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