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1. Federal Tax Updates

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1. Federal Tax Updates

Annual inflation adjustments

Adjustments for 2020 are the following. The standard deduction rises to $24,800 for married filing jointly tax returns. This amount rises to $12,400 for single and married filing separate filers. The amount is $18,650 for the head of household filing status.

The personal exemption amount was eliminated so it remains at $0.

The 2020 top tax rate remains at 37% for individual singles with income greater than $518,400 (523,601 for 2021). The amount is $622,051 or more for 2020 (628,301 for 2021) for married filing jointly.

The tax rates for single filers in 2020 for incomes over $207,350 is 35%. The same rate of 35% is for incomes over $414,700 for married filing jointly filers.

The tax rates for single filers in 2020 for incomes over $163,300 is 32%. The same rate of 32% is for incomes over $326,600 for married filing jointly filers.

The tax rates for single filers in 2020 for incomes over $85,525 is 24%. The same rate of 24% is for incomes over $171,050 for married filing jointly filers.

The tax rates for single filers in 2020 for incomes over $40,125 is 22%. The same rate of 22% is for incomes over $80,250 for married filing jointly filers.

The tax rates for single filers in 2020 for incomes over $9,875 is 12%. The same rate of 12% is for incomes over $19,750 for married filing jointly filers.

The tax rates for single filers in 2020 for incomes over $9,875 is 10%. The same rate of 10% is for incomes over $414,700 for married filing jointly filers.

There are no limitations on itemized deductions for 2020 because itemized deduction limitations were eliminated by the TCA.

New Standard Mileage rates

In tax year 2020 business mileage is 57.5 cents per mile. You can claim 14 cents per mile for charitable mileage. The mileage rate for medical mileage is 17 cents per mile. The rate of 17 cents is also for moving mileage. 

For tax year 2021 the mileage amounts have decreased. For instance, the business mileage is lowered 56 cents per mile. The charitable contribution mileage rate goes down to 14 cents per mile. The mileage rate decreases to 16 cents per mile for medical mileage and moving expense mileage.

The AMT phase out amount for 2020 is $72,900 for single and  phase-out is at $518,400. For married filing jointly the amount $113,400 and it phases out at $1,036,800.

For 2020 maximum Earned Income Credit amount is $6,600 with three or more children. The credit amounts change according to income and dependents.

The 2020 monthly limitation for qualified transportation fringe benefits is $270. The monthly limitation would apply for qualified parking at a limit of $270 per month.

In 2020, there are dollar limitation for employee salary reductions. The limitation for contributions to health flexible spending arrangements is $2,750.

In 2020, participants who have a self-only coverage median savings account must have annual deductions of not less than $2,350 but not more than $3,550. The maximum out-of-pocket expense amount for self-only coverage is $4,750.  Furthermore, the 2020 participant with family coverage, the floor for the annual deduction is $4,750. However, the deductible cannot be more than $7,100. The family coverage out-of-pocket expense limit is $8,650.

The 2020 AGI amount used by joint filers to determine the reduction in the Lifetime Learning credit is $118,000.

For 2020, the Foreign earned income exclusion amount is $107,600.

Estates of decedents who die during 2020 have a basic exclusion amount of $11,580,000.

In 2020, the annual exclusion for gifts is $15,000. This amount remains the same from 2019 and will remain the same for tax 2021.

The maximum credit allowed for adoptions for the year 2020 is the amount of the qualified adoption expense up to $14,300.

Resumption of required minimum distributions for IRAs and retirement plans (including age change from 70 1/2 to age 72). This is outlined in the Secured Act of 2019 and paused by the CARES Act of 2020.

Retirement plan account holders are required to begin taking an RMD annually starting the year he or she reaches age 70 1/2 or age 72. This depends on his or her birth date and it can even depend on the year he or she retires.

The age requirement from 70 1/2 to 72 was changed by the SECURE Act. The SECURE ACT stands for Setting Every Community Up for Retirement Enhancement Act. Age 72 is the new age that individuals must start taking withdrawals from their retirement accounts to avoid penalties. If you are born on or before June 30, 1949, you were originally required to start getting RMD for the year you reached age 70 1/2. Now that the age has been changed to age 72, adjustments or exceptions are allowed in the transition because of the SECURE Act. This mean that if your 70th birthday is July 1, 2019, or later, you do not have to take your first RMD until the year you reach age 72.

The CARES Act - Coronavirus Aid, Relief and Economic Security Act waved the RMD requirement during 2020 because of the pandemic. This means that seniors, retirees, or beneficiaries with inherited accounts were exempted from the obligation to take money out of their IRA and workplace retirement accounts. This exemption included the individuals who turned 70 1/2 in 2019 and who took their first withdrawal in 2020.

The CARES Act also exempted the requirement for individuals who reached age 70 1/2 before 2020, who are still employer but ended their employment in 2020. These individuals would normally have an RMD due by April 1, 2021, from their workplace retirement plans. This requirement does not included Roth IRAs because Roth IRAs do not require any minimum withdrawals. That is true until after the death of the owner.

If you reached age 70 1/2 in 2019 or earlier, you did not have an RMD due in 2020. However, for 2021 you will have an RMD due by December 31, 2021. Other taxpayers who will reach age 72 in 2021 will have their first RMD due by April 1, 2022. Their second RMD will be due by December 31, 2022.

If you want to avoid including both amounts in income in the same year, you can make the first withdrawal by December 31, 2021 instead of April 1, 2022. Please note that after the first year, all RMDs must be made by December 31 of the year.

The IRA trustee must report the amount of the RMD to the IRA owner or offer to calculate the amount for the owner. The calculation depends on the type of IRA or whether the amounts are from different accounts.

Not taking the required distribution or taking a distribution below the required amount could mean a 50% excise tax on the amount not taken.

Due to the change in age from 70 1/2 to age 72, adjustment must be made. Participants in workplace retirement accounts who are still employed are usually able to wait until April 1 of the year after they retire to start receiving distributions from those workplace retirement account plans. If you reached age 70 1/2  before 2020 and were still employed but ended your employment, your requirement to make an RMD by April 1, 2021, from your workplace retirement account is waved as part of the CARES Act relief.

The CARES Act is there to help you. The CARES Act made it easier to access savings in IRAs and workplace retirement plans. This is especially helpful for those affect by Covid19. The CARES Act provided relief and favorable tax treatment for certain withdrawals from retirement plans and IRAs. This included expanded loan options from these accounts.

As a result of the CARES Act, these distributions are not subject to the 10% additional tax on early withdrawal, for instance. This special tax treatment also includes the 25% additional tax on certain SIMPLE IRA distributions. Distributions and loans made from January 1, 2020, through December 30, 2020, from IRAs or workplace retirement plans to qualified individuals that are treated as coronavirus related distributions.

This is the tax treatment on coronavirus related distributions. Taxes on coronavirus-related distributions are includable in taxable income over a three-year period, one-third each year, or in you elect it in the year you take the distribution.

Any coronavirus-related distributions can be repaid to an IRA or workplace retirement plan within three years. In addition, if you had an outstanding loan balance when you left employment, the plan sponsor will usually offset the loan balance against your benefit.

If you have loan offsets in 2020, you have until the due date of your tax return to rollover that amount to another retirement plan or another IRA.

If you qualify, you can treat the loan offset as a coronavirus-related distribution and you have three years to repay to an IRA. You can do that or include it in income tax ratably over three years.

If you received an RMD in 2020, you had the option to return it to your account or place it in another qualified plan to avoid paying taxes on that distribution. If you made an RMD in 2020 and you did not roll it over or repaid it, you may be eligible to treat it as a coronavirus-related distribution if you are a qualified individual.  If your 2020 RMD qualifies as a coronavirus-related distribution, it may be repaid over a 3-year period, or you can have the taxes due on the distribution spread over three years. A coronavirus-related distribution can include a withdrawal from an inherited IRA to a qualified individual. Additionally, this income from the withdrawal can also qualify to be spread over three years for income inclusion. You will not be able, however, to repay the withdrawal back to the inherited IRA. The one-time rollover per 12-month period limitation to inherited IRAs do not apply to repayments made by August 31, 2020. Neither do the restrictions on rollovers to inherited IRAs apply to this August 31, 2020 date.

Qualified individuals may designate up to $100,000 of eligible distributions as a coronavirus-related distribution. As a qualified individual, you may treat a distribution that meets the requirements to be a coronavirus-related distribution regardless if the eligible retirement plan treats the distribution as a coronavirus-related distribution. All coronavirus-related distributions should be reported on your federal tax return for 2020. On your tax return you will include the taxable part of the distribution in income ratably over the 3-year period - this is 2020, 2021 and 2022. You can opt instead to include the entire amount in income in 2020 instead of spreading it over the three-year period. You will use Form 8915-E to report repayments of coronavirus related distributions and to determine the amount that would be includable in income.

The payment of a coronavirus-related distribution to a qualified individual will be reported to you by the eligible retirement plan on Form 1099-R. Your plan or IRA provider is required to report on this even if the coronavirus-related distribution is repaid in the same year.

