Along with providing assistance to individuals impacted by COVID-19, these changes can provide some unique financial planning opportunities. In this article, we provide a summary of the provisions we feel are impactful for our clients, along with some planning ideas to consider.

The CARES Act

On March 27th, the CARES Act was signed into law, providing numerous relief opportunities for individuals and small businesses.

Required Minimum Distributions Waived for 2020

Required Minimum Distributions (RMDs) from retirement accounts are waived for 2020. You can still take it if needed or desired, but the distributions will not be required this year.

Potential Action Items

  • If you are already in a high tax bracket and are able to use other resources to support your lifestyle, simply skip taking a distribution from your retirement account this year.

  • If you are in a lower tax bracket even with your RMDs, consider converting the amount of your RMD to a Roth IRA. This will allow the money to continue to grow tax-free and will be tax-free when withdrawn from the Roth IRA at a later date (or by your heirs).

  • If you are charitably inclined, consider taking advantage of Qualified Charitable Distributions (QCDs) from your IRA. This is allowable up to $100,000 per person, per year, for those over age 70 ½. Distributions must be made directly to a qualified charity.

Retirement Account Withdrawals of up to $100,000

Under the CARES Act, individuals under age 59 ½ who are directly affected by COVID-19 can withdraw up to $100,000 from a retirement account without the 10% penalty. The income tax on these withdrawals can be spread out over 3 years, and individuals can re-deposit the withdrawn amount over that 3-year period without it being counted towards regular contribution limits. Those eligible for these withdrawals include anyone who has tested positive for COVID-19 or has had a spouse/dependent test positive, or anyone experiencing financial hardship due to COVID-19, such as those who have lost their jobs or are unable to work due to childcare issues. The Treasury Department makes the ultimate determination on eligibility.

Potential Action Items

  • If you have been directly affected by COVID-19 and have a shorter-term liquidity problem, consider utilizing this provision. Your Freestone Client Advisor can then help you make a plan to redeposit these funds over the allowable 3-year period to mitigate any potential longer-term impact on your retirement savings.

Changes to Charitable Deductions

Two significant updates have been made under the CARES Act. The first is a new charitable contribution deduction of up to $300 for those who do not itemize. To qualify, the donation must be made in cash, directly to a charity; contributions to Donor Advised Funds are not eligible. This deduction will be subtracted from gross income (an “above-the-line” deduction).

The second is an increased limit on charitable deductions for those who do itemize. Donors can now deduct 100% of their 2020 donations from their AGI. This means if you have an AGI of $1 million for 2020, you can donate $1 million to a public charity and deduct all of it! To be eligible for this deduction, donations must be made in cash, directly to a public charity. Contributions to Donor Advised Funds and Private Foundations do not qualify.

Potential Action Items

  • If you are charitably inclined but do not itemize due to the higher standard deductions put in place in 2018, consider taking advantage of the $300 above-the-line deduction now available for 2020 donations.

  • For those who itemize and are charitably inclined, consider gifting directly to a public charity this year instead of using Qualified Charitable Distributions from your IRA or contributions to Donor Advised Funds/Private Foundations in order to take advantage of the larger available deduction.

  • Consider utilizing other planning strategies in conjunction with charitable giving to take advantage of the deduction. For example, this may create an opportune time for a Roth Conversion as the tax liability could be offset by your allowable charitable deduction.

Tax Updates

Federal Tax Change Summary

  • The 2019 tax filing & payment deadline has been extended to July 15th.

  • This extension applies to 2019 income tax, self-employment tax, gift tax and generation-skipping tax, as well as to 2020 estimated/quarterly tax payments that are typically due by April 15th.

  • Extensions to October 15th remain available through the normal process.

  • No interest or penalties will be charged during this extended time period.

Potential Action Items

  • Consider making 2019 IRA or Roth IRA contributions before July 15th.

  • Consider making 2019 Health Savings Account contributions before July 15th.

State Tax Change Summaries

Each state can choose whether to extend their tax filing deadlines as they see fit. Below is the information currently available for some states in which we do business.

California      

  • The 2019 tax filing and payment deadline has been extended to July 15th.

  • This extension also applies to 2020 Q1 and Q2 estimated payments, 2020 LLC taxes and fees, and 2020 non-wage withholding payments.

Oregon           

  • The 2019 tax filing and payment deadline has been extended to July 15th.

  • Estimated payment due dates for 2020 are not being extended, although interest may not be charged on underpayments (to be determined by the Oregon Department of Revenue).

Idaho

  • All tax payment and filing deadlines are extended until June 15th.

  • Property tax relief programs are also available.

Arizona

  • Income tax payment and filing deadlines are extended to July 15th for individuals, trusts and corporations.

Colorado        

  • Tax payment and filing deadlines will mirror the Federal guidelines.

Please reach out to your Freestone Client Advisor for additional state information.

In Conclusion

Individual situation and tax implications can vary greatly, so it’s important to thoroughly understand the impacts of any strategies you are considering before taking action. Your Freestone Client Advisor can work with you and your tax professional to determine the best course of action for your unique situation.


Important Disclosures: Nothing in this article is intended to provide, and you should not rely upon it for, accounting, legal, tax or investment advice or recommendations. We are not making any specific recommendations regarding any financial planning or tax strategy, and you should not make any financial planning or tax decisions based on the information in this article. The intention of this article is educational, and it is intended only to discuss a few limited aspects of very complex tax legislation. This article is not a comprehensive or complete summary of considerations regarding its subject matter. Each individual is in a different situation and has different items to address, and the options in this article are not appropriate for everyone. Please consult your Freestone client advisor and a lawyer regarding options specific to your needs.