Chris Archambault 1/27/25 Chris Archambault 1/27/25

Breaking the Code: Potential Tax Reform in 2025 and Beyond

By: Randy Howard, CPA

Last week’s inauguration of President Trump has stirred up a lot of speculation on the future of tax law. His current proposal has potentially the most significant tax changes since the original Tax Cuts and Jobs Act (TCJA). While no tax reform has yet been finalized, it is likely that something will occur with Republicans in charge of the House, Senate, and Presidency. We’ve compiled a summary of the major provisions from President Trump’s 2025 tax proposal.

Permanent TCJA Provisions

The TCJA was implemented in 2018 and was the largest tax overhaul since the 80’s. The majority of the individual TCJA changes are currently set to expire at the end of 2025. Some of the provisions of the TCJA include:

Lower tax rates and reconfigured brackets
Increased standard deduction
Elimination of personal exemptions
Increased child tax credit and addition of other dependent tax credit
Limitations on itemized deductions ($10,000 deduction cap on state & local taxes)
Larger AMT exemption and exemption phaseout thresholds

The 2025 tax update is proposing to make these current provisions permanent (with the exception of the cap on state and local taxes).

Permanent TCJA Estate Tax Exemption

Similar to the TCJA income tax provisions, the estate tax exemption would remain at $13.99 million instead of dropping to around $7 million. A high exemption allows greater flexibility in wealth transfer. Additionally, if the lifetime exemption does not revert, families will face lower estate taxes in the future.

Restoring TCJA Business Provisions

On top of restoring many of the individual provisions of the TCJA, President Trump also wants to restore many of the business provisions and make them permanent as well. The major hitters are the following:

Making 100% bonus depreciation permanent (currently 60% for 2024, 40% for 2025)
20% deduction for pass-through business income
Research & Development (R&D) expensing
Deduction for net interest limitation based on EBITD
For manufacturers, reinstituting the domestic production activities deduction (DPAD) at 28.5% to lower the effective corporate tax rate for domestic production to 15%
Increased limit on Section 179 expensing ($1.25M in 2025) allowing businesses to take higher immediate deductions for expenses related to depreciable assets

New Tax-Exempt Income

Currently, 100% of tips and overtime pay are taxed at ordinary income rates and social security benefits are taxed at a maximum of 85%. The 2025 proposal could eliminate taxes on tips, overtime pay, and social security benefits entirely.

Eliminating Clean Energy Tax Incentives

This would include the elimination of EV tax credits as well as other clean energy tax incentives such as solar panel installation. While dismantling these programs will involve legislative and practical challenges, the uncertainty surrounding future tax credits means that waiting to purchase could cost you valuable benefits.

We are unsure if these proposed changes will pass at all, or the timing of any potential changes. They may be retroactive to 2024 or implemented as of the date of the legislative action (potentially 2025). Please remember these are proposals and subject to change at any time. We will continue to provide you with updates on these proposals as they become available.

To ensure compliance with the requirements imposed on us by IRS Circular 230, we inform you that any tax advice contained in this communication (including any attachments) is not intended to and cannot be used for the purpose of: (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.

Chris Archambault 6/10/24 Chris Archambault 6/10/24

Breaking the Code: Retirement Account Distribution

By: Connor Lardi, Tax Intern

With tax reform in recent years causing near constant changes, it’s never been more difficult to track up-to-date requirements, dates, and age limitations for retirement account distributions. Making the most of your retirement savings hinges on having access to your fund accounts, which makes it imperative to understand the distributions of various retirement accounts - specifically traditional IRAs, Roth IRAs, and inherited accounts. 

Traditional IRAs or Other Pre-Tax Retirement Accounts

Contributions to Traditional IRAs are typically tax-deductible, lowering your income in the year contributed. This benefit means that withdrawals during retirement are taxed as ordinary income at the marginal tax rate in the year withdrawn.

Individuals are required to start taking annual Required Minimum Distributions (RMDs) between the ages of 73-75, depending on when you were born. RMDs mandate individuals to withdraw minimum amounts from their retirement account each year. RMDs are calculated using an actuary formula based on your age and IRS life expectancy tables. Though some situations allow for a delay in RMDs, if they are not taken annually, penalties and excise taxes are incurred. 

