It’s been a crazy year. For most of us, targets we’ve been chasing have multiplied and are moving faster – while we ourselves might be moving more slowly. Let’s refocus on taxes with a mid-year check in. Here are some activities to be thinking about that are a mix of recent tax law changes and tried-and-true strategies.

Retirement Plans

  1. Did you take money out of your retirement plan this year that you wish you could put back in? The CARES Act of 2020 waived required minimum distributions (RMDs) from Traditional IRAs and certain employer-sponsored retirement plans for this year. However, you may have already taken yours. IRS Notice 2020-51 issued June 23 provides instructions for ‘undoing’ 2020 distributions from Individual Retirement Accounts (IRAs) and employer plans such as 401(k)s. If this appeals to you, the deadline for the reversal is August 31, 2020, so you’ll want to act now. (Notice 2020-51 also applies to beneficiary IRAs.)
  2. On the other hand, you may have money in a retirement plan that you wish you could take out. Generally, retirement plan distributions are subject to a 10% penalty if you take them before reaching 59½ years of age. Under the CARES Act, the 10% penalty is waived for such distributions not exceeding $100,000 and if the distribution is coronavirus-related. Per the IRS’ guidance, what falls under “coronavirus-related” is fairly liberal. Note that the default tax treatment is to report such a distribution evenly over a 3-year period beginning with your 2020 tax return filed next year. If you plan to go down this road, understand taking money out of your retirement account before you’re ready to retire can be very expensive in the long run. Related: you can now take up to $100,000 as a coronavirus-related loan from certain retirement plans. Be careful here, as well, e.g., an unrepaid loan becomes a taxable distribution. Make sure you consult your financial planner before doing any of this and be sure to have an appropriate level of federal and state income tax withholdings on any distributions.
  3. The SECURE Act of 2019 also did away with age restrictions for IRA contributions. Now anyone with earned income may contribute to an IRA, regardless of age. Earned income for this purpose includes W-2 wages, self-employment income, and alimony payments.
  4. The SECURE Act also moved the age to start taking RMDs from Traditional IRAs and certain employer-sponsored retirement plans from 70½ to 72. This became effective for those 70 years or younger on July 1, 2019. As previously discussed, RMDs are waived for 2020, but plan for them to return next year unless we see further law changes on this.
  5. Many folks have or are considering Roth conversions. These look appealing when low tax rates meet low asset values meet low income. For example, if you expect significant business losses in 2020, this could be a good time to consider a Roth conversion. Do not try to implement a Roth conversion strategy without first consulting your financial planner.