You are a qualified individual for purposes of section 2202 of the CARES Act if you are affected by the coronavirus. You are a qualified individual if you are diagnosed with Covid19 by a test approved by the CDC. You are also a qualified individual if your spouse or dependent is diagnosed with Covid19. You are also qualified if you experience adverse financial consequences because of being quarantined, being furloughed, or laid off or if you have your hours reduced at work due to Covid19. Additionally, you would be a qualified individual if you experience adverse financial matters because of being unable to work due to lack of childcare due to Covid19. You would be considered a qualified individual if you experience adverse financial consequences because of closing or reducing hours of a business due to Covid19. The IRS may augment the list of qualifications as the circumstances change or needs including other things arise.

 The Recovery Rebate Credit

Most people receive the first and second rounds of Economic Impact Payment. These were advance payments of the 2020 Recovery Rebate Credit. If you didn't get these or if you received less than the full amount, you may be able to claim the 2020 Recovery Rebate Credit. To do so, you must file a 2020 tax return. Be ready to provide amounts receive, if any, of the first and second Economic Impact Payments.

Adjustment for charitable Contributions in Cash Allowed for non-itemizers.

If you itemize you deduction, you may deduct Charitable contributions of money of property made to qualified organization. In general, the deduction, allowed is 50% of your adjusted gross income. However, you may find limitations where you will only be allowed to deduct only 20 percent or 30 percent.

Taxpayers who don't itemize are generally not allowed to deduct charitable contributions. However, the CARES Act provided non-itemizers with an above-the-line deduction. This above-the-line deduction would be a deduction from the-line deduction would be a deduction from gross income in arriving at adjusted gross income. The amount that is allowed is up to $300 is eligible donation in 2020. This deduction is especially helpful for taxpayer because the tax cuts and jobs Act has made the standard deduction so high that less people itemize deductions. The $300 deduction was extended by the CARES Act through 2021 and the deduction amount was increased to $600 for married filing jointly.

Current status of the tax extenders.

7.5% AGI limit for medical expenses have been permanently extended.

A tax extender is a tax break that is authorized for only a limited number of years. The reason they are known as "tax extenders" is because an extension may be considered on them. Some will expire and some will be extended for more years. Yet others will cease to be tax extenders and become a deduction that is a permanent part of the tax system moving forward. Many tax extenders are temporary because they are intended to address temporary needs. These needs can be due to recession, mortgage market collapse, or weather disasters.

The taxpayers who itemize can continue to deduct qualifying medical expenses in excess of 7.5% of adjusted gross income. For 2020, you may deduct only the amount of your total medical expenses that exceed 7.5% of your adjusted gross income. Use Schedule A of Form 1040 to figure the amount to deduct. The 7.5% threshold used to be 10% but legislative changes at the end of 2019 lower it. 

Itemized deduction for mortgage insurance premiums has been extended.

The tax deduction for private mortgage insurance is still on. Another name for this credit is Mortgage Insurance Premium (MIP). The Further Consolidated Appropriations Act of 2020 allows a deduction for 2020. This was retroactive for 2018 and 2019. This credit was created to provide benefits for the deductibility of mortgage insurance premiums.

Exclusion of cancellation of debt income from qualified principal residence indebtedness was extended.

The exclusion of Cancellation of debt Income from Qualified Principal resident was extended to January 1, 2021. This credit is an important protection for struggling homeowners. This is the Qualified Principal Residence Indebtedness (QPRI) exclusion. This credit is important for anyone who is considering a mortgage loan modification in 2020 and it could even help anyone who filed a tax return in 2018 where income from home mortgage loan forgiveness was included.

If a principal amount of a homeowner's mortgage debt is partially or fully forgiven, the amount forgiven is normally included in gross income. This can trigger a large tax liability. The QPRI exclusion allows a taxpayer to exclude up to $2 million of the forgiven debt.

The forgiven debt must be related to a decline in the value of the residence or a decline in the financial condition of the taxpayer. The Further Consolidation Appropriations Act of 2020 has extended this provision. If the taxpayer can use the QPRI exclusion, the taxpayer does not have to report the forgiven principal as taxable income on his or her tax return.

There is a catch though. The exclusion can only be applied to the taxpayer's main home. If a debt is cancelled as part of a bankruptcy filing, then the bankruptcy exclusion applies in this case instead of the QPRI exclusion. To make the exclusion retroactive, the taxpayer must amend the tax return. Amended tax returns for 2018 should be filed no later than April 15, 2022.

You must attach Form 982 to the taxpayer's federal income tax return to include the amount of the cancelled QPRI. If the taxpayer continues to own the home after a cancellation of QPRI, then the home's basis must be reduced.

The new legislation makes fundamental changes to the Internal Revenue Code that will completely change the way individuals and businesses calculate their federal income tax liability, to create numerous planning opportunities. The changes affecting individuals include new tax rates and brackets, an increased standard deduction, elimination of personal exemptions, new limits on itemized deductions (state taxes, mortgage interest), and the repeal of the individual mandate under the Affordable Care Act. The changes affecting businesses include a reduction in the corporate tax rate, increased expensing and bonus depreciation, limits on the deduction for business interest, and a new 20% deduction for pass-through business income. The foreign provisions include an exemption from U.S. tax for certain foreign income and the deemed repatriation of offshore income.

This new tax reform is the new Tax Cuts and Jobs Act (TCJA). This new tax reform was passed to take effect on both individuals and businesses. This new legislature dictates how businesses compute business interest and what business interest limitations exist under the new legislation passed on December 22, 2017. This new tax law also affected the withholding on the transfer of non-publicly traded partnership interests and tax withholding may need adjustment for certain key groups. Furthermore, the new legislation affects the computing of the "transition tax" on the untaxed foreign earnings of foreign subsidiaries of U.S. companies. S corporations are also subject to the extended three-year holding period for applicable partnership interests. With the new tax law changes, came different withholding demands. The interest on home equity loans is still deductible under the new tax law.

Other items were affected, such as the procedures for changing the accounting period of foreign corporations owned by U.S. shareholders that are subject to the transition tax under the new Tax Cuts and Jobs Act.

Alaska Native Corporations and Alaska Native Settlement Trusts may be able to take advantage of certain benefits that are in place in the new tax law legislation. Certain tax advantages may exist is paying items early before enacting of certain items in the new tax code take effect. One of these items is prepaid real property taxes. Real property taxes may be deductible in 2020 if assessed and paid in 2020.

The maximum zero rate amounts for 2020 are as follows:

- Joint return or surviving spouse $80 ,000

- Individual $40,000

- Head of household $53,600

- Estate and trust $2,650

- Joint return or surviving spouse $496,600

- Separate return $248,300

- Head of household $469,050

- Estate or trust $13,150

* Amounts will be adjusted for inflation on a yearly basis.

$4,300 multiplied by the number of the taxpayer's dependents for the taxable year in which the levy occurs.

This $4,300 is the amount adjusted for inflation for 2020. This amount will continue to be adjusted for inflation for years beyond 2020.

The new tax act provided reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”. This legislation, which the President signed into law on Dec. 22, 2017, is the most sweeping tax reform measure in over 30 years. The new legislation makes fundamental changes to the Internal Revenue Code that will completely change the way individuals and businesses calculate their federal income tax liability, to create numerous planning opportunities. The changes affecting individuals include new tax rates and brackets, an increased standard deduction, elimination of personal exemptions, new limits on itemized deductions (state taxes, mortgage interest), and the repeal of the individual mandate under the Affordable Care Act. The changes affecting businesses include a reduction in the corporate tax rate, increased expensing and bonus depreciation, limits on the deduction for business interest, and a new 20% deduction for pass-through business income. The foreign provisions include an exemption from U.S. tax for certain foreign income and the deemed repatriation of offshore income.

This new tax reform is the new Tax Cuts and Jobs Act (TCJA). This new tax reform was passed to take effect on both individuals and businesses. This new legislature dictates how businesses compute business interest and what business interest limitations exist under the new legislation as passed on December 22, 2017. This new tax law also affected the withholding on the transfer of non-publicly traded partnership interests and tax withholding may need adjustment for certain key groups. Furthermore, the new legislation affects the computing of the "transition tax" on the untaxed foreign earnings of foreign subsidiaries of U.S. companies. S corporations are also subject to the extended three-year holding period for applicable partnership interests. With the new tax law changes, come different withholding demands. The interest on home equity loans is still deductible under the new tax law.

Other items are affected, such as the procedures for changing the accounting period of foreign corporations owned by U.S. shareholders that are subject to the transition tax under the new Tax Cuts and Jobs Act. Certain 2018 Pension Plan limitations are not affected by the new tax law of 2017.

Alaska Native Corporations and Alaska Native Settlement Trusts may be able to take advantage of certain benefits that are in place in the new tax law legislation. Certain tax advantages may exist is paying items early before enacting of certain items in the new tax code take effect. 

It took a lot of effort to finally approve the Tax Cuts and Jobs Act (TCJA). This new legislature dictates how businesses and individuals will calculate personal and business deductions and credits. Businesses which operate on foreign grounds may see a huge detriment if they don't convert soon. Some may see a huge impact on their tax returns either affecting them in a really good way or critically affecting their bottom line. The main idea behind the new Tax Cuts and Jobs Act tax reform is to fortify businesses and in turn these businesses will be able to hire employees and give these employees a better life by providing jobs. Furthermore, to prepare individuals taxpayers for what the new tax law really meant, there is much promotion going on as to what we are to expect as far as credits and deductions. The new tax law is providing high individual credit and deduction amounts for now at first.