Roth IRAs or Other Post-Tax Retirement Accounts 

Contributions to Roth IRAs are made with post-tax dollars, which means you do not receive any immediate tax benefit. Instead, a key advantage lies in the qualified distributions, which are generally tax-free in retirement. This includes both the contributions you made and any earnings the account has generated.

Unlike traditional IRAs, no RMDs are required for post-tax Roth accounts- we like these!

Inherited IRAs 

How do these same distributions work if the account is inherited from someone else?

It depends! There are many unique situations with inherited IRAs and complex rules to go along with them. If you have any questions about your specific situation, reach out to a member of your tax team to talk it through

Planning for RMDs

As of April, the IRS has waived RMDs for inherited IRAs through the rest of 2024.

Individuals can also opt to make Qualified Charitable Distributions (QCDs) to cover a portion or all of their RMD. This means that instead of distributing the withdrawal to themselves, the amount is directly donated to a qualified charity. Starting in 2024, IRA account holders aged 70 ½ and older can now make QCDs of up to $105,000 dollars annually. These qualified charitable distributions can be used to satisfy part or all of your IRA minimum distribution that is required.

Income timing or spreading with Roth conversions in the years leading up to RMDs or during retirement, depending on individual situation.

Contact a member of your tax team with any questions; we would be happy to discuss them with you.

Chris Archambault 12/11/23 Chris Archambault 12/11/23

Breaking the Code: Phase out of Bonus Depreciation in 2023

By: Justin Lin, Tax Associate

Act now to maximize the benefits of bonus depreciation before it phases out. Beginning in the 2023 tax year (and over the next five years), the IRS is ramping down the allowable percentage of bonus depreciation for the cost of qualifying business property.

What is Bonus Depreciation?

Bonus depreciation is an incentive designed for business owners to accelerate the depreciation process (for qualifying business expenses) by realizing an additional amount of depreciation in the first year of purchase. In prior years, this amount was 100%, meaning taxpayers could recognize all the depreciation expense in the first year of the purchase. This amount is being reduced to 80% in 2023, 60% in 2024, 40% in 2024, and 20% in 2026. Barring any legislative changes, there will be no allowable bonus depreciation starting from 2027. With this phase out, businesses have greater incentive to make qualifying capital expenditures in the near-term. While bonus depreciation may be no longer be an option in the future, businesses will still be able to take advantage of Section 179 deductions.

What is Section 179 , and how is it related?

The Section 179 deduction is another tax incentive which accelerates the depreciation process for qualifying equipment. This is different from bonus depreciation in that the deduction only applies to tangible property used in a business such as machinery, equipment, furniture, and fixtures. For 2023, the Section 179 deduction is $1,160,000, with a phase out threshold for purchases above $2,890,000 (reduced on a dollar-for-dollar basis). These limitations are currently adjusted annually for inflation.

An Example - 2023

Fortunately, taxpayers can use both deductions together – combining them while both are available to provide the greatest benefit. Per IRS regulations, Section 179 deduction must be applied first, follow by bonus depreciation (if both are applicable)

Let’s say for example, you purchase qualifying business equipment for $3,000,000 in 2023. This is $110,000 over the phase out threshold of $2,890,000 for the year – meaning your section 179 deduction is reduced $110,000 from the maximum deduction of $1,160,000 to $1,050,000. Then, your bonus depreciation deduction of 80% is based on the cost of the equipment less the section 179 deduction. 80% * ($3,000,000 - $1,050,000) = $1,560,000. Add in your standard depreciation (assuming straight line depreciation over 5 years) which is calculated by dividing your adjusted cost basis (net of section 179 and bonus depreciation) over the depreciable life of the asset ($3,000,000-$1,050,000-$1,560,000)/5=$78,000. In total, you can deduct/depreciate $2,688,000 of the equipment’s $3,000,000 value in the first year.

If you’re wondering how these benefits could impact your business tax deductions, don’t hesitate to reach out to us.

Tax Brackets - 2024 Updates

See the table below for the updates to the Tax Rates for the tax year 2024, which will be effective for taxes due in 2025.

