Friday, May 15, 2020

New Tax Deduction for Charitable Gifts is Available to People who don’t Itemize

Americans are generous. A majority of Americans give money to charity. But due to a 2017 change in the tax laws, few Americans have been able to take a tax deduction for those donations, Now, under the recently enacted CARES Act, the charitable deduction window has been opened again for most American taxpayers. But only slightly. Here are the details.
Section 2204 of the CARES Act allows eligible individual taxpayers to deduct up to $300 of qualified charitable contributions made during the taxable year.
·      Only cash donations are deductible. Donations of clothing, stock or automobiles won’t qualify).
·      Taxpayers who itemize their deductions can’t take the new $300 deduction. On the other hand, if you are among the vast majority of taxpayers who take the standard deduction you can claim this new $300 reduction in taxable income.
·      Gifs to a donor-advised-fund account do not qualify. Nor does money given to so-called 509(a)(3) supporting organizations.
·      No special form will be required. Taxpayers should be able to claim the deduction directly on their 1040 return. They should retain the receipt they get from the charity as proof of the donation.
·      The new charitable deduction does not apply to 2019 tax returns. If you take the standard deduction you can claim the new charitable deduction on the 2020 federal income tax return you file in 2021.
Can married couples filing a joint return claim $600 in deductions? This is not clear from the legislation. We will have to wait for IRS guidance on this question.
Remember  that the new charitable deduction applies to tax returns for the 2020 tax year and after. So, you can’t use it on last year’s 2019 returns. And while the tax break is relatively small, it is enough to be worth claiming. For example, if you are a single taxpayer in the 22% tax bracket who contributed at least $300 in cash to a public charity in 2020 the deduction will save you $66. If you don’t need the money you save, you can always give it to charity.
Here is the specific text of Section 2204 of the CARES Act:
(a) IN GENERAL.—Section 62(a) of the Internal Revenue Code
of 1986 is amended by inserting after paragraph (21) the following
new paragraph:
‘‘(22) CHARITABLE CONTRIBUTIONS.—In the case of taxable
years beginning in 2020, the amount (not to exceed $300)
of qualified charitable contributions made by an eligible individual
during the taxable year.’’.
(b) DEFINITIONS.—Section 62 of such Code is amended by adding
at the end the following new subsection:
For purposes of subsection (a)(22)—
‘‘(1) ELIGIBLE INDIVIDUAL.—The term ‘eligible individual’
means any individual who does not elect to itemize deductions.
‘qualified charitable contribution’ means a charitable contribution
(as defined in section 170(c))—
‘‘(A) which is made in cash,
‘‘(B) for which a deduction is allowable under section
170 (determined without regard to subsection (b) thereof),
‘‘(C) which is—
‘‘(i) made to an organization described in section
170(b)(1)(A), and
‘‘(ii) not—
‘‘(I) to an organization described in section
509(a)(3), or
‘‘(II) for the establishment of a new, or maintenance
of an existing, donor advised fund (as
defined in section 4966(d)(2)).
Such term shall not include any amount which is
treated as a charitable contribution made in such taxable
year by reason of subsection (b)(1)(G)(ii) or (d)(1)
of section 170.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2019.