Furthermore, many of the rules this time around have been placed to prevent certain credits or deductions from being taken advantage of. It is as if the current credits and deductions are too generous, and changes had to be made. However, there seems to be no explanation of the fact that some deductions and credits this time around seem extremely high. There seems to be some kind of plan for these tax items to be in the extremes at first in the beginning by offering highly generous deductions at first and which will expire and go to the extremes on the other side of the spectrum. The new tax law Tax Cuts and Jobs Act displays extreme measures on both sides of the coin.

However, if you claim a Premium Tax Credit for 2020, you must file the Premium Tax Credit form which is form 8962.

You are allowed a low-income housing credit for each qualified building if you own a residential low-income rental building. The credit is for each qualified building that can be taken over a 10-year credit period. You must have a separate form 8609 for each building in a multiple building project. You use the form to obtain a housing credit allocation from the housing credit agency and to certify certain information.

For tax year 2020, the exemption amounts are as follows:

Married Filing Jointly / Surviving Spouse $113,400

Unmarried Individuals   $72,900

Married Filing Separate $56,700

The excess taxable income above which the 28 percent tax rate applies is the following:

Married Filing Separate  $98,950

Married Filing Jointly, Unmarried Individuals (other than surviving spouse), and Estates and Trusts $197,900

In 2020, the amounts used to determine the phaseout of the exemption amount are the following:

Joint Returns or Surviving spouses $1,036,800

Unmarried Individuals (other than surviving spouse) $518,400

Married filing Separate $518,400

In 2020, the amount of the deduction allowed that consists of expenses paid or incurred by an eligible educator that consists of expenses paid or incurred by an eligible educator in connection with books, supplies, computer equipment and related software and services, and other equipment, and supplementary materials used by the eligible educator in the classroom is $250. The eligible expenses do not include non-athletic supplies for courses of instruction in health or physical education.

In 2020, the standard deduction amounts are as follows:

Married Filing jointly and Qualifying Widow (er)$24,800 (increases to $25,100 for 2021).

Head of Household $18,650 (increases to $18,800 for 2021).

Single $12,400 (increases to $12,550 for 2021).

Married Filing Separate $12,400 (increases to $12,550 for 2021).

Dependent Standard Deduction.

In 2020, the standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of $1,100 or the sum of $350 and the individual's earned income.

Standard deduction for the aged or the blind.

For 2020, the additional standard deduction amount for married taxpayers 65 or over or blind is $1,300. For individuals who are single or head of household, the additional standard deduction is increased to $1,650.

For 2020, the dollar limitation on voluntary employee salary reductions for contributions to health flexible spending arrangements is $2,750.

For 2020, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $270. The monthly limitation regarding the fringe benefit exclusion amount for qualified parking is $270.

For 2020, the amount that can be excluded from an employee's gross income for the adoption of a child with special needs is $14,300. For 2020, the maximum amount that can be excluded from an employee's gross income for the amounts paid or expenses incurred by an employer for qualified adoption expenses furnished pursuant to an adoption assistance program for other adoptions by the employee is $14,300. The amount excludable from an employee's gross income begins to phase out for taxpayers with modified adjusted gross income in excess of $214,520 and is completely phased out for taxpayers with modified adjusted gross income of $254,520 or more.

For 2020, the amounts used to calculate the State ceiling for the volume cap for private activity bonds is the greater of $105 multiplied by the State Population, or $321,775,000.

For 2020, the loan limit amount on agricultural bonds for first-time farmers is $552,500.

For 2020, the amount of the computation credit is $1,760.

 Commissions on Guaranteed Investment Contracts or Investments Purchased for a Yield Restricted Defeasance Escrow.

For 2020, a broker's commission or similar fee for the acquisition of a guaranteed investment contract or investment purchased for a yield restricted defeasance escrow is reasonable if first the amount of the fee that the issuer treats as a qualified administrative cost does not exceed the lesser of $41,000, and 0.2 percent of the computational base or, if more, $4,000; and second for any issue, the issuer does not treat more than $117,000 in brokers' commissions or similar fees as qualified administrative costs for all guaranteed investment contracts and investments for yield restricted defeasance escrows purchased with gross proceeds of the issue.

For 2020, the exemption amount to be used in calculations is $4,300.

For 2020, the aggregate cost of any section 179 property that a taxpayer elects to treat as an expense cannot exceed $1,040,000 and the cost of any sport utility vehicle that may be considered under section 179 cannot exceed $25,900. The $2,590,000 limitation is reduced by the amount the cost of section 179 property placed in service during 2020 exceeds $2,590,000.

For 2020, the qualified business income threshold amount is $326,600 for married filing joint returns, $163,300 for married filing separate, and $163,300 for single and head of households.

For 2020, the limitations regarding eligible long-term care premiums includible in the term "medical care, are the following:

For 2020, the term "high deductible health plan" means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,350 and not more than $3,550, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,750.

For 2020, the term "high deductible health plan" means, for family coverage, a health plan that has an annual deductible that is not less than $4,750 and not more than $7,100, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for coverage benefits do not exceed $8,650.

For 2020, the $2,500 maximum deduction for interest paid on qualified education loans begins to phase out for taxpayers with modified adjusted gross income in excess of $70,000, and is completely phased out for taxpayers with modified adjusted gross income of $85,000 or more. The amounts for married filing joint tax returns are $140,000 and $170,000, respectively.

For 2020, a corporation or partnership meets the gross receipts test for any taxable year if the average annual gross receipts of such entity for the 3-taxable-year period ending with the taxable year which precedes such taxable year does not exceed $26,000,000.

For 2020, in determining a taxpayer's excess business loss, the amount is $259,000 or $518,000 for married filing jointly.

Treatment of Dues Paid to Agricultural or Horticultural Organizations.

For 2020, the limitation regarding the exemption of annual dues required to be paid by a member to an agricultural or horticultural organization, is $171.

Insubstantial Benefit Limitations for Contributions Associated with Charitable Fund-Raising Campaign - Low-cost article.

For 2020, for purposes of defining the term "unrelated trade or business" for certain exempt organizations "low-cost articles" are ones costing $11.20 or less.

For 2020, the $5, $25, and $50 guidelines for the value of insubstantial benefits that may be received by a donor in return for a contribution, without causing the contribution to fail to be fully deductible, are $11.20, $56, and $112, respectively.

For 2020, the amount to be used in the calculation of deduction is $4,300.

For 2020, the amount of the limit on net written premiums or direct written premiums (whichever is greater) is $2,350,000 to elect the alternative tax for certain small companies to be taxed only on taxable investment income.

For 2020, unless an exception applies, an individual is a covered expatriate if the individual's "average annual net income tax" for the five taxable years ending before the expatriation date is more than $171,000.

For 2020, the amount that would be includible in the gross income of a covered expatriate is reduced by $737,000. The calculated result cannot be less than zero.

For 2020, a qualified debt instrument has stated principal that does not exceed $6,039,100, and a cash method debt instrument has stated principal that does not exceed $4,313,600.

For 2020, the foreign earned income exclusion amount is $107,600.

For an estate of any decedent dying in 2020, the basic exclusion amount is $11,580,000 for determining the amount of the unified credit against estate tax.

For an estate of a decedent dying in 2020, if the executor elects to use the special use valuation method for qualified real property, the aggregate decrease in the value of qualified real property for purposes of the estate tax cannot exceed $1,180,000.

For 2020, the first $15,000 of gifts to any person are not included in the total amount of taxable gifts made during the year.

For 2019, the first $157,000 of gifts made to a spouse who is not a citizen of the United States are not included in the total amount of taxable gifts made during the year.

For 2020, the tax imposed on the first sale by the manufacturer, producer, or importer or any shaft of a type used in the manufacture of certain arrows is $0.52 per shaft.

For 2020, the tax on the amount paid for each domestic segment of taxable air transportation is $4.20.

For 2020, the tax on any amount paid (whether within or without the United States) for any international air transportation, if the transportation begins or ends in the United States, generally is $18.60.

However, a lower amount applies to a domestic segment beginning or ending in Alaska or Hawaii, and the tax applies only to departures. For 2020, the rate for this segment is $9.50.

For 2020, the annual per person, family, or entity dues limitation to qualify for the reporting exception regarding certain exempt organizations with nondeductible lobbying expenditures is $118 or less.

For 2020, the Treasury Department and the Internal Revenue Service have authority to require recipients of gifts from certain foreign persons to report these gifts if the aggregate value of gifts received in the year exceeds $16,649.

For 2020, a federal tax lien is not valid against certain purchasers who purchased personal property in a casual sale for than $1,620 or a mechanic's lienor who repaired or improved certain residential property if the contract price with the owner is not more than $8,100.

For 2020, the value of property is exempt from levy (such as fuel, provisions, furniture, and other household personal effects, as well as arms for personal use, livestock, and poultry) cannot exceed $9,690. The value of property is exempt from levy (such as books and tools necessary for the trade, business, or profession of the taxpayer) cannot exceed $4,850.

For taxable years beginning with 2020, the dollar amount used to calculate the amount determined is
$4,300.

For an estate of a decedent dying in 2020, the dollar amount used to determine the "2-percent portion" of the estate tax extended is $1,570,000.

Failure to File Tax Return.