Chris Archambault 11/17/23 Chris Archambault 11/17/23

Breaking the Code: Massachusetts Estate Law Changes for Tax Year 2023

By: Autumn Hale, CPA

Significant changes to Massachusetts estate tax laws were signed into legislation by Governor Maura Healey under The Act to Improve the Commonwealth’s Competitiveness, Affordability, and Equity (The Act) in early October. These changes retroactively apply to the entirety of 2023 and impact Massachusetts residents, non-residents who hold property in Massachusetts, those administering estates, and those earning taxable income in Massachusetts.

Massachusetts Estate Tax Changes

In tax years prior to 2023, Massachusetts estate tax only applied to estates valued over $1 million. The Act changes this to $2 million beginning with tax year 2023. In the past, the $1 million was more of a threshold rather than an exemption. If a decedent’s estate was valued over $1 million, the entire estate was subject to tax, not just the portion over $1 million. Under The Act, however, the $2 million is a true exemption and only the portion of the estate valued over $2 million will be taxed. This removes the cliff effect that estate tax previously faced. The tax will be calculated using a graduated rate beginning at 7.2% and increasing to a maximum of 16% for taxable estates more than $11 million. In some cases, even if no tax is due on the estate, a Massachusetts estate tax return will still need to be filed.

Unlike the federal estate tax exemption which increases each year to account for inflation, the Massachusetts $2 million threshold will remain as such until a new law is passed to change it. It is not adjusted annually. The Massachusetts exemption was last changed in 2006, so it is likely that it will stay unchanged for the next several years.

Non-Resident Implications

The Act also implicates Massachusetts non-residents who hold property in the Commonwealth and residents with property in other states. If a Massachusetts resident dies holding property outside of the Commonwealth, the Massachusetts estate tax will be reduced proportionately by the value of that property. Non-residents owning property in Massachusetts, who have a total taxable estate over the $2 million threshold, will also be subject to Massachusetts estate tax. They will pay Massachusetts estate tax in an amount proportionate to the value of the property owned in the Commonwealth.

Filing Implications

If you have already filed an estate tax return for a decedent who died on or after January 1, 2023, and the value of the estate was below the $2 million dollar exemption, there is no action required. The state will review all returns and recalculate the tax based on the $2 million dollar exemption. If there is an overpayment on the account after review, a refund will be issued. All returns are reviewed in the order they were filed and received.

If you need to file a return for a decedent that passed on or after January 1, 2023, the Massachusetts Department of Revenue (DOR) recommends filing an extension. Currently the DOR is working to update their systems and estate tax forms. When filing an extension, calculate the tax based on the new tax law and pay the amount by the original filing date. The DOR expects all systems and forms to be updated by the extended due date. If you are unable to extend the return, you may file the return based on the statute in effect prior to January 1, 2023. The return will then be reviewed and any excess tax paid will be refunded.

If you have any questions on the estate tax law changes, please reach out to your tax team to schedule a call at your convenience. if you haven’t revised your estate plan recently, we are happy to provide a recommendation for estate attorneys that will be able to assist with new or revised estate documents.

Chris Archambault 8/21/23 Chris Archambault 8/21/23

Breaking the Code: Massachusetts Charitable Tax Deduction

By: Gabriela Nolasco, Tax Associate

For Massachusetts taxpayers, a former tax deduction that was long discussed has finally been revived. All Massachusetts taxpayers should consider taking advantage of this opportunity as it not only helps from a financial standpoint, but it also impacts our communities in a positive way.

This deduction can only be used to offset “Part B” income. This includes wages, pensions, business income, rental income, alimony, and gambling / lottery winnings. The deduction cannot be used to offset investment income (interest, dividends, and capital gains). If there is an excess of charitable deduction limited by “Part B” income, the remainder can be carried forward for five years.

Since short-term capital gains are taxed at 12%, this deduction does not let you utilize the savings against the higher tax rate. However, the 4% surtax which began in 2023 – referred to as “Massachusetts’ Millionaire’s Tax” – could allow philanthropic taxpayers to receive a 9% state tax benefit.

Who qualifies? Any taxpayer: full-time resident, part-year resident, and nonresident taxpayers. Charitable contributions can be deducted on Schedule Y of their 2023 Massachusetts income tax return. For part-year resident taxpayers the deduction is based on the pro rata share of time spent living in Massachusetts. For nonresident taxpayers the deduction is based on the portion of MA income to total income.

