December 9 , 2020
A Changed World!
It is our hope that you and your loved ones are safe and healthy during this holiday season. COVID-19 has changed the world in the ways we live and work. Reduced personal contact, remote work locations and telecommunications have become a part of our everyday life.
As we monitor the ever-changing COVID-19 situation, adjusting our office setting to keep our clients and staff safe, rest assured that we are here for you and will continue to provide the same quality professional services that you have come to expect from us in the past.
At the writing of this newsletter, our office is temporarily closed to the public, however our staff is available to take care of all your needs. We can be reached by phone, e-mail, and text messaging. Information may be provided to us through mail, our night drop box and our website’s online client portals at www.LFSPRO.com. We are also utilizing technology such as Zoom for one-on-one meetings. Completed projects are being returned by USPS Priority Mail or no contact pickup.
Upon reopening our office to the public, we will require the use of facemasks and hand sanitizer for all guests and staff until the pandemic has passed.
Thank you for your support and understanding during these times. We look towards the future with optimism and a belief that this too shall pass.
The time is here to start the process of preparing to file your 2020 tax returns. We are including our tax organizers to help you gather the information needed to prepare your tax returns.
Although there was no major tax legislation in the past year, economic stimulus programs passed in response to the COVID-19 pandemic will impact your return. You will find a new organizer regarding COVID-19 that we need you to complete to accurately prepare your tax return.
New or Important
Most of you received a “Stimulus Check” this summer. That advance was reported to you on Notice 1444 which we will need to ensure that you have received all the stimulus money you are entitled to. Should you not have the Notice 1444 we will need to have you verify the amount you received on our COVID-19 organizer.
There is a new $300 deduction for charitable donations that can be taken without itemizing deductions.
Under the SECURE Act, starting in 2020, an individual of any age can contribute to a traditional IRA if they have earned income from wages or self-employment.
The required minimum distributions from retirement plans has been waived for 2020.
Medical expenses are subject to 7.5% reduction of adjusted gross income for 2020.
The tuition and fees deduction has been extended through 2020.
The child tax credit for 2020 is $2,000 per qualifying child under age 17. Up to $1,400 of the child tax credit can be received as a refundable credit (meaning it can go toward a tax refund). For older children and other dependents other than a qualifying child, there is a $500 nonrefundable credit.
If you purchased health insurance through the Marketplace (Obamacare), we require your 2020 Form 1095A to accurately prepare your tax return.
For divorce or separation agreements signed or modified after 2018, alimony or maintenance payments are no longer deductible, and the recipient will no longer have to claim the payments as income.
The annual gift exclusion for 2020 remains $15,000.
The capital gains and qualified dividends rates remain unchanged at 0%, 15% and 20%, with an additional Medicare rate of 3.8% for higher income taxpayers.
The earned income subject to Social Security tax is $137,700 for 2020 and $142,800 for 2021.
The standard mileage rates have been adjusted for 2020. Business use is now 57.5 cents a mile and 17 cents a mile for medical. Charitable mileage remains at 14 cents a mile.
Business & Farm
The Families First Coronavirus Response Act gives eligible employers funds to provide employees with paid sick and family and medical leave in connection with COVID-19. In addition, self-employed individuals may qualify for similar benefits.
Small business may now be eligible for the Small Business Health Care Tax Credit if requirements are met.
The CARES Act retroactively suspends the application of the 80% taxable income limitation on net operating losses for tax years beginning after December 31, 2017 and before January 1, 2011. Changes have also been made to the NOL carryback rules under this provision.
The CARES Act increased the credit limit for small business employer pension plan startup costs.
The Payroll Protection Program provided small businesses with access to funds that enabled them to pay payroll costs and qualified business expenses. If certain conditions are met, these funds can be forgiven. Under an IRS Notice and recent Rev. Ruling, businesses cannot deduct expenses that were paid with the PPP funds if the loan amounts have or expect to be forgiven. Currently, it is our interpretation that this does not apply to those who received the PPP loan based on self-employed net profits.
Senator Hoeven has co-sponsored a Bill to make the related expenses deductible, eliminating the tax burden created by the current IRS’s position. This legislation is still pending.
Many businesses received grants under the SBA EIDL program or through the ND Department of Commerce ERG and HERG. These amounts will be considered taxable income.
The maximum deduction under Section 179 is $1,040,000 for 2020.
The Bonus Depreciation on qualified property for 2020 is 100% and includes used property.
The Qualified Business Income Deduction (QBID) is again available for 2020.
Crop and hail insurance proceeds may be deferred if the farmer has a history of deferring grain sales or selling grain in a year after production.
Proceeds can be deferred one year from the year the damage or inability to plant a crop occurred. The deferral of crop and hail insurance is an all or nothing election. Insurance proceeds that are related to revenue or price coverage losses are not eligible for deferral.
A new 1099-NEC will be used this year for reporting non-employee compensation.
1099 Forms are required to be issued for payments made from your trade or business to non-corporate entities and individuals totaling $600 or more for such things as commissions, rents, custom work, or independent contractors. 1099s must be issued to veterinary clinics, even if incorporated.
Withholding taxes and W-2 Forms are required for all wages paid to employees for non-farm, $2,200 for domestic employees and $150 for farm wages.
If the total farm wages exceed $2,500, all employees must receive a W-2 Form. Employer’s children under age eighteen are exempt from Social Security, Medicare, and income tax withholding, but W-2 Forms are required to be issued. W-2s are also required for wages paid in commodities.
The due date for filing W-2 and 1099 forms to the recipient is February 1, 2021.
We look forward to serving you in 2021 with your tax preparation, bookkeeping and payroll needs.
HAVE A SAFE, HAPPY HEALTHY, NEW YEAR!
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