The amount of the addition to tax for failure to file a tax return within 60 days of the due date of such return shall not be less than the lesser or $330 or 100 percent of the amount required to be shown as tax on such returns.

For failure to file a return required relating to returns by exempt organizations and relating to returns by political organizations:

Section 6652(c)(1)(A) organization $20 daily penalty with maximum penalty of the lesser of $10,500 or 5% of gross receipts of the organization for the year.

Organization with gross receipts exceeding $1,067,000 - $105 daily penalty with maximum penalty of $54,000.

Penalty for managers of section 6652(c)(1)(A) organizations is a daily penalty of $10 with maximum penalty of $5,000.

Public inspection of annual returns and reports is $20 daily penalty with a maximum penalty of $10,500.

Public inspection of applications for exemptions and notice of status is a daily penalty of $20 with no limit of maximum penalty.

Penalty for failure to file a tax return as required relating to returns by certain trusts and relating to terminations of exempt organizations are as follows:

Penalty for failure to file a return for an organization or trust is a daily penalty of $10 with maximum penalty of $5,000.

Penalty for managers who fail to file returns is daily penalty of $10 with maximum penalty of $5,000.

Penalty for failure to file a split-interest trust return is daily penalty of $20 with maximum penalty of $10,500.

Penalty for failure to file a return of any trust with gross income exceeding $266,500 carries a daily penalty of $105 with a maximum penalty of $54,000.

Penalties for failure to file a disclosure return as required will incur the following penalties:

Failure to file a disclosure return as required for a tax-exempt entity will have a daily penalty of $105 with a maximum penalty of $54,000.

Failure to file a disclosure return as required and failure to comply with written demands will incur a daily penalty of $105 with a maximum allowed penalty of $10,500.

In the case of any failure relating to a return or claim for refund file in 2021, the penalty amounts are:

Failure to furnish a copy to taxpayer - $50 per return or per claim for refund - with a maximum penalty of $27,500.

Failure to sign a return - $50 per return or per claim for refund - with a maximum penalty of $27,000.

Failure to furnish identifying number  - $50 per return or per claim for refund - with a maximum penalty of $27,000.

Failure to retain copy or list - $50 per return or per claim for refund - with a maximum penalty of $27,000.

Failure to file correct information returns - $50 per return or per item in return- with a maximum penalty of $27,000.

Negotiation of check - daily penalty of $540 per check with no limit on maximum penalty.

Failure to be diligent in determining eligibility for head of household filing status, child tax credit, American opportunity tax credit, and the earned income credit - daily penalty of $540 per failure with no limit on maximum penalty that you can incur.

In case you fail to file a partnership return in 2021, the dollar amount used to determine the amount of penalty is $210.

In case you fail to file an S Corporation return as required in 2020, the dollar amount used to determine the amount of the penalty is $210.

In case you fail to file a correct information return in 2021, the penalty amounts are as follows:

For persons with average annual gross receipts for the most recent three taxable years of more than $5,000,000, for failure to file correct information returns:

The general rule is that there will be a $280 per return with a calendar year maximum of $3,392,000.

If the information is corrected on or before 30 days after the required filing date, then the penalty will be reduced to $50 per return with a calendar year maximum of $565,500.

If the information is corrected after the 30th day but on or before August 1, the penalty will be $110 per return with a calendar year maximum of $1,696,000.

Persons with average annual gross receipts for the most recent three taxable years of $5,000,000 or less, for failure to file correct information returns:

The general rule allows for a penalty of $280 per return with a calendar year maximum of $1,130,500.

If the return is corrected on or before 30 days after required filing dates the penalty is $50 per return with a calendar year maximum of $197,500.

If the return is corrected after 30th day but on or before August 1, then the penalty is $110 per return with a calendar year maximum of $565,000.

Failure to file correct information returns due to intentional disregard of the filing requirement or the correct information reporting requirement.

If a return other than a return required to be filed is file, the penalty per return is the greater of $560 or 10% of aggregate number of items required to be reported correctly. Calendar year maximum penalty is with no limit.

If a return required to be filed but is incorrect the penalty will be the greater of $560 or 5% of aggregate amount of items required to be reported correctly and the calendar year maximum penalty is with no limit.

If a return required to be filed such a return of cash receipt of more than $10,000, the penalty will be the greater of $28,260 or the amount of the cash. The calendar year maximum penalty is with no limit.

If a return required to be filed that relates to applicable insurance contracts in which certain exempt organizations hold interest is filed incorrectly, the penalty will be the greater of $560 or 10% of the value of the benefit of any contract with respect to which information is required to be included on the return. The calendar maximum penalty is with no limit.

In the case of any failure relating to a statement required to be furnished in 2021, the penalty amounts are the following for persons with average annual gross receipts for the most recent three taxable years of more than $5,000,000, for failure to file correct information returns:

The general rule is that the penalty be $280 per incorrect return and the calendar year maximum penalty to be $3,392,000.

If the return is corrected on or before 30 days after the required filing date, the penalty will be $50 per return and the calendar year maximum penalty will only be up to $565,000.

If the return is corrected after the 30th day but on or before August 1, then the penalty will be $110 per incorrect return and the calendar year maximum penalty to be $565,000.

In the case of any failure relating to a statement required to be furnished in 2021, the penalty amounts are the following for persons with average annual gross receipts for the most recent 3 taxable years of $5,000,0000 or less, for failure to file correct information returns:

The general rule is that a penalty of $280 per return be imposed and the calendar year maximum be $1,130,500.

If the incorrect return is corrected on or before 30 days after the required filing date, the penalty will be $50 per return with a calendar year maximum penalty of $197,500.

If the return is corrected after the 30th days but on or before August 1, the penalty will be $110 per return with a calendar year maximum penalty of $565,000.

In the case of any failure relating to a statement required to be furnished in 2021, the penalty amounts are the following for failure to file correct payee statements due to intentional disregard of the requirement to furnish a payee statement or the correct information reporting requirement:

If a statement other than a statement required to be furnished in respect to a return is missing, the required penalty per return will be the greater of $560 or 10% of the aggregate number of items required to be reported correctly. The calendar year maximum penalty will be with no limit.

If the payee statement required as it relates to doing business as a broker, the penalty per return will be the greater of $560 or 5% of the aggregate amount of items required to be reported correctly with no calendar year maximum limit.

For 2020, the amount considered to be of a serious delinquent tax debt is at least $53,000.

For fees incurred in 2020, the attorney fee award limitation is $210 per hour.

For 2020, the stated dollar amount of the per diem limitation regarding periodic payments received under a qualified long-term care insurance contract or periodic payments received under a life insurance contract that are treated as paid by reason of the death of a chronically ill individual is $380.
 

For tax years beginning with 2020, to qualify as a qualified small employer health reimbursement arrangement, the arrangement must provide that the total amount of payments and reimbursements for any year cannot exceed $5,250. This amount is $10,600 if it is for family coverage.

The new administration tax plan was that the number of tax brackets would reduce from seven to three. Similarly, the House of Representatives’ original tax reform bill contained four brackets. Ultimately, common sense interceded, and we are still at the seven-bracket structure. There is just no way, we will ever have a postcard tax return with all these many tax brackets! The tax rates are lower with about 2% less than with the previous tax brackets but starting at 10%.

The marriage penalty is almost gone. What is the marriage penalty? This penalty does not really exist as a specified penalty anywhere but it is widely talked about. Why? The marriage penalty is a concept that takes place with the change is the tax bill after a couple marries. The “marriage penalty” or the higher tax bill is due to the combined income of the couple and because of the combined income, the couple is changed to a new tax bracket and thus new tax rate which will usually result in paying more taxes than if the couple remained single.

In a few instances the opposite can be true. Instead of a marriage penalty, the couple could incur a bonus which means that the couple fairs better by filing their tax returns as married filing jointly than when they file their tax returns as single. Thus, the couple will have a gain resulting in a bonus instead of a penalty. Again, these are widely spoken about, but there is not per say a “marriage penalty” or “marriage bonus” and these are merely the result of calculations after applying the different tax brackets at the married rates and at the single rates. Other items also affect couples that would cause a “marriage penalty” such as the ability of the individual to file as head of household when the individual is single and thus would not qualify for this HOH filing status once the individual gets married. Additionally, the individual will no longer qualify for the Earned Income Credit because of the combined income as a married individual.

Remember this, the marriage penalty is not an actual penalty. It is something that happens because of the different tax brackets (7 tax brackets). The only thing a taxpayer can do is to eliminate this penalty or the possibility of the marriage penalty is to plan your taxes before marriage. It is a well-known fact that when couples plan to marry, the last thing on their mind is the marriage penalty.

If you earn more, your income tax bracket will be higher and that only makes sense. An individual who is not married is single for tax purposes. A couple who is married is considered one individual for tax purposes and thus their income is taken together as one individual. When the couple gets married, the income will usually increase tremendously unless one of the individuals in the marriage is not working. If the income increases, then the tax bracket and the tax rate also increase. The higher tax as a consequence of getting married is the marriage penalty. The marriage penalty would be the higher tax and the loss of credits and deductions because of the marriage.

What is a capital asset?

