Sylest Williams, BridgeTower Media Newswires
There will be lots of activity with the upcoming presidential election that will take place in November of this year. Until then, businesses and individual owners will be busy engaging with their tax professionals as there will be lots to consider when it comes to tax-related issues. The matters below are some of the important and most common tax issues as well as some of the steps the taxpayers will want to consider in order to take full advantage of the available benefits.
Up until the federal election, the topic of conversation will surround the presidential and congressional elections. The question becomes who should take over the offices. Although the parties that end up controlling the White House or the Senate will not go in effect until 2021, any changes within those parties could result in unfavorable outcomes for the Tax Cuts and Jobs Act (TCJA) that was largely passed in 2017.
If the Democrats retain the majority in the House of Representatives and take control of the Senate and the White House, several TCJA provisions may be targeted for change. Those provisions include the corporate and long-term capital gains tax rates. In addition, several Democratic candidates who are running for office have expressed the need for more funding for areas including health care, housing and education. The additional funding could lead to more taxes and increases in certain tax rates. Should the Republicans gain a majority in the House of Representatives and retain control in the White House and Senate, there could be additional tax changes such as Trump's proposal to cut the 10% middle-class tax.
On Dec. 20, 2019, Congress signed into law the Secure Act (Setting Every Community up for Retirement Enhancement Act of 2019), which addresses several retirement savings plan incentives. Some of those incentives include small employers now being able to offer retirement plans by a pooled retirement plan provider and the credit for employers that establish new retirement plans was increased from $500 to $5,000. Other outcomes include the required minimum distribution age being increased from 70 ½ to 72 and those over 70 ½ can now continue to contribute to IRAs. In the year following the birth or adoption of a child, individuals will be able to withdraw up to $5,000 without any penalties from retirement accounts.
Since its origination, the State and Local Tax (SALT) $10,000 deduction has been fought by many states with higher tax rates, including New York. To work around this deduction, some states have offered state tax credits for taxpayers with charitable contributions to a state or local government fund which were designed to offset taxpayers' state and local tax obligations. Fast forward to June 2019, the IRS issued final regulations that would prohibit these workarounds. The final regulations made it mandatory for all taxpayers who receive a state tax credit to reduce their federal charitable contribution deduction by the amount of the credit they receive or expect to receive. However, if the credit is 15% or less of their contribution, taxpayers receiving a state tax deduction do not have to reduce their federal deduction, nor do they have to reduce their federal contribution deduction.
Several states recently issued a lawsuit to block the limitation on SALT, but it was dismissed by a New York U.S. District Court. Democrats have been the party in the House of Representatives who have attempted to loosen up the SALT deduction because it has been proven that the states most unfavorably affected tend to vote Democratic. Depending on the outcome of the upcoming November 2020 election, we could see another attempt in 2021 to eliminate the SALT cap altogether. At this point in time, all evidence suggests that for 2020, the $10,000 SALT deduction limitation is here to stay. With that being said, as a precautionary measure taxpayers may want to consult with their tax professionals to discuss other planning outcomes to offset their taxable income.
Businesses and individuals can currently take advantage of the provisions in place such as the enhanced bonus depreciation and the 21% corporate tax rate. The following tax provisions that were extended through 2020 are noted below:
- Credits for producers of biodiesel fuels;
- Wind energy producers;
- Producers of energy from other renewable sources;
- Residential energy-efficient property improvements;
- Energy-efficient commercial building deductions under section 179D;
- Incentives for empowerment zones
Tax credits that were set to expire in 2019 but extended through 2020 further include the New Markets Tax Credit, the Work Opportunity Tax Credit, and the credit for employers that provide paid family medical leave.
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Sylest Williams, a Certified Public Accountant, is a Manager with Mengel, Metzger, Barr & Co. LLP. She may be reached at SWilliams@mmb-co.com.
Published: Mon, Mar 02, 2020