Which contributions qualify? The charitable deduction is for all contributions that are typically allowed at the Federal level: cash, stock, donor-advised fund contributions, etc. The MA deduction differs from the Federal deduction in two main ways: 1) Household goods and used clothing are not eligible for the state-level deduction. 2) Taxpayers do not need to itemize deductions at a Federal-level to benefit from the state-level deduction.

What should we do? Keep detailed notes on cash and non-cash charitable contributions throughout the year even if you have not reported this information previously (or when the standard deduction was used previously).

This new charitable contribution deduction in Massachusetts will benefit all taxpayers and can be a powerful planning tool. Please reach out with any questions about your personal tax situation.

Chris Archambault 6/2/23 Chris Archambault 6/2/23

Breaking the Code: Clean Energy Tax Credits

By: Matthew Floyd, Northeastern Co-op

With changes to the tax law every year, we wanted to keep you up to date on the newest rules and regulations for clean energy tax credits.

Home Energy Tax Credits

The Inflation Reduction Act of 2022 expanded the amounts and types of qualifying expenses for Home Energy Tax Credits. The Energy Efficient Home Improvement Credit or the Residential Clean Energy Credit are available for the year in which qualifying improvements are made.

Any taxpayer who uses a property solely for business-use cannot claim these credits. However, if less than 20% of the property is for business-use the full credit may be available. Business-use of more than 20% is subject to limitation based on the share of expenses allocable to non-business use of the home. Both these credits are nonrefundable which means that your tax liability can be reduced but no additional refund is allowable with no tax liability.

Energy Efficient Home Improvement Credit

You may claim the energy efficient home improvement credit for improvements to your main (primary) home. You can’t claim the credit if you’re a landlord or other property owner. In addition, the home must be located in the United States and be an existing home that you improve, not a new home.

The maximum credit each year is $1,200 for energy property costs and home improvements with limits of $500 on doors, $600 on windows, and $150 on home energy audits. Additionally, $2,000 per year on qualified heat pumps, biomass stoves or biomass boilers with a thermal efficiency rating of at least 75%. Click Here to see a full breakdown of the credits available for certain equipment.

Residential Clean Energy Credit

From 2023 to 2032, this credit is equal to 30% of the costs of new and qualified clean energy property (drops to 26% in 2033 and 22% in 2034). Expenses that qualify for this credit are solar electric panels, water heaters, wind turbines, geothermal heat pumps, fuel cells, and battery storage technology. You may be able to claim a credit for certain improvements made to a second home located in the United States that you live in part-time and don't rent to others.

This credit has no limit except for the limitation to fuel cell property. Fuel cells are limited to $500 per half kilowatt of capacity and cannot exceed $1,667 if there are multiple residents of the property.

Solar water heaters must be certified by the Solar Rating Certification Corporation, or a comparable entity endorsed by your resident state. Geothermal heat pumps must meet Energy Star requirements at the time of purchase. Battery storage must have a capacity of at least 3 kilowatt hours.

Credits for New Clean Vehicles

Any taxpayer who purchased a new electric vehicle may be eligible for a tax credit. To qualify, you must buy the vehicle for your own use, not for resale, and use it primarily in the U.S. In addition, to be eligible for a tax credit the Adjusted Gross Income (AGI) of the taxpayer must fall below the following thresholds: $300k for married filing jointly, $225k for Head of Household, and $150k for single or married filing separately. The taxpayer may use their modified AGI from the year in which they take delivery instead of year of purchase of the vehicle if that falls below the applicable threshold.

To qualify for the credit, the vehicle must have a battery capacity of at least 7 kilowatts, have a gross weight rating of less than 14,000 pounds, be made by a qualified manufacturer, undergo final assembly in North America, and for vehicles placed into service after April 17, 2023, meet critical mineral and battery requirements. The vehicle must be purchased new and the seller must report the required information to both the taxpayer and the IRS at the time of sale. Additionally, the MSRP may not exceed $80k for vans, sport utility vehicles, and pickup trucks or $50k for all other vehicles.