Almost everything you own or use for personal, or investment purposes is a capital asset such as your car, household furnishings and stocks. Stocks or bonds would be items that are considered capital assets which you hold for investments. When you sell these items, the difference is a capital loss or a capital gain. Then, after that, you must determine if your assets are a short-term or a long-term item and then you will apply the tax rate. This applies to the capital gains tax rates if you have a gain, of course. If you have a loss, you usually you can deduct up to $3,000 of it. Please note that this amount is $1,500 if you are married filing separately. You have this limit and once you reach the maximum you can deduct for the year, you usually can either carry the excess forward to other years. Anyways, if you held the item for less than a year, this property is considered short-term and thus you would have a short-term capital gain and you held your asset for more than a year, then your asset is considered long-term.

The tax rate on most net capital gain is usually no more than 15% for most individuals. Some or all net capital gain may be taxed at 0% if your taxable income is less than $80,000. This is your tax bracket for your other income such as your W-2 wages. However, if you exceed certain thresholds, then your capital gains may be taxed at 20%. A capital gain rate of 15% applies if your taxable income is $80,000 or more but less than $441,450 for single; $496,600 for married filing jointly or qualifying widow(er); $469,050 for head of household, or $248,300 for married filing separately. A net capital gain tax rate of 20% applies to the extent that your taxable income exceeds the thresholds set for the 15% capital gain rate. There are a few other exceptions where capital gains may be taxed at rates greater than 20.:

Your capital gains may be taxed at rates greater than 20% if

1. The taxable part of the capital gain from selling section 1202 qualified small business stock is taxed at a maximum 28% rate.

2. Net capital gains from selling collectible are taxed as a maximum 28% rate.

3. The portion of any unrecaptured section 1250 gain from selling section 1250 real property is taxed at a maximum 25% rate.

The items discussed above usually apply only to long-term capital gains, but short-term capital gains are taxed differently. Notice that net short-term capital gains are taxed as ordinary income. These gains are from property you hold for less than a year.

Income tax is due as you earn the income, so if you know you are going to have to pay capital gains tax, then you should plan accordingly and even make estimated payments.

The new tax provisions in the above mentioned is that the tax rate on most net capital gain is no longer higher than 15% for most taxpayers. That is, unless you go over the thresholds mentioned, or you are selling section 1202 qualified small business stock. If you are selling section 1202 qualified small business stock then it is taxed at a maximum 28% rate. Also, if you are selling collectibles your maximum rate is 28%. The portion of any unrecaptured section 1250 gain from selling this section 1250 real property is taxed at a maximum of 25% rate. Other than this, the capital gain is not higher than 15%.

What are these adjustments to income that help you arrive at AGI? A few examples of over the line deduction that help you arrive at AGI are

• Repayment of supplemental unemployment benefits required because of receipt of trade readjustment allowances.
• Forfeiture-of-interest penalties because of premature withdrawals.
• Capital loss deductions up to $3,000.
• IRS contributions.
• Rent and royalty expenses.
• Educator expenses.
• 50% of self-employment tax liability.
• Health savings account (HSA) contributions.
• Health insurance premiums if self-employed.
• Jury duty pay turned over to your employer.
• Performing artist's qualifying expenses.
• Reforestation expenses.
• Reservists' travel costs.
• State and local official expenses.
• Student loan interest
• Self-employed retirement plan contributions for yourself.

These are only a few of the possible deductions that help you arrive at AGI. Adjustments to income are expenses that are applied before any taxes. These reduce your total income. These are the items you enter on your Form 1040 before you apply your standard deduction, itemized or your exemptions. After you calculate adjustments to income you are left with your adjusted gross income.

Adjustments to income are individual retirement arrangement (IRAs), alimony, bad debt deduction, moving expenses, student loan interest deduction, tuition and fees deduction, and the educator expense deduction.

There are two things. The new tax law treatment of alimony payments will apply to payments that are required under divorce or separation instruments that are (1) executed after December 31, 2018, or (2) have been modified after that date and if the modification specifically states that the new tax law now applies.

The requirements to deducting moving expenses are that your move closely relates to the start of work, you meet the distance test, and that you also meet the time test. If you are a member of the Armed Forces and your move was due to military order and a permanent change of station, you don't have to satisfy the distance test. If you are in the military and must move due to military order, you can still take a moving expense deduction on your tax return.

Indeed, the Tax Cuts and Jobs Act has eliminated the moving expense deduction. This deduction elimination is not permanent and may revert after 2025 and may depend on who is in charge at that time. It may come back at that time and at that time it will up to Congress or the individual in charge to eliminate it permanently.

By the way, many of the tax law changes such as the suspension of the moving expense deduction are temporary. Later we may be enjoying this benefit again or if it will stay eliminated.

How do recharacterization work and why it is useful?  A recharacterization allows you to treat a regular contribution made to a Roth IRA or to a traditional IRA as having been made to the other type of IRA. You are only allowed to contribute to an IRA to  certain limits and these limits are up $6,000 for 2020 or $7,000 if you are 50 or older. Different rules apply if you contribute to a traditional IRA and if you contribute to a Roth IRA or the tax treatments are different for each kind of IRA.

You recharacterize by telling your trustee of the financial institution holding your IRA to transfer the amount of the contribution plus earnings to a different type of IRA which is either a Roth IRA or a traditional IRA. This is done either in a trustee-to-trustee transfer or to a different type of IRA with the same trustee. This works by making the transfer by the due date for filing your tax return (including extensions) and you treat the contribution as made to the second IRA for that year as if you made it to the second IRA for that year as if you never made it to the first IRA.

From now on, or at least until 2025, you will not be allowed to recharacterize any longer as dictated with the new Tax Cuts and Jobs Act legislation. Hence, a conversion from a traditional IRA, SEP or SIMPLE to a Roth IRA can no longer be characterized. In addition, the Tax Cuts and Jobs Act also prohibits recharacterizing amounts rolled over to a Roth IRA from other retirement plans such as 401(k) or 403(b) plans. 

One thing to note is that you can still recharacterize by rolling out excess contributions to a Roth IRA. Do this if you contribute early in the year to a Roth IRA, but then earn too much over the phase-out limits, thereby disqualifying you from being able to contribute to a Roth IRA for the year. You can undo this contribution without being subject to an excess contribution penalty tax by recharacterizing the contribution to an IRA. You can still do this regardless of the new tax law changes.

It is important to note that the reason people are characterizing from one IRA to another is the fact that these are two different products that are treated differently in the tax code. With a traditional IRA for example, you get a tax deduction up front, and taxes are delayed until you withdraw your money when you retire, and the idea is that at that time your tax rate will be a lot lower. With a Roth IRA, the IRA is funded with post-tax money and with a Roth IRA your tax rate when you retire will be zero. Therefore, recharacterizing an IRA is changing how taxes will apply to the IRA.

But now, the new Tax Cuts and Jobs Act (TCJA) has removed this ability to recharacterize and this could have a major impact on financial planning for many.

Yes, indeed, entertainment expenses are very necessary for your business to succeed. Good news, though. Remember that part of the entertainment expense that is for meals? Well, you can generally take 50% of your business-related meal expenses are allowed as a deduction. You can still entertain your customers, but you pick up the tab for the entertainment part and the IRS will pick up the tab for 50% of the meal part. If you have not figured out by now, the main part and oftentimes the only part of entertaining a customer is taking them to eat. To be able to deduct 50% of your meals as a business deduction though, the meal expense must be ordinary and necessary in carrying on your trade or business and this expense must still meet the directly related test or the associated test.

Remember though, that these limitations only apply to your relationships with customers and not with your employees. Don't get all confused and start setting your own limits that are not included in the new Tax Cuts and Jobs Act. The expenses that are still deductible, and we mention this only so that you get this ingrained in your head, are expenses for your employees that are for

1. Entertainment, amusement, and recreation expenses which you treat as compensation to your employees and of course you must include these in their wages.

2. Entertainment expenses for recreation, social, or similar activities and facilities for employees.

Please note that you cannot call entertainment expenses those expenses that you incur for entertainment goods, services, and facilities which you have for sell to customers. Come on! These are called cost of goods sold.

Also, again, remember that with the entertainment expense elimination as with the other elimination of deductions, that they are only temporary. The elimination is from 2018 through 2025. At that time, in 2026, we will see, how all this works out. Who knows, someone with enough sense will re-establish these provisions that have for such a long time become a part of who we are. In America we can deduct business expenses for entertaining our clients, we can golf and transact business at the same time, we can... Don't worry our America will come back to us, after all this chaos is over, we will be great again!

The new Tax Cuts and Jobs Act, has made adjustments to the Section 179 depreciation limits. The Section 179 deduction allowance was re-instated on December 18, 2015 as part of the PATH Act - Protecting Americans from Tax Hikes Act of 2015. The tax law increases the bonus depreciation percentage from 50% to 100% for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023.

Property that qualifies for the 100% bonus depreciation deduction has been expanded to include used qualified property acquired and placed in service after September 27, 2017, and it is property that that the taxpayer didn't use at any time before acquiring it. Also, the property must not have been acquired from a related person or a member of a controlled group of corporations. The basis of the used property must not have been figured by reference to the adjusted basis of the property in the hands of the seller or the transferor.

In addition,  qualified film, television, and live theatrical productions are now part of the list of qualified property that are eligible for the 100% bonus depreciation deduction.

Furthermore, property that is not eligible include property that is used in the business of furnishing or sale of electrical energy, water or sewage disposal services, gas or steam or transportation of gas or steam by pipeline. 

