While most people think of tax season ending in April, for tax professionals, the season has a much scarier official end date, October 15. It’s proximity to Halloween can make the deadline feel spooky.
This year’s tax season was definitely one for the books. It felt more like it was written with trick-or-treaters in mind. Let’s look back at the tricks and treats from within the 2020 tax season.
1. TRICK: Taxes due April 15th
We have to start out with the biggie! Tax returns and tax payments are typically due on April 15th. On March 21, 2020, in response to the growing COVID-19 outbreak, the Treasury Department and Internal Revenue Service (IRS) issued a release that automatically extended the filing deadline to July 15, 2020.
2. TREAT: Tax Payment Deadline Extension
The same filing relief released on March 21, 2020, also provided relief for PAYING taxes. For some families and businesses experiencing hardships associated with the pandemic shutdowns, this extension was quite helpful.
3. TREAT: PPP – Paycheck Protection Program
4. TRICK: The Program’s Ever-Changing Rules & Qualifications
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With the signing of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March, the Paycheck Protection Program (PPP) was born. The PPP was a much-needed cash infusion. The loan provided aid to small businesses by covering the cost of payroll, rent, mortgage payments, and/or utilities as the country went into shut down. The loans are intended to be forgiven if specific requirements are met. The Program’s intentions definitely fall within our treat classification.
The “trick” of PPP came to light later in June. The Paycheck Protection Program Flexibility Act changed the rules, easing the spending requirements and qualifications for forgiveness. While the changes were more beneficial to borrowers, these changes created confusion within the small business community about the facts. It also increased documentation requirements for borrowers and will need to be tracked over the loan’s life. The Small Business Administration has 52 documents relating to PPP if you’re unable to sleep.
5. TRICK: Coronavirus-Related Retirement Account Distributions
The CARES Act expanded distribution options and favorable tax treatment for up to $100,000 from eligible retirement plans to qualified individuals. The trick here lies in the language of section 2202 of the CARES Act. The IRS issued some FAQs (last updated 9/19/2020) that helped bring some clarification to the tax treatment of coronavirus-related distributions.
The IRS clarified an individual generally qualifies for a coronavirus related distribution if:
- you, your spouse, or dependent is diagnosed with COVID-19
- if you experience a financial hardship due to being quarantined, furloughed, laid off, or you are unable to work due to lack of child care because of COVID-19
- your business is impacted by financial hardship directly related to COVID-19.
While the CARES Act’s provisions removed the 10% penalty commonly applied to early distributions, taxes are still applicable to the income received. These taxes can be taxed over three years, AND some accounts have the option to pay the distribution back within the three year period. Repaying your retirement account could help avoid the tax burden from a distribution. As you see, this could get a little tricky based on timing and the retirement account type. It’s best to consult with your investment advisor and tax professional to ensure everyone has all the facts.
6. TREAT: Charitable Giving Rules Changed for 2020
We can thank the CARES Act for a number of treats in 2020. The slight change to how charitable contributions are deducted is another one. For many individuals, donations to charity haven’t made a big dent on their tax returns. In the past, you needed to itemize your deductions to take advantage of all those extra dollars given at the checkout and through conscious donations.
Now, folks who do not itemize (i.e., they take the standard deduction) can enjoy up to a $300 above the line deduction for any cash donations made to charity. Itemizers aren’t left out. The CARES Act removed the 60% limitation on cash donations. Meaning more deduction for your cash donations in 2020.
7. TRICK: The IRS Closed Too!
Businesses weren’t the only ones impacted by the pandemic shut down. In March 2020, the IRS took the unprecedented step of shutting down its Tax Processing Centers. As of May 20, 2020, it’s reported they had received 10.4 million pieces of mail – 20 semi-trailers plus six storage containers worth of mail. Some employees volunteered to return to work early to assist with this backlog of mail. On June 29, the Tax Processing Centers began reopening.
In addition to the physical offices, 91% of the IRS customer service toll-free lines were also closed. This created a bit of confusion and frustration as it was difficult to contact an IRS agent to resolve questions and open issues. In an interim review report by the Treasury Department, only 46% of toll-free lines were re-opened by May 20, 2020.
Tax professionals will be relieved to have the IRS back to full capacity, as will anyone who needs tax documentation clarified, verified, or need assistance resolving notices.
8. TREAT: The IRS Still Issued 157 MILLION Economic Impact Payments
Just 14 days after the CARES Act was passed, the IRS started issuing Economic Impact Payments (EIP), more commonly known as Stimulus Payments. All while dealing with shutting down their offices. In an impressive response, the IRS coordinated with other Federal agencies and built a dedicated website to keep the public informed. The website included a tool to check the status of their payment and submit bank information. The tools were especially helpful for those who did not have banking information on their tax returns for the most recent return filed.
On April 10, 2020, the IRS issued 81.4 million of the 157 million payments issued by May 21. Additionally impressive, the Treasury Department’s interim report found that 98% of the EIPs issued were computed correctly. Not too shabby.
9. TRICK: We Changed Our Name!
If you’ve been with us a minute, you’ve probably noticed that the name has changed… twice. As with all things 2020, we’ve learned to expect the unexpected.
We’re happy to be back. While establishing our new branding, Mike Hurdle, CPA is still our Managing Member, leading the way forward. We’re improving each week, adding staff, expanding our locations, and bringing better service.
10. TREAT: YOU! OUR CLIENTS!
Finally, we couldn’t have made it through 2020 without you, our client! The year to date has been one heck of a ride, and it played havoc on the accounting and tax industry! Changing deadlines, new small business credits and initiatives, and individual stimulus programs all made this an interesting year to be keeping up on all the latest information!
We want to hear about your experiences. We have big plans, but we can only get better if we hear from you what we’re doing well and what we could do better.
Here’s to 2021 coming fast, putting 2020 in the rearview mirror, and never having to ration TP again!