For vehicles placed in service between January 1, 2023, and April 17, 2023, the credit is equal to $2,500 plus $417 for each kilowatt of battery capacity beyond 5 and $417 for a vehicle with at least 7 kilowatts of battery capacity (limit of $7,500). For vehicles placed in service after April 17, 2023, the credit is $3,750 for meeting critical mineral requirements and $3,750 for meeting battery requirements for a maximum of $7,500.

Electric Vehicle Charger Credit

Any taxpayer who installs an electric vehicle charger in their primary residence is eligible for a credit equal to 30% of the installation costs up to $1,000.

Child and Dependent Care Credit

The Child and Dependent Care Credit is available to taxpayers who pay expenses to a qualifying individual to enable the taxpayer and their spouse to work or look for work. Expenses are qualified if they are paid for care provided for a dependent under the age of 13 or a spouse / dependent of any age who is incapable of self-care and lives with the taxpayer for more than half the year. The credit is calculated based on income and the percentage of expense the taxpayer incurs (maximum of 50%).

These are just a few of the many tax credits available in 2023. Please reach out with any questions about your personal tax situation.

Chris Archambault 2/27/23 Chris Archambault 2/27/23

Breaking the Code: Updates to Massachusetts Conformity with the Internal Revenue Code

By: Matthew Knightly

The tax filing season is well underway. Ahead of the upcoming deadlines, we wanted to provide an update on recent Massachusetts conformity changes to the Internal Revenue Code.

A Massachusetts taxpayers’ gross income is generally based on the taxpayer’s Federal gross income under the Internal Revenue Code as of a specific date. Massachusetts personal income tax previously conformed to the internal revenue code as of January 1, 2005. The conformity date has now been updated to January 1, 2022.

We have highlighted a few of the key updates below.

Alimony Received and Paid

Under the Tax Cuts and Jobs Act of 2017, alimony payments received from a former spouse are not included in the recipient’s federal gross income. In addition, a taxpayer cannot deduct alimony payments to a former spouse from federal gross income. This is the case for any payments made pursuant to any divorce agreement or separation instrument executed after December 31, 2018.

Prior to the Code Update, Massachusetts conformed to the federal income tax treatment of alimony and separate maintenance payments under the 2005 Code. Therefore, a taxpayer who paid alimony to a former spouse could deduct the amount of such payments from Massachusetts gross income, and the recipient of such payments was required to include those payments in Massachusetts gross income.

As a result of the update, Massachusetts now conforms to the 2022 Code’s treatment of alimony and separate maintenance payments. Consistent with the federal rules Massachusetts now eliminates alimony payments as a deduction from, and inclusion in, Massachusetts gross income. This is the case for all payments made pursuant to any divorce or separation instrument executed after December 31, 2018. If payments are associated with any divorce or separation agreement executed prior to December 31, 2018, the payments will be factored into both Federal and Massachusetts gross income.

Partial Exclusion for Gains from Certain Small Business Stock

The IRS allows for the exclusion of gains from the sale or exchange of qualified small business stock held for more than 5 years. The exclusion applies to gains on qualified small business stock acquired on or after September 27, 2010. However, under the 2005 Code, only 50% of the gain was excluded.

Prior to the Code Update, Massachusetts applied the 50% federal exclusion for gains on qualified small business stock. As a result of the Code Update, Massachusetts conforms to the 100% exclusion with respect to sales or exchanges of qualified small business stock that occur on or after January 1, 2022.

In addition to the exclusion, Massachusetts taxes gain on the sale or exchange of certain small business stock at a reduced rate of 3%. The reduced rate continues to apply to gains that are not eligible for the full federal exclusion, if all the requirements for the reduced rate are met.

Only certain types of companies are considered qualified small businesses and therefore have gains eligible for qualified small business stock treatment. Firms in the technology, retail, wholesale, and manufacturing sectors are eligible as QSBS, while those in the hospitality industry, personal services, the financial sector, farming, and mining are not. Additionally, to qualify, the business’s assets cannot exceed $50 million on or after the issuance of the stock.