Now, Section 179 allows taxpayers to immediately expense the cost of qualifying property rather than taking depreciation deductions in yearly increments. The maximum amount that a taxpayer can deduct has been increased with the new Tax Reform. The maximum amount a taxpayer can deduct now in Section 179 deduction for property placed in service in 2020 has been increased from to $1,040,000. If the property is a qualified enterprise zone property, the amount has increased to $1,075,000.

Along with this increase there is also a phase-out threshold of $2,590,000 for property placed in service in 2020. Once the amount for the total Section 179 property placed in service during the year exceeds the threshold amount, then that is when the phase out occurs and at that point the deduction will be reduced dollar-for-dollar by the excess amount. As with other tax items, the deduction and the phase-out limit amounts will be increased for inflation.

Under the new tax law, the qualifying property for Section 179 expensing now also includes certain depreciable tangible property used in connection with lodging and improvements to non-residential real property such as roofs, heating, ventilation, air conditioning, and fire and alarm protection systems.

We are still good for 2020 as the empowerment zone designation has been extended until December 31, 2025. However, qualified empowerment zone wages do not include wages paid or incurred for any employee after December 31, 2020, and before July 1, 2021, if the same wages are used to claim the employee retention credit on an employment tax return. The wages also don't include wages paid to or incurred for any employee after December 27, 2019, and before April 17, 2021, if the same wages are used to claim the 2020 qualified disaster employee retention credit.

1. $10,100 for the first year a vehicle is placed in service

2. $16,100 for the second year,

3. $9,700 for the third year,

4. $5,760 for each succeeding year until the basis in the vehicle has been recovered.

The amount in 1 through 4 above will change slightly every year to adjust for inflation. 

State and local tax deduction has been eliminated. There have been changes to the deduction of home mortgage interest, especially for home equity loans.

There will no longer be a full deduction for charitable contributions such a 60% limit on cash contributions. However, the CARES Act has made charitable contributions deduction up to 100% of AGI for tax year 2020.  There are no more deductions for athletic tickets. These also has been repealed with the exception to the contemporaneous written acknowledgment. Furthermore, the casualty and theft loss deduction has been limited to only federally declared disaster areas.

The medical expense deduction is one of the few deductions that will be left to itemize on Schedule A. The new Tax Cuts and Job Act will double the standard deduction. For 2020 this amount is $12,400 for individuals and $24,800 for joint filers. For head of households the standard deduction is $18,650 for 2020. It is anticipated that there will less taxpayers who itemize deductions on their tax returns because of the higher standard deduction amounts. 

The types of eligible expenses remain unchanged. They continue to include

• Expenses for doctors, dentists, chiropractors, psychiatrists, psychologists, podiatrists, and other medical professionals.
• Health insurance premiums
• Premiums for long-term care insurance
• Inpatient alcohol and drug treatment programs
• Wheelchair ramps and other modifications to your home for medical reasons
• Transportation to doctor appoints and visits such as taxi, bus fares and other items such as parking
• Prescription drugs
• Payments for smoking-cessation programs and weight-loss programs that are related to a specific disease diagnosed by a doctor.

The items you cannot deduct continue to be the same such as over-the-counter medicines, toothpaste, cosmetic surgery, gym memberships, nutritional supplements, nicotine patches or gum and teeth whitening.

Some taxpayers may be confused because maybe they think that this is only the state and local taxes withheld on their Form W-2. No, it is more than that. It is that plus the real estate property tax, property taxes such as the tax from the DMV taxes you pay for owning your car or cars. All these make up a huge chunk and the $10,000 cap may be way less than the actual amount spent. For some taxpayers, this deduction can mean it is $1,500 less but for other people it could mean it is $18,000 or even $25,000 less of a deduction that you could claim on your tax return.

Before the Tax Cuts and Jobs Act, the mortgage interest deduction limit was $1 million. Now, the limit is a deduction of interest based on an amount that does not exceed the $750,000 in principal. This means that single filers and married couples filing jointly can deduct the interest based on up to $750,000 of mortgage debt if single, a joint filer or head of household. Married taxpayers who wish to file separate tax returns can deduct interest based on up to $375,000 mortgage debt each. This itemized deduction limitation will be from 2018 through 2025. Only the interest paid or accrued on acquisition debt will be eligible for the mortgage interest deduction from 2018 through 2025. Therefore, from 2018 through 2025, the the maximum amount of debt used to calculate the allowable home mortgage interest deduction will be reduced from $1,000,000 to $750,000 on new mortgages incurred after December 15, 2017.

There are a few exceptions, however. A mortgage taken out before October 13, 1987 is considered grandfathered debt and is not limited by the new law. This means that all of the interest you pay on a grandfathered debt will be fully deductible. Additionally, a home purchased after October 13, 1987 and before December 16, 2017 is still eligible for the $1 million limit. The limit would be $500,000 each if you are filing as married filing separate. Furthermore, any home that was sold before April 1, 2018 is eligible for the $1 million limit with the condition that there was a binding contract entered before December 15, 2017 to close before January 1, 2018 and the home was purchased before April 1, 2018.

Most often than not, you can deduct all of  your home mortgage interest. The amount you can deduct would depend on the date the mortgage was acquired and the amount of the mortgage. How you use the mortgage proceeds plays a huge role in the ability to deduct the mortgage interest. There are also special considerations to be taken into account as the federal government tries to help taxpayers out of the coronavirus pandemic. For instance, the IRS is willing to overlook the restrictions on home mortgages and therefore allow taxpayers to deduct interest on a home equity loan, home equity line of credit or second mortgage overlooking the type of mortgage. However, you still cannot try to deduct home mortgage interest on home loans taken out and funds used for purposes that are not to buy, build or substantially improve your home.

Other contributions that are non-cash can still be claimed but subject to the 60% limit and normal regulations.

This temporary change in the charitable contribution deduction is brought about because of changes in place in the CARES Act and as way to ease out of the Covid19 pandemic.

Colleges and universities counted on the previous tax code that permitted the 80 percent deduction, but now they are out of luck with the new tax law reform. This means that these colleges and universities will lose millions in revenues. Many colleges and universities relied on the 80/20 rule for charitable donations to encourage athletic programs, scholarships, and other programs of the institution.

If you know the rules for deducting charitable contributions when you receive a benefit in exchange, you will probably better understand the new law's position on this issue. The rules are for deducting contributions for which you get a benefit in return. If any part of your payment toward a charitable contribution is for tickets (rather than the right to buy tickets), 100% of that part is not deductible. You must reduce the amount of your contribution by the value of any benefit you receive. However, you don't have to reduce your contribution amount if you received (1) only a small item or other benefit of token value, and (2) the qualified organization correctly determines that the value of the item or benefit you received isn't substantial and informs you that you can deduct your payment in full. The organization will be using Revenue Procedures 90-12 and 92-49 to determine this.

Basically, if you receive a benefit because you contributed to a qualified organization, you can deduct only the value of your contribution that is more than the value of the benefit you receive.

When you make a payment to the college or university for the right to buy tickets to an athletic event in the athletic stadium of the college or university, you are getting a benefit in return: the right to buy tickets and usually this gives you the right to buy tickets for a designated area of the stadium or some form of preference. You are not allowed to do this and get a charitable contribution deduction. However, if you pay $300 to the university for tickets for which you would normally pay $75, then you can possibly deduct the difference as a charitable contribution. This is true, if the organization you pay this to is a qualified organization, and the event would usually have to be for charitable purposes.

Contemporaneous means that the donor receives the acknowledgment by the earlier of

• the date on which the donor files his or her individual tax return for the tax year that applies to the contribution, or
• the due date of the tax return, including extensions.

The taxpayer can provide another form of substantiation such a thank you letter from the organization as long as this other form of substantiation provides the same information of the organization who is the recipient of the donation.

The alternative process where the taxpayer was able to have the charitable organization file a document with the IRS containing detailed information about the donor and his or her donation has been eliminated by the new Tax Cuts and Job Act.

Consequently, this does not seem to be a problem, since most charitable organizations usually send thank you letters to their donors. It only makes sense that they send thank you letters because they want the contributions to keep coming. The donor taxpayer can use this letter as substantiation that they have made the donation.

There are other items to consider though. The fact that Congress has doubled the standard deduction means that less individuals will donate because there will be no tax incentive to do so since many people will not itemize due to the larger standard deduction. So, this will affect charitable organizations, indirectly. Yes, really, indirectly because the organization will lose billions annually and this is very direct. Don't you think so?

Another change in the new law that will affect charitable organization is the fact that the new tax law increased the estate tax threshold, and this means that fewer estates will be subject to taxation and again affecting indirectly the pockets of the charitable organization by having less bequests to charitable organizations. After all, who wants to give anything in exchange for nothing? 

On a good note, the new law has increased the Adjusted Gross Income limits for cash contributions from 50 percent to 60 percent. 10 percent increase means more money from donors to the charitable organizations. For 2020, the percentage has temporarily been increased to 100% to help ease out of the pandemic.

The suspension of this deduction brings a greater grief than what it appears to be on the surface. One example of this is the deduction for hobby losses. With this elimination, the hobby losses will be eliminated 100%. Many figure that you can take hobby expenses up to the income earned, but this is not true, well, at least not anymore. With the new tax law, you will be able to deduct zero of your expenses that you had to acquire hobby income. However, you will have to report 100% of the hobby income. You will see that there are many other items which are affected.

