Newly Passed Hurricane Florence Relief and Extended Tax Provisions

As 2019 came to an end, Congress passed two bills, which were then signed into law by the President. The “Consolidated Appropriations Act, 2020” and H.R. 1865, the “Further Consolidated Appropriations Act, 2020” are government funding bills that include numerous tax changes that directly affect taxpayers in past, current, and future tax years. The changes that are most likely to impact our clients are highlighted below. Extended Tax ProvisionsThe recently signed bills extended 34 tax provisions – commonly referred to as “tax extenders” – which expired in prior years or were nearing expiration in 2019. The most notable tax extenders impacting taxpayers are:

  • Medical expenses can be deducted as itemized deductions to the extent that they exceed 7.5% of adjusted gross income, effective for tax years ending after December 31, 2018.
  • Qualified mortgage interest premiums may be deducted as an itemized deduction, effective through December 31, 2020.
  • Qualified tuition and related expenses may be deducted, effective through December 31, 2020.
  • There are numerous energy production and efficiency credits that affect both individuals and businesses. The list includes renewal of credits for alternate fuel, energy, and more. 
  • Other tax extenders that are likely to affect several taxpayers are the employer credit for paid family and medical leave, the work opportunity zone credit, the credit for health insurance costs of eligible individuals, and the look-through rule for related controlled foreign corporations.

The renewal of these tax extenders that expired in a prior year may present an opportunity for taxpayers to amend a prior year tax return to recoup taxes paid.Retirement PlansThe Setting Every Community Up for Retirement Enhancement (SECURE) Act was incorporated in H.R. 1865. The purpose of the SECURE Act is to make it easier for small businesses to offer tax-qualified retirement plans to their employees. Some of the provisions within the bill are:

  • An increase in the required minimum distribution (RMD) age from 70.5 to 72. Those who turned 70.5 before the end of 2019 will still abide by the 70.5 RMD age.
  • The maximum age for allowing contributions to a traditional IRA has been repealed. After December 31, 2019, individuals may continue to make contributions to their traditional IRA past the age of 70.5.
  • Following December 31, 2019, a penalty-free retirement distribution of up to $5,000 can be made from an IRA or certain defined contribution after the birth or adoption of a child.
  • Inherited retirement plans, often referred to as “stretch IRAs”, will be required to take distributions over 10 years instead of the over the beneficiary’s lifetime. This will go into effect after December 31, 2019.

Disaster Tax ReliefThe disaster tax relief provisions within the bills are likely to affect several of our Southeastern United States business and individual clients.

  • Casualty Loss Deduction: The bill allows individuals who use the standard deduction to take the standard deduction as well as the casualty loss deduction. Additionally, the casualty loss deduction is no longer required to be reduced by 10% of an individual’s adjusted gross income.
  • Retirement Distributions: The bill allows victims to take penalty-free qualified disaster distributions from their retirement plans up to $100,000 per qualified disaster.

o   A qualified disaster distribution is one that is made beginning on the first day of the incident period and ending 180 days after December 20, 2019. As well, a qualified disaster distribution is to an individual whose home was located in the qualified disaster area and sustained an economic loss from the disaster.o   The distribution will be included in income equally over a three tax year period.

  • Employer Credit: The bill endorses an employee retention credit for eligible employers equal to 40% of wages paid to an employee (up to $6,000 per employee) while the employer’s business is not in operation due to a natural disaster.
  • Automatic Extension: An automatic 60-day extension of tax filing deadlines will be provided to individuals and businesses in federally declared disaster areas.

We anticipate that the above extender provisions along with the disaster tax relief will present significant opportunities for clients to amend tax returns and claim additional refunds.  We are excited to be a part of that process and look forward to helping our clients get the tax relief they deserve.