 1, 2020, and December 30, 2020, the CARES Act allows individuals affected by COVID-19 to withdraw up to $100,000 from retirement funds without having to pay the additional 10% tax. Instead, you can elect for the income to be taxed ratably across 2020, 2021, and 2022 unless you decide to recontribute back to the retirement accounts.
Changes to Charitable Contributions
The CARES Act will also change the percentage of charitable contributions you can claim as a deduction on your 2020 tax filing. Instead of capping individuals at 60% of their Adjusted Gross Income (AGI) for charitable contribution deductions, individuals can claim up to 100% of their AGI if they donated as much to a qualifying charity. In addition, the bill introduced a new deduction available for up to $300 per taxpayer ($600 if filing jointly) for charitable contributions. This is particularly beneficial to filers who opt for standard deduction when filing their taxes.
Similarly, the Act raises the percentage of taxable income for charitable contributions that corporations can claim. This has increased from 10% to 25%.
Economic Stimulus Check & Unemployment Compensation
The Act also included a provision for individuals to receive $1,200, and couples filing jointly to receive $2,400. Each dependent reported on the tax return also qualified an additional $500. This rebate is non-taxable when filing the 2020 tax returns.
Received unemployment compensation this year? The entire amount is considered taxable income on 2020 tax returns. Those who received unemployment compensation should plan on paying an estimated tax payment, increase their tax withholding, or be prepared to pay more taxes in 2020.
Changes to NOLs
Businesses who experienced Net Operating Losses (NOLs) during the 2018, 2019, and 2020 tax years will be allowed to carry back up those losses for up to five years to claim refunds for taxes paid in previous years. Businesses can also reduce their taxable income by 100% instead of capping the offset at 80%.
Deferral of Employee Payroll Taxes
Under the CARES Act, employers may defer the deposit and payment of their share of payroll taxes between March 27, 2020, and December 31, 2020. This election would mean that no state or federal income tax will be withheld from employees’ paychecks for the rest of 2020.
These taxes will still be owed at a later date. Half of these payroll taxes are due in 2021, and the other half is due in 2022.
The next tax season starts in just three months, so it’s important to start planning now. For more information about how the CARES Act will affect your tax filing for 2020, HighFiveTaxes is available to answer questions and to help you start planning.
HighFiveTaxes provides tax preparation services and only enlists the top 5% Tax Pros to help individuals and businesses prepare their tax filings. They offer a “We do it for you” service compared to the typical DIY, saving you time and the stress involved in doing taxes. The business is releasing an app on the App Store and Google Play that will allow people to quickly, easily, and securely connect with Tax Pros and receive help for their unique tax preparation needs. For more information about the company and the release of their app, visit https://www.highfivetaxes.com/.