For the stock to be considered qualified small business stock, and associated gains be eligible for exclusion treatment, the following must apply:

The investor must not be a corporation.
The investor must have acquired the stock at its original issuance.
The investor must have purchased the stock with cash or property or accepted it as payment for services performed.
The investor must have held the stock for at least five years.
At least 80% of the issuing corporation's assets must be used in the operations of one or more of its qualified trades or businesses.

Investments in Qualified Opportunity Zones

The Internal Revenue Code allows taxpayers to defer gains on the sale of property for federal tax purposes to the extent gains are invested in a Qualified Opportunity Fund (“QOF”) within 180 days of the sale of the original property. A QOF is an investment vehicle organized for the purpose of investing in Qualified Opportunity Zone property.

The deferred gain is then recognized when there is an inclusion event (sale of part or all the investment). The amount of deferred gain subject to tax will be reduced if the interest in the QOF has been held for five years or more. If the interest in the QOF is held for ten years or more, increases in the value of the QOF are excluded from federal income when sold.

As a result of the Code Update, starting for the 2022 tax year, Massachusetts now conforms to the Internal Revenue Code as it relates to treatment of opportunity zones for qualified taxpayers.

Limitation on Excess Business Losses of Noncorporate Taxpayers

For taxable years beginning on or after January 1, 2021, and ending before January 1, 2027 (i.e., the 2021 through 2026 taxable years), noncorporate taxpayers are prevented from deducting excess business losses. Excess business losses include losses greater than $250,000 over gross business income. The excess business losses that are disallowed may be carried forward as net operating losses for federal income tax purposes.

Prior to the Code Update, Massachusetts did not conform to the excess business loss limitations because that section was not included in the 2005 Code. As a result of the Code Update, Massachusetts now conforms to the excess business loss limitations for tax years beginning on or after January 1, 2022.

A key distinction for Massachusetts, that differs from Federal treatment, is that losses disallowed due to the limitation may not be carried forward. Additionally, Congress extended the excess business loss limitation through the 2028 taxable year. Massachusetts, however, does not conform to the extension of the excess loss rules and will only apply in the state through the 2026 taxable year.

We will continue to monitor additional changes to Massachusetts conformity with the Internal Revenue Code and provide updates as they arise. Please reach out with any questions about your personal tax situation.

For more detail on the Massachusetts conformity changes, please see following link: Mass Department of Revenue - Conformity to Select Provisions of the 2022 Internal Revenue Code

Chris Archambault 1/18/23 Chris Archambault 1/18/23

Breaking the Code: Secure Act 2.0

By: Rachel Speigle Dunnigan, CPA

In the last week of 2022, President Biden signed the Consolidated Appropriations Act into law. Popularly known as “Secure Act 2.0”, this law set-up a major overhaul of retirement-related tax provisions, building on the Secure Act from 2019.

Increased the Catch-Up Contribution Limit

Employees over age 50 can currently make additional catch-up contributions to retirement plans in excess of the usual contribution limits. For 2023, this catch-up limit for 401(k) and 403(b) plans is $7,500. Beginning in 2025, employees aged 60-63 will have a catch-up limit of $10,000. Catch-up contributions for 401(k) plans, 403(b) plans, and IRAs will now be indexed to inflation.

Required Minimum Distributions (RMDs) Delayed

The Secure Act of 2019 delayed RMDs to begin at age 72. The new law further increases the RMD age to 73 beginning in 2023 and to 75 beginning in 2033. This means that anyone who turns 72 in 2023 will not need to start RMDs until 2024. Please note that this does not apply to individuals who have already reached their RMD age.

Increased Qualified Charitable Distribution (QCD) Limit

Currently, taxpayers are allowed to exclude $100,000 of taxable income from a RMD per year if contributed directly to a Qualified Charity. This limit will be indexed to inflation beginning in 2024. Additionally, the Secure Act 2.0 allows for a one-time $50,000 QCD to a charitable trust or gift annuity. Gifts to donor-advised funds and private foundations are still excluded.

529 Plan Rollovers

Beginning in 2024, a tax-free rollover of a 529 plan to a Roth IRA will be allowed up to a lifetime limit of $35,000 with restrictions: the 529 plan is required to have been open for at least 15 years. The rollover to the Roth IRA must be made under the beneficiary’s name and is limited to the annual Roth IRA contribution limits (in 2023, $6,500) until the lifetime limