Birth and Adoption Exception – The tax law provides for several exceptions to the early-withdrawal penalty, and Congress has added another one as part of the Appropriations Act of 2020 (SECURE Act). The new exception provides for penalty-free plan withdrawals for births or adoptions, for distributions taken from IRAs, qualified employer plans (such as 401(k)s) and government retirement plans after Dec. 31, 2019. However, the maximum aggregate amount of a qualified birth or adoption distribution by any individual with respect to any birth or adoption is $5,000, applied individually (so each spouse may separately receive $5,000 of qualified birth or adoption distributions).
A qualified birth or adoption distribution is one made during the one-year period beginning on the date when a child of the individual is born or when the legal adoption of an eligible adoptee by the individual is finalized. An eligible adoptee means any individual (other than a child of the taxpayer’s spouse) who has not attained age 18 or is physically or mentally incapable of self-support. In addition, such qualified birth or adoption distributions may be recontributed to an individual’s applicable eligible retirement plan, subject to certain requirements. But remember that if the withdrawn funds are not recontributed to the plan, the distribution will be taxable.
Your dependent child who worked during the year or had investment income, such as interest or dividends, may be required to file a tax return, depending upon the type and amount of the income. Years ago, to prevent parents from putting their investments in their children’s names to avoid or significantly reduce the tax on their investment income, Congress passed what is commonly referred to as the kiddie tax. The kiddie tax taxes children’s income in excess of a small allowance at the parent’s top tax rate.
More recently, as part of the 2017 tax reform, Congress modified the kiddie tax structure, so that the children’s investment income in excess of the small allowance ($2,200 for 2019) is taxed at the fiduciary tax rates*, which can very quickly reach the maximum tax rate. On the other hand, the tax reform virtually doubled the standard deduction (it is $12,200 for 2019 for someone using the single filing status), providing children with substantial tax-free income from working.
This is a question many taxpayers ask during this time of year, and the question is far more complicated than people believe. To fully understand, we need to consider that there are times when individuals are REQUIRED to file a tax return, and then there are times when it is to the individuals’ BENEFIT to file a return even if they are not required to file.
Medical expenses are deductible as an itemized deduction but only to the extent they exceed a percentage of a taxpayer’s adjusted gross income (AGI). For a long time, the percentage was 7.5%, which was then raised for under-age-65 taxpayers to 10% for 2013 through 2016 and then lowered back to 7.5% for all taxpayers for years 2017 and 2018. It was scheduled to go back up to 10% starting with tax year 2019. However, with the passage of the Appropriations Act of 2020, Congress reduced that percentage back to 7.5% for tax years 2019 and 2020, allowing more taxpayers to qualify for the medical deduction.
However, keep in mind that the total of the itemized deductions must exceed the standard deduction before the itemized deductions will provide a tax break. So even if your medical deductions exceed the 7.5% floor, this doesn’t necessarily mean you will have a tax benefit from them.
Congress, at almost the last minute, has passed a large number of tax changes, including retirement plan issues that will become effective in 2020, as well as extensions through 2020 of a number of tax provisions that had expired or were about to end. The list of changes is quite large, so we have only included those that are most likely to affect individual tax returns. Here is a run-down on some of the new tax provisions.
The holiday season is upon us, complete with family gatherings, over-indulging in food and beverages, and gift shopping and giving, and the last thing most of us want to think about right now is what faces us after the New Year is rung in: tax season! But taking some time now to get in the tax-season spirit may help you to avoid or reduce certain penalties on your 2019 tax return.
When was the last time you or your attorney reviewed or updated your will or trust? If it was before the passage of the 2017 tax reform legislation, or the Tax Cuts and Jobs Act (TCJA), your documents may be out of date. Among the many changes in that law was a more than doubling of the estate tax exemption. Prior to the TCJA, if the value of an individual’s estate at his or her death was about $5.5 million or more, it was subject to the estate tax. For deaths in 2020, and based on the TCJA inflation-adjusted amounts, just over $11.5 million is exempted from estate tax. So, if your will or trust was premised on the lower value, it may need to be revised so that it provides the appropriate estate tax results for your situation
People generally assume that tax planning only applies to individuals with the big bucks. But think again, as some tax moves benefit lower-income taxpayers and those who are having a lower-than-normal income year. So, if 2019 is not producing a lot of income for you, or your income will be substantially lower this year than it usually is, you may be surprised to know that you actually might be able to take advantage of some tax-planning opportunities. Implementing some of these ideas will require action on your part before the close of the year. Here are some possibilities.
Raising money through Internet crowdfunding sites prompts questions about the taxability of the money raised. A number of sites host money-raising projects for fees ranging from 5 to 9%, including GoFundMe, Kickstarter, and Indiegogo. Each site specifies its own charges, limitations, and withdrawal processes. Whether the money raised is taxable depends upon the purpose of the fundraising campaign.