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The CARES Act

3 min read time

Last month, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020. This act is almost 900 pages in length, with ramifications to be felt now and into the future for individuals, small-businesses, states & municipalities, plus airlines and other business critical to US national security. Rather than dissect the entire bill and all its contents, I wanted to highlight the big topics that may most directly affect you and your financial situation.
 
REFUNDABLE TAX CREDIT

Probably the most discussed piece of this legislation in the media is the “Stimulus Checks”. For individuals with Adjusted Gross Income (AGI) of less than $75,000 and couples up to $150,000 will receive full checks of $1,200 and $2,400 respectively. Plus, for each child under the age of 17, another $500 will be sent. These are then phased out as income rises, quickly completely going away.

The confusing part of this law is that these payments will be made in the next month or two based upon income in 2018 or 2019 (depending on when you file(d) your 2019 tax return), but these payment are really “rebates” for your 2020 taxes.

So, if your income in 2018 (or 2019) was over the AGI limit, but your 2020 income was under, you will get a refund for the full amount when you file your 2020 tax return next year.

BUT, if your income in 2020 is above the thresholds, while your 2018/2019 income was under, you will receive your “check” this year. Congress did not include any sort of “clawback” provisions, so you would not have to pay back this recovery rebate when you file your 2020 tax return.

At this point, there is not a lot that you can do to plan for 2018/2019, but it is something that we’ll look at while we do tax planning and projections later in the year for 2020. This is one more number that we’ll target when making tax-efficient decisions.
 

RMDs

For 2020, ALL RMDs are waived. If you would have been required to take RMDs, but have not taken the distribution yet, we will want to discuss your options before deciding on your distribution amount for the year.

If you have already taken money out of your retirement accounts this year, there is nothing in the CARES Act that allows you to reverse. HOWEVER, there is a 60-day rollover window to put this RMD back into an IRA and avoid this counting as a distribution. If this applies to you, we have a short window to “return” unwanted and no longer necessary RMDs.

 
CHARITABLE DONATIONS

The CARES Act includes a new deduction for up to $300 of charitable giving for those that do not itemize deductions. There are some specific rules about this deduction, but, in general, as long as you are donating to a 501(c)(3) charitable organization using cash (not a Donor-Advised Fund), you can take this deduction, even if we decide that you will take the Standard Deduction.

OTHER NOTABLE ITEMS

There are several other items that may not impact you, but worth mentioning:

  • Student Loan payments are deferred until Sept. 30th, 2020
  • Unemployment Compensation has increased in amount and maximum time
  • Various small business loan and tax credit options
  • Several items to support those with Coronavirus

 
At this time, there is not a lot for you to do other than continue to practice your “social distancing”. But, as in other years, as we consider tax planning and projections later in the year, there may be tax planning opportunities to pursue.

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