  1. To pay estimated taxes or not to pay estimated taxes? On one hand, pushing the 2020 Q1 and Q2 estimated tax due dates to July was helpful in buying some time for the decision. On the other hand, having 2019 catch up payments plus half of 2020’s estimates due on the same date has been rough for those with shaky cash positions. And the Q3 payment, still scheduled for September 15, puts more pressure on cash flows. Keep in mind that even if income is down this year, you’ll likely still owe some level of taxes. The more you feel comfortable paying in now, the less difficult next April’s payment will be. I don’t advise, however, doing anything that leaves you completely cash strapped. For my tax planning clients, we will do what we always do – look at the numbers together so you can make an informed choice and plan ahead.
  2. For those making tax return or estimated payments over the next few months, I recommend doing so electronically through IRS and state websites and make sure you keep your online payment confirmation. As of June, the IRS’ backlog of unopened mail was over 10 million pieces. Your check will likely be cashed eventually, but probably not before you receive a notice for payment because your check remains in an unopened envelope. As always, if you’re a client, do send such notices my way for proper interpretation and response.
  3. If you’ve received unemployment benefits, make sure to either have withholding set up for these payments or be setting money aside. Unemployment benefits are If in doubt of a reasonable withholding amount, withhold or set aside 1/3 or so of your payment for taxes. You will certainly be somewhat over/under, but for most folks, that’s a pretty good range.
  4. Personal tax deductions:
      • If you’ve participated in a mortgage payment forbearance program under the CARES Act, consider that your mortgage interest deduction will be lower than what it otherwise would be. This will likely impact your taxable income and may even make it more beneficial to take the standard deduction. If the latter, you may consider pushing other deductions such as charitable contributions into 2021.
      • If you’ve had a significant drop in income plus incurred any unreimbursed, out-of-pocket medical costs, you may be able to itemize your deductions and claim an itemized deduction for medical expenses. Consider this if you are paying medical costs both in 2020 and 2021 – you may get more bang for your tax buck by accelerating some of the payments into 2020. This is especially true as the percentage of adjusted gross income (AGI) that medical expenses must exceed before they can be deducted rises from 7.5% in 2020 to 10% starting 2021.
      • The CARES Act holds changes for charitable contributions, as well. If you claim the standard deduction, you can add up to $300 in charitable contributions for 2020. For those itemizing, cash charitable contributions can offset up to 100% of your AGI. For either circumstance, keep all acknowledgement letters.
      • Depending on your economic outlook, investment portfolio, and interest in generating a charitable contribution deduction, now might be a good time to consider donations of appreciated securities to your donor-advised fund.
      • Although the SECURE Act changed the RMD age, the minimum age for making a Qualified Charitable Distribution(QCD) was not changed and remains 70½. As such, it’s now possible to make QCDs one or two years before taking RMDs. QCDs are allowable up to $100,000 annually. For individuals with substantial assets and little or no need for a related tax deduction, a QCD may be an appropriate strategy for supporting charitable organizations.
  5. If income is down and cash flow is super tight, know that the IRS and state agencies generally understand when folks aren’t able to pay their taxes. IRS short-term and long-term payment plans are available, as well as options provided by your state taxing authority. If things are looking particularly bleak, do some homework now on your payment options and have a strategy or two in place. No matter what, plan to file your return timely next year. There are options for lack of payment, but lack of filing will get you into trouble very quickly.

Business Owners

  1. PPP loan applications are being accepted through August 8, 2020. Could another round be in store for those who initially applied, but are still looking for further assistance? On one hand, there are certainly still businesses concerned about not being able to make payroll. On the other hand, about $130 billion was unclaimed as of last month. These seemingly opposing situations could be due to a variety of factors such as unprocessed applications, businesses that didn’t apply since they weren’t certain if they needed the funds, significant difficulty locating viable lenders, etc. To be continued. For more discussion on this program, particularly loan forgiveness, see this article.
  2. Are your books up-to-date? Now is the time to start 2020 tax planning and your financials are the backbone of this exercise. If your financials aren’t in order, tax planning is challenging, if not impossible. For my tax planning clients, I’ll be reaching out after the July 15 deadline to get conversations started.
  3. If your 2018 or 2019 tax returns reflected excess business losses suspended under The Tax Cuts and Jobs Act of 2017, consider amending those years to claim the losses since the suspension has been lifted under the CARES Act. The suspension is also lifted for 2020. For pass-through business owners with large losses, this could result in meaningful tax refunds and/or reduced estimated tax payments. Additionally, rules around deducting net operating losses (NOLs) from business activities have changed with the CARES Act. There’s a lot that can be said here, but similar to changes to excess business losses, there may be an opportunity for you to free up some previously paid taxes or reduce estimated tax payments. Now is the time to address both of these situations.
  4. If you haven’t already, consider deferring payment of employer match payroll taxes through December 31, 2020 as allowed under the CARES Act Additionally, if you received a Paycheck Protection Program (PPP) loan, the deferral is no longer mutually exclusive with loan receipt under the Paycheck Protection Program Flexibility Act of June 2020. Of course, this is a double-edged sword, as the payments will ultimately be due and you do NOT want to be behind on payroll taxes.
  5. The SECURE Act created favorable changes to employer-provided retirement plans, such as tax credits, for new plans and increased windows for plan establishment. If you’re interested in putting a plan into place for your business, now is the time to get that started.

Please don’t hesitate to reach out if you have questions regarding these ideas and the best options for your specific situation.