March 31 2020 Market Update

Crisis in Process – and Important Tax Changes

In addition, on Sunday, March 29, President Trump announced that recommendations for social distancing and business closures would remain in effect through April. This obviously has significant implications for all Americans as we watch the spread of the pandemic through our communities and our lives.

But we would all do well to remember that we are not alone. Please reach out to us to talk through any of your concerns or questions in this difficult time.

We are working diligently to serve you throughout this crisis, but we believe that our role goes far beyond spearheading your investment and personal wealth management plans. We are here for you as your friends and neighbors – as part of the community of people you can turn to for support.

Thank you as well for your support in turn. Knowing that we can pour our own energies into helping our clients has given all of us at JSF a real sense of purpose in this truly unprecedented time.

In the meantime, we’d like to bring you up to speed on important tax-related changes that could have an impact on your financial and tax planning this year. Please click below to read this document on our website or read on for more.  

Changes to filing and payment deadlines

For federal taxes, the tax filing and payment deadline for your 2019 returns is now July 15, 2020.^[1]

The new deadline applies to individuals, corporations, estates, and trusts, regardless of how much tax is owed.The deadline to make IRA and Health Savings Account contributions has also been pushed to July 15, 2020. However, please note that if you file an extension for your 2019 return, the filing deadline will still be October 15, 2020.

For California filers, the tax filing and payment deadline for 2019 returns is July 15, 2020.

This applies to all individuals and businesses and includes 2020 estimated tax payments for the first and second quarter, 2020 LLC taxes and fees, and all 2020 non-wage withholding payments.

Please note that the second installment of California property taxes are due by April 10^th, which is the same as in prior years.^[2]

Changes to Required Minimum Distributions

Required Minimum Distributions (RMDs) have been waived for the year 2020.^[3]

This applies to those who were taking RMDs annually already and to those who turned 70 ½ in 2019 and were required to take their first distribution before April 1. If you already took a distribution in 2020, you may redeposit it into an IRA account within 60 days to avoid paying income tax on the distribution.^[4]  

Changes to retirement plan distributions

You are now permitted to take an early withdrawal (prior to age 59½)  of up to $100,000 from your retirement account without paying the standard 10 percent tax penalty, so long as the withdrawal is related to the COVID-19 outbreak. ^[5] You will be required to pay income tax on the distribution, which can be spread out over three years.

The rules governing qualifying withdrawals are loose: the current understanding is that they apply to those who have been diagnosed with the virus or who have experienced “adverse financial consequences.”

Changes to retirement plan loans

Similarly, the limit on loans from 401(k)s has been raised to $100,000 from $50,000. The payoff deadline for loans due for the rest of 2020 will be extended by one year. ^[6]

That said, we don’t typically recommend turning to your 401(k) first: if you’re seeking sources of financing, it’s generally advisable to investigate other options first.

Stimulus payments

Finally, you’ve probably seen the news that stimulus payments are headed to most Americans. Under the fiscal bill, eligible Americans will receive $1,200 per person, with an additional $500 for each child under 17.^[7]

Eligibility for payments begins to phase out at adjusted gross income levels of $75,000 for single filers, $112,000 for heads of household, and $150,000 for married couples. If you haven’t filed a 2019 tax return, your eligibility will be based on your 2018 income tax returns.

Charitable contributions

 For those who do not itemize their deductions, you can take a $300 tax deduction on your 2020 return for qualifying charitable contributions.^[8]

Additionally, the law temporarily suspends the rule that charitable contribution deductions may not exceed 60 percent of adjusted gross income for a single year. For the year 2020, the limitation is waived, meaning that you can deduct an amount up to 100 percent of your AGI. Any donations made above this amount may be carried over into future years.

It’s important to note that this temporary rule change applies to taxpayers who itemize deductions and make cash contributions to certain public charities – it does not apply to contributions made to non-operating private foundations or donor-advised funds.

Looking ahead

As April arrives, we hope and pray that spring ushers in a period of calm and renewal for all of us, and we wish you continued good health as we weather this storm together.

JSF Financial