Another one of these items that will be greatly affected by this change that seems to be harmless is the office in the home deduction which is no longer available to employees of a company who work from home. It is quite convenient to work from home. The office in the home deduction for employees which was a deduction that you can take about the 2% of AGI is no longer an option. This new tax law has affected items such as the 2% of AGI deduction and has caused chaos for many taxpayers on many different platforms.

The TCJA eliminates the 10% rehabilitation credit for the pre-1936 buildings. 

The New Markets Tax Credits (NMTC) is retained by the TCJA current law. The NMTC expires on December 31, 2025. The New Markets Tax Credit Extension Act of 2021 intended to extend the NMTC indefinitely. 

The new TCJA tax law retains the Renewable Energy Production Tax Credit (PTC). The new TCJA tax law retains the Renewable Energy Investment Tax Credit (ITC). These and many other credits have been retained by the new TCJA tax law.

Many credits have been enhanced, such as the Enhanced Child Tax Credit which has been increased 2021.  This credit has been $1,000 per child for the longest time. As for 2021, the child tax credit has been increased to $3,600 for a child who is younger than 6 years old and $3,000 for the children who are age 6 through 17. Starting in Summer of 2021 families can start getting advance Child Tax Credit payments. This begins on July 15, 2021. The IRS will be advancing half of the total credit amount in monthly payments. The other half can be claimed when they file their 2021 tax return. To qualify the family must have filed a 2019 or 2020 tax return and have claimed the Child Tax Credit on the tax return. This benefit can really help the family on a monthly basis because the credit can be as much as $300 per month for a child who is under 6 years old and $250 per month the children who are 6 years old through 17 years old.

Family Tax Credit and the Non-Child Dependent Tax Credit,

To top it off, there is another credit that can be added on top of that for those who have other dependents who are over the age of 17 such as your parents. This one is $500 per each of these types of dependents. The new law allows for a $500 credit for other dependents who are over the age of 17 such as your dependent parents. This $500 credit is an increase from the previous $300 child tax credit which is now called the Family Tax Credit and the Non-Child Dependent Tax Credit. If you have a child age 17 through 23 and still in school, you can claim the credit.

You already know very much how it all works out. To illustrate, this tax credit will reduce your tax bill on a dollar-to-dollar basis by $3,000 now instead of the previous $2,000 per child. So now if your tax bill is $4,000, and you have two dependents, bingo, you will owe nothing. It is a nonrefundable credit, so it goes against tax. We call this credit "tax killer". What do you call it?

One more thing. Your income to claim any of the Child Tax Credits must be only up to $200,000 or any other filing status other than married filing jointly. If you are married filing jointly you can still claim the credit if your income is less than $400,000. That is a huge hike from the current limit of $75,000. Likewise, the amount for married folks is up $400,000 and that too is a hike from the current limit of $110,000. Now more taxpayers, ones that could not take the credit because of the set limits will now be able to take the Child Tax Credit. A married couple together earning up to $400,000 are not too rich, right?

A credit that reduces your tax liability is a nonrefundable credit. Taxpayers have many tax credits that are "tax killers" that will help them eliminate their tax liability. If the taxpayer has children, there are more options and more available credits to them than when there are credits which don't include children. The child tax credit was started to help families raise their children. Raising a child is not cheap and many struggle to make ends meet. A credit that allows for a refund after taxes have been paid such as the newly expanded child tax credit is a refundable credit.

If the taxpayer is owed a refund, the child tax credit has a refundable portion of up to $1,400 for 2020. Before this same portion of the credit was a nonrefundable credit. That is a possible extra $1,400 that families can get in addition to other credits such as the Earned Income Credit and their tax withheld amounts. This means larger much needed refund checks for working families with children. One requirement to claim the credit is that the family must have earned at least $2,500 for the tax year.

Now with these higher phase-out limits will allow more taxpayers to claim the child tax credit. The child does not need to be a citizen to qualify the parent for the credit, but he or she does have to have a Social Security number issued by the Social Security Administration.

The new thing that is new now is the ability to get the credit if you don't have a child under the age of 17. The new tax reform allows taxpayers to claim a $500 credit for dependents such as parents and other members of the household. There is no age limit for this new part of the child tax credit. How odd is that? Now you can get a child tax credit for a parent. Not only parents but other dependents too. You can claim the child tax credit for a child who is disabled and dependent you support who is a full-time student.

There is still a possibility that all this good news will not last beyond 2025 as this new increase in the child tax credit and the qualification rules are set to expire by 2025 - by December 31, 2025, to be more exact. This legislation, the new Tax Cuts and Jobs Act (TCJA) has, at least for a temporary time, considering the hard-working families with a much-needed refundable child tax credit which is going to make an incredible difference in the lives of kids all around the country. To top it off, the child credit has been expanded to include more children, not just the children under 17. Furthermore, the child tax credit has somehow morphed into a non-child dependent credit allowing a refund of $500 more for dependents who are not qualifying children under the age of 17.

This new Tax Cuts and Jobs Act (TCJA) reform cannot possibly only be for the rich if you look into the generosity behind the new revamped child tax credit. There has been a lot of talk on national T.V. as to the new tax law being for the rich. Maybe it is for the rich starting January 1, 2026, but for now the new child tax credits disproves the theory that the new tax reform is only for the rich.

If in 2020, your modified adjusted gross income (AGI) is more than the following amounts then the amount of the $3,000 child tax credit is either reduced or eliminated.

• Married filing jointly the phase-out amount is $400,000
• single, head of household, or qualifying widow(widower) the phase-out amount is $200,000
• Married filing separately the phase-out amount is $200,000.

Now with the new tax law your income to claim any of the Child Tax Credit, which could be up to $3,600 per child for 2021,by the way, must be only up to $200,000 if you are single. That is a huge hike from the current limit of $75,000. Likewise, the amount for married folks is up $400,000 and that too is a hike from the current limit of $110,000. Now more taxpayers, ones that could not take the credit because of the set limits, will now be able to take the Child Tax Credit. A married couple together earning up to $400,000 are not too rich, right? Well at least that is what they say when they talk about how poor they are.

If the child did not have a Social Security number, an ITIN number could be used to claim the child tax credit for the $3,000 or the $3,600 amount. Now, under the new tax bill, children with ITIN number will need to provide a Social Security number to claim the child tax credit for that child since now the child tax credit is refundable. Furthermore, to claim the refundable part and the non-refundable part of the credit a Social Security number must be provided. The idea behind this is that most children who have an ITIN, have an ITIN because they are undocumented. This is going to impact the entire family because as you may be aware of families that immigrate to the United States have both foreign born and US born children.

Let's face it, we are a country that has allowed for this to happen and now in the process of trying to change things, we are hurting innocent people and United States citizens too! This new bill will directly affect those children born in the United States whose non-citizen siblings are no longer eligible for the credit and thus impacting the entire family. This situation is like the situation where the illegal parents are deported, and it does not take a brain surgeon to know that we are also deporting American citizens in the process. What? Did you think that the American children stay behind in the United State in orphanages? Go back to the cave you peeped out of if you think that this is the case and don't come out until you realize your illogical fallacy.

Also, if you have not realized it by now that only the rich immigrate legally, then there is something wrong with you and you probably should get your brain checked. We have yet to see a day laborer, for example, try to immigrate to the United States legally. Another thing to consider is the fact that not too many people who are well off in their country want to immigrate to the United States. There is always a catch. For example, students immigrate here because after they finish their studies they get used to our way of life, they make new friends and at the end they simply stay here and this group of well-educated individuals, the students, decide to stay in our country forever. Then, they force their parents to move here because the grandparents want to be with their grandchildren. You never thought of it like this, have you? Would someone remind us next time not to hire an individual to be boss who has married immigrants and who by the look of things is about to divorce another one - because these individuals start hating their ex-wives and then they want to make all immigrants including children both American and immigrant suffer for their mistakes.

If you don't want to offer tax credits to illegal immigrants, that is probably fine. But what is not fine is that you charge them taxes just like U.S. Citizens. We keep hearing these senseless individuals saying that they want only people who play by the rules to be rewarded - then you must allow the less fortunate to be able to play by the rules. Let's face it - immigration laws do not allow people who don't have money to play by the rules.

Let's do it - Let's not allow undocumented immigrants to receive any tax benefits but you cannot tax them either. Are we ever going to learn from our history? Let's go back to 1761 and recall the phrase "No taxation without representation!" Maybe someday, good sense and fairness will enter our vocabulary once again. Quit your excuses and self-serving righteousness to steal other people's money. When you tax individuals and rob them of their right to receive tax benefits available to others who pay the same, you are technically stealing their money.

To be able to claim the child tax credit for a qualifying child, you must have an SSN for the child. The previous law permitted taxpayers to use individual taxpayer identification numbers (ITIN) or adoption taxpayer identification numbers (ATIN). Now with the new ICJA tax reform, it specifically states that if the child does not have a Social Security Number (SSN), you will not be permitted to claim the $3,000 credit. However, you will still be allowed to claim the $500 credit for that child using an individual taxpayer identification number (ITIN) or an ATIN. Although the SSN requirements don't apply for a non-qualifying child dependent, you still must provide an ITIN or an ATIN for each dependent to claim the $500 child tax credit.

