This year has been unlike any other with a pandemic and with it many new pieces of legislation that affect your income taxes and estate planning. We will give an overview of important items you should consider. We believe that income and estate taxes will go up for many under a Biden administration, so you should consider actions to take before year end.
NEXT YEAR YOUR ESTATE PLAN NEEDS UPDATING!
Effective January 1, 2020 Illinois has a new set of trust rules, many of which give new rights to beneficiaries and impose new obligations on trustees. We strongly recommend that you update your trust documents so that when somebody takes over as trustee, they can properly administer your trust. Your beneficiaries will be better protected, and your trustee(s) can avoid problems if you do.
We will be sending out more information on the Illinois Trust Code in January 2021.
MAKE ANNUAL GIFTS TO CHILDREN AND GRANDCHILDREN
If you are able, consider making annual gifts to children and grandchildren. The annual exclusion is $15,000 per recipient, which means you can give $15,000 to each person ($30,000 if spouse joins in) before the end of the year.
We recommend gifting appreciated stock rather than cash. You will transfer the capital gain and future dividends to the recipient. This could be important because capital gain and regular income taxes may go up for some taxpayers under a Biden administration.
GIVE TO YOUR FAVORITE CHARITIES BEFORE YEAR END
Charities have been faced with providing more services at the same time as receipts of donations have decreased because of the pandemic. We encourage you to give to your favorite organizations to help them help those in need. Here are some ways you can give to charity:
- If you do not itemize, give $300 cash to an organization. If you do not itemize deductions, you can still get a tax benefit by giving $300 in cash to an organization before year end and get a tax benefit. You can get a deduction on the front page of your form 1040, so it is not an itemized deduction.
- Request your donor advised fund to distribute to a charity.
- Give appreciated stock or mutual funds you have owned for more than one year. You get a deduction for the entire fair market value and pay no capital gains tax.
You can take up to $100,000 in coronavirus-related distributions from retirement plans through the end of the year without being subject to the 10% additional tax for early distributions. You have choices about when and whether to pay it back to see your tax adviser.
Additionally, required minimum distributions (RMDs) are temporarily suspended for 2020. If your retirement assets have taken a hit, not having to take an RMD may allow those assets to recover some value before you liquidate them.
Consult your investment or tax advisor for more details.
BUSINESS OWNERS AND PPP LOAN FORGIVENESS – DON’T HURRY
If you took out a PPP loan and have not applied for loan forgiveness yet, we recommend that you wait. The IRS has taken the position that amounts paid with the forgiven amounts are not deductible, which could result in a significant surprise tax bill.
Congress is discussing additional legislation to extend various provisions. They may include a provision that changes this IRS ruling. In addition, there may be additional guidance from the Small Business Administration.
FRAUDULENT ACTIVITY REMAINS A SIGNIFICANT THREAT
Fraudsters continue to refine their techniques and tax identity theft remains a significant concern. Beware if you:
- Receive a notice or letter from the Internal Revenue Service (IRS) regarding a tax return, tax bill or income that does not apply to you;
- Get an unsolicited email or another form of communication asking for your bank account number or other financial details or personal information;
- Receive a robocall insisting you must call back and settle your tax bill.
Make sure you are taking steps to keep your personal financial information safe. Use strong passwords on your computer to reduce the risk.
Above all, stay safe and have a Merry Christmas.