Thursday, April 16, 2020

Retirement Plan Minimum Distributions Suspended for 2020

Owners of IRA, 401(k) and similar retirement accounts are not required to take minimum distributions (RMDs) this year. Included in the massive 2 trillion dollar CARES Act are provisions that waive RMDs for 2020. The waiver raises some interesting financial planning issues and opportunities for account owners who would otherwise have been required to take taxable distributions.
Once they attain a certain age, IRA account owners are required to start taking distributions from their account each year, unless it is a “Roth” account. The required minimum distribution (RMD) is based on the owner’s age and the account’s balance at the end of the prior year. In addition, heirs who inherit an IRA from someone other than their spouse may be required to take minimum distributions each year. To add confusion to this year, the rules governing the starting age and RMD requirements were changed by the SECURE Act effective January 1, 2020. For more on the rules under the SECURE Act see my article New Tax Law Changes Rules for IRAs.
The CARES Act and RMDs
The CARES Act (in Section 2203) suspends the requirement that retirement plan owners take distributions in 2020. The suspension applies to a broad range of retirement plan accounts including Traditional IRAs, SIMPLE IRAs, SEP IRAs, and 401(k), 403(b), and 457(b) plans.  It applies to both older account owners and beneficiaries taking stretch distributions. The waiver applies to any RMD that was required in 2020 including distributions to account owners who turned 70 ½ in 2019 but had deferred their first RMD to April 1 of 2020.
Voluntary distributions are permitted from retirement plan accounts. So, it is basically up to you to decide whether to take a distribution in 2020. Of course, younger account owners need to be wary of early withdrawal penalties. But even those penalties have been eased by the CARES Act elimination of the penalty for “Coronavirus-Related Distributions” up to $100,000.
Under the CARES Act no one is required to take a distribution from their IRA this year. There are several advantages to skipping distributions such as:
-      * Distributions from non-Roth IRAs are subject to income tax. You can lower your tax burden for 2020 by taking no distribution.
-      * The money you leave in your IRA can continue to grow tax-deferred, hopefully making up over time for any losses suffered in the recent stock market slump.
-      * Taking advantage of your otherwise reduced income tax liability you can move money at relatively-low income tax rates to a Roth IRA via a Roth conversion. See my article Some Planning Ideas for your IRA for more on this planning opportunity.
 On the other hand, there are good reasons to consider taking a distribution from your IRA this year even though it is not required.
-       * You may need the money to pay for basic necessities.
-       * With all of the stimulus spending taking place you may figure that tax rates are going to increase in future years. So, 20202 may be a good year to pull some money out of taxable accounts.
 Its complicated. We can expect that the IRS will be issuing guidance over the coming weeks and months. You should discuss your particular situation you’re your trusted tax and financial advisors. And then let your retirement plan trustee or custodian know what you have decided.  

Tuesday, February 25, 2020

Mail-in Voting Now Authorized in Pennsylvania

Pennsylvania’s new election reform law takes effect with the primary election on April 28, 2020. The law creates a new option to vote by mail that can make voting much easier and more convenient for older adults. Registered voters can now choose to vote by mail-in ballot rather than appearing at a polling place on election day.
According to the Governor’s press release  the new law (Act 77 of 2019) creates an option to vote by mail up to 50 days before an election and be placed on a list to permanently receive a ballot application by mail. Unlike an absentee ballot, no reason or excuse is required.  The reform law also provides more time to register to vote and makes other changes to Pennsylvania election laws.
Among the provisions of the new law as noted in the press release:
 No excuse mail-in voting
The law creates a new option to vote by mail without providing an excuse, which is currently required for voters using absentee ballots. Pennsylvania joins 31 other states and Washington, D.C. with mail-in voting that removes barriers to elections.
50-day mail-in voting period
All voters can request and submit their mail-in or absentee ballot up to 50 days before the election, which is the longest vote-by-mail period in the country.
Permanent mail-in and absentee ballot list
Voters can request to receive applications for mail-in or absentee ballots for all primary, general and special elections held in a given year. Counties will mail applications to voters on the list by the first Monday of each February. Voters who return an application will receive ballots for each election scheduled through the next February. Pennsylvania is the 12th state to provide voters with the automatic option.
15 more days to register to vote
The deadline to register to vote is extended to 15 days from 30 days before an election. Cutting the current deadline by half enables more people to participate in elections. The new more flexible and voter friendly deadlines provide more time to register to vote than 24 other states.
Extends mail-in and absentee submission deadlines
Voters can submit mail-in and absentee ballots until 8:00 p.m. on election day.
Act 77 provides PA voters with two options for voting by mail. You may either choose a mail-in ballot or an absentee ballot to request, complete, and return to your county election office. The website describes these options as follows:
  • Absentee ballot – If you plan to be out of the municipality on election day or if you have a disability or illness, you should request this ballot type, which still requires you to list a reason for your ballot.
  • Mail-in ballot – If you aren’t an absentee voter, you may apply for a mail-in ballot. You may simply request this ballot without a reason.
This means that any Pennsylvania voter should now be able to vote by mail. The absentee ballot has been around in the past but requires an excuse. The no-excuse mail-in ballot option is newly authorized by Act 77. 
How do you Obtain a Mail-in Ballot? You can request a mail-in ballot online or at your county election office:
Online: You can check your registration status, register to vote if needed , and request an absentee or mail in ballot online at  If your online application is accepted, you will get a mail-in ballot with instructions from your county election office. is an official Pennsylvania government website.
Directly from County Election Office: You can also apply for a receive a mail-in ballot directly from your county election office. Contact your county election office for more information.
Note, if you plan to vote using an absentee or mail-in ballot in the 2020 GENERAL PRIMARY held on 04/28/2020, your completed application must be received in the county office by 5:00 PM on 04/21/2020. The deadline to return your voted absentee or mail-in ballot is 8:00 PM on 04/28/2020.

You must apply for an absentee or mail-in ballot for each election, unless you qualify for and request permanent status to vote by mail-in ballot. If you are added to the annual mail-in ballot request list you will receive an application to renew your mail-in ballot request each year. Once your application is approved, you will automatically receive ballots for the remainder of the year, and you do not need to submit an application for each election.

Wednesday, January 15, 2020

New Law Changes Rules for IRAs and 401(k)s

A new law, which became effective on January 1, 2020, makes major changes to the rules governing retirement plans. The new law is designed to increase the availability of retirement plans to workers and thus the amount of money that workers are saving in retirement accounts. But it also includes negative tax consequences that will be felt by most non-spouse beneficiaries who inherit an IRA or other retirement plan on the death of the account owner.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 changes the law governing retirement plans such as 401(k)s, traditional IRAs, and Roth IRAs. Notable changes made by the SECURE Act include:
Stretch IRAs. This change affects beneficiaries who inherit a retirement plan from an account owner who dies after 2019. Under the old pre-SECURE Act law, designated beneficiaries* who inherited an IRA, 401(k) or similar retirement plan were permitted to spread-out their withdrawals from the account over their own life expectancies. For younger beneficiaries, withdrawals (and income taxes) could thus be deferred for 30 or 40 years or more.  During this time the accounts could continue earning income on a tax-deferred basis with only yearly required minimum distributions (RMDs) being taxed. This was referred to as “stretching” the IRA.
Under the SECURE Act most non-spouse beneficiaries will be required to withdraw (and pay tax on) all of the money in the inherited account within 10 years of the death of the account owner.  This can create a major income tax problem for beneficiaries of larger retirement plan accounts. (Note that this new 10-year limit only applies to retirement accounts where the account owner dies after December 31, 2019. If you have inherited an IRA from an account owner who died in 2019 or earlier the old pre-SECURE Act rules continue to apply).
Exceptions to the 10-year rule apply if the designated beneficiary is an “eligible designated beneficiary.” This class includes:
  • the surviving spouse of the deceased account owner;
  • a surviving child of the deceased account owner if the child has not reached the age of majority (but only until the child reaches the age of majority – 18 in Pennsylvania);
  • disabled individuals within the meaning of IRC Section 72(m)(7);
  • chronically ill individuals within the meaning of IRC Section 7702B(c)(2), with some exceptions;
  • individuals who are not more than 10 years younger than the deceased account owner.
The change in the RMD rules can have significant estate planning implications.  Of particular concern are plans that use trusts as beneficiaries of retirement accounts. Those trust-based plans need to be reviewed and perhaps revised due to the new law.
Starting Age for RMD Requirement. Under the old law, account owners were required to begin taking minimum distributions from their IRAs beginning the year they reached age 70 ½. Under the new SECURE Act law, individuals who were younger than 70 ½ at the end of 2019 can now wait until age 72 to begin taking minimum distributions. Note: if you turned 70 ½ in 2019 the old law still applies and you still need to withdraw your RMD for 2019. Failure to do so will result in a 50% penalty of your RMD. On the other hand, if you were born on July 1, 1949, or later, you can delay taking RMD withdrawals until age 72.
Withdrawals for Birth and Adoption. The new law allows a withdrawal of up to $5,000 from a retirement account without an early withdrawal penalty in the event of the qualified birth of a child or an adoption of a child under age 18. The withdrawal must be made within one year after the qualifying event. If there are two parents and both have retirement plans, they may each be able to withdraw $5,000. These withdrawals will avoid the penalty for early withdrawal. Generally, the amounts an individual withdraws before reaching age 59½ are subject to an additional 10% early withdrawal tax unless an exception applies.
Employer Incentives. The new law includes increased credits and incentives to encourage small businesses to start a retirement plan and auto-enroll employees. It also makes it easier for small businesses to join multiple-employer plans.
Annuities. The new law removes roadblocks that made employers wary of including annuities in 401(k) plans by eliminating some of the fiduciary requirements used to vet companies and products before they can be included in a plan.
In light of the changes made by the SECURE Act, owners of IRAs and other retirement plan accounts may need to re-evaluate their estate plans. This is especially important if the retirement account is large or if it is payable to a trust. Such trusts may need to be revised to conform to the new rules. If IRAs are part of your estate plan consult with your elder law attorney to determine if you need to make changes.
The SECURE Act makes a number of other changes to the law governing IRAs and other retirement plans. Click here for the House Committee on Ways and Means section by section summary of the new law. The SECURE Act was included as Division O of the massive spending bill H.R. 1865.
* The term “designated beneficiary” means an individual designated as a beneficiary by the account holder (and certain trusts).