We all should know by now how the AMT works by now. We have two separate tax systems; one is the regular tax system and the other is the AMT tax system. The alternative minimum taxes certain types of income that have been used to claim certain credits and deductions under the regular tax system and ultimately disallows some tax breaks allowed in the other tax system. The good news is we have good tax breaks. The bad news is that you owe ATM tax and those good tax breaks we mentioned before are no longer applicable. That is the common story behind the alternative minimum tax.

The purpose of the AMT is to effectively take back some of the tax breaks allowed for regular tax purposes. The AMT is an additional tax that you may owe if for regular tax purposes you claimed:

• Itemized deductions, such as taxes, interest on home equity loans used for nonresidential purposes, medical expenses, and miscellaneous job and investment expenses.
• Certain tax-exempt interest, accelerated depreciation, and incentive stock option benefits.

There are no specific tests to determine whether you are liable for the alternative minimum tax (AMT). You must first figure your regular income tax and then see whether tax benefit items must be added back to taxable income to figure alternative minimum taxable income, on which the AMT is figured. If after claiming the AMT exemption and applying the AMT rate and the tentative alternative minimum tax exceeds your regular income tax, the excess is your AMT liability, which is added to the regular tax on your return. In other words, your tax liability for the year will the greater of your regular tax or your alternative minimum tax (AMT).

With the new Tax Cuts and Jobs Act (TCJA) rules, the maximum AMT rate will only be 28 percent. That is huge improvement for the taxpayer from the previous 39.6 percent maximum rate that applied under the previous old law. Previously, the 28 percent AMT rate kicks in when AMT income exceeds $197,900 for married filing joint filers and $98,950 for the rest.

To make things better, you are allowed an AMT exemption and it is deducted when you are calculating the AMT income. This exemption amount is increases for tax year 2020. Once the AMT surpasses the applicable threshold, the exemption amount is phased out. However, those thresholds are also very generous and the TCJA has greatly increased them. The TCJA has increased the individual AMT exemption amounts for tax years 2020 to $113,400 for married filing joint filers and surviving spouses, to $72,900 for single filers. Once the taxpayer's alternative taxable income is above $1,036,800 and $518,400 for the other taxpayers, the increased exemption amounts are reduced by 25% of the amount of the taxpayer's AMT income above these amounts. Notably, the increased exemption amounts will not be reduced below zero.

It is important to plan your taxes and try to avoid being hit by the AMT. However, it may be a bit difficult to try to pinpoint what will trigger the alternative minimum tax since there are so many factors involved. First, high income can cause the AMT exemption to be partially or completely phased out and this would a factor that increases your chances of owing the alternative minimum tax. The TCJA has lowered some of its regular tax rates (5 of them) while leaving the AMT rates at 26 percent and 28 percent will not help you in trying to avoid the AMT.

Other items that may cause you to owe the AMT are large itemized deductions that include deductions for state and local taxes. This is especially true since these taxes are completely disallowed under the new AMT rules. The new tax law limits the regular tax deduction for state and local income taxes and property taxes combined to $10,000 ($5,000 if married filing separate).

Another item that may cause you to trigger the AMT is having too many personal and dependent exemptions because these are completely disallowed under the AMT rules. This is especially true since the personal and dependent exemption deductions are eliminated under the new TCJA tax reform.

Incentive Stock options (ISOs) do not count as income under the regular tax rules, but they do count as income under the alternative minimum tax rules. So, if you have these (no change from the old rules), you may trigger the AMT.

You can no longer include investment expenses, fees for tax advice and tax preparation and un-reimbursed employee business expenses for itemized deductions under the new tax rules. However, under the old tax law or under the new these items remain as disallowed for the alternative minimum tax, therefore, this would not be a trigger for the AMT, at least this time around.

Other items that would be of interest to look into for possible triggers of the AMT are interest income from privacy activity bonds and claiming the standard deduction since it is now almost doubled. The new tax law no longer allows a deduction for home equity loan interest, so therefore, this is not an item of threat or that would trigger the AMT.

The alternative minimum tax (AMT) liability is figured on Form 6251 and is attached to Form 1040. After you determine your regular income tax liability, you use Form 6251 to compute AMT liability, if any.

The new rules make it easier for a small business to claim at least a modest new QBI deduction and this deduction is available even if the small business is sole proprietorship which means that it is not actually necessary to have an actual business entity like a partnership, an LLC, or an S-corporation. This deduction is even greater for large scale businesses. On the other hand, a business who primarily relies on the efforts of its owners, whether they are Specified service business, or those that have a limited number of employees or capital investments, may find taking QBI deduction a bit more complicated. Especially noticeable in this case would be individual who are over the new income threshold of $163,300 for individuals and $326,600 for married filing jointly.

The new deduction for pass-through businesses was created by the Tax Cuts and Jobs Act (TCJA) and this deduction can allow you to take a deduction for up to 20% on income from your sole proprietorship, a partnership, and other business such as an S-corporations that are pass-through businesses. The amount of the deduction that you can take will vary depending on

• The nature of the business activity.
• The total income of the owner.
• The total payroll amount paid to employees
• How much property the business owns.

There are two classes of businesses taken into consideration for the 20% deduction. First class of business is the business that provides certain personal services such as law firms, medical practices, consulting firms and professional athletes. In the second class are all the other businesses that are not part of the previously mentioned.

After that, the business owners are divided into three groups such as

• Single owners making less than $163,300 or married filing joint filers making less than $326,600 total taxable income may take the full 20 percent deduction on their business. In this case the kind of business does not matter.
• Single owners making more than $213,300 or married filing joint filers making more than $426,600 will not be allowed any deduction if their business is a personal service firm such as attorney, doctor, consultant or professional athlete and other businesses considered a personal service business. However, other types of business may allow them the deduction.
• The owners who are single making between $163,300 and $213,300 will be allowed a partial deduction. Likewise, business owners who are married filing jointly making between $326,600 and $426,600 will only be eligible for a partial deduction. The kind of business will not matter for the partial deduction, but it will phase-out for the personal service firms.

To claim the deduction and the limits on the deduction, the taxpayer must calculate the Qualified Business Income (QBI) which normally the business owner's business net income. If the taxpayers QBI is less than $163,300 for single or less than $326,600 for married filing joint filers, then simply multiple that amount by 20 percent and that is the deduction.

The story gets a bit more complicated if the owner owns one of the specified service businesses and is above the $163,300 for single and the $326,600 threshold for married filers. In this case the amount of the QBI is phased-out until it disappears once their taxable income reaches $426,600.

Some businesses, personal service firms or not, may have to calculate their deduction for limitations based on a two-part formula. The deduction will be partially limited by the greater of either 50 percent of the wages the business pays to its employees or 25 percent of wages plus 2.5 percent of the basis of the business' qualified property. The business owner then takes the smaller of this calculation and the 20% of their QBI calculation. As with many other deductions in the tax code that apply two calculations, you may only deduct the smaller of the two amounts.

1. There are many changes that came about with the new administration. One of these is the increase of the Child Tax Credit signed into law by President Trump. The new tax amount is the same for 2018 and 2019 and as you recall it was increased from $1,000 per child. For 2020 The Child Tax Credit amount per child is

A. $5,000

B. $2,000

C. $500

D. None of the above.  

A. Itemized deductions, such as taxes, interest on home equity loans used for nonresidential purposes, medical expenses, and miscellaneous job and investment expenses.

B. Certain tax-exempt interest, accelerated depreciation, and incentive stock option benefits.

C. Both A and B above.

D. Incentive Stock options (ISOs).

3. The new deduction for pass-through businesses was created by the Tax Cuts and Jobs Act (TCJA) and this deduction can allow you to take a deduction for up to 20% on income from your sole proprietorship, a partnership, and other business such as S corporations that are pass-through businesses. The amount of the deduction that you can take for 2020 will vary depending on. 

A. The nature of the business activity and the total income of the owner.

B. The total payroll amount paid to employees.

C. How much property the business owns.

D. All of the above.

4.  The SECURE Act changed the date that individuals must start taking withdrawals form their retirement accounts to avoid penalties. The new age that individuals must start taking withdrawals has been changed to

A. 71 years old. 

B.  72 years old

C. 74 years old

D. 69 years old

5. In 2020, the annual exclusion for gifts is

6. The payment of a coronavirus-related distribution to a qualified individual will be reported to you by the eligible retirement plan on Form 1099-R. Your plan or IRA provider is required to report on this even if the coronavirus-related distribution is repaid in the same year. You are a qualified individual for purposes of section 2202 of the CARES Act if

A. You are diagnosed with Covid-19 by a test approved by the CDC.

B. Your spouse or dependent is diagnosed with Covid-19.

C. You are qualified if you experience adverse financial consequences because of being quarantined, being furloughed, or laid off or if you have your hours reduced at work due to Covid19

D. Any of the above.

7. Most people receive the first and second rounds of Economic Impact Payment. These were advance payments of the 2020 Recovery Rebate Credit. If you didn't get these or if you received less than the full amount,

A.  Must be a victim of a federally declared disaster area and with the same terms as before the change.

B.  Only are required to prove that you had a casualty or theft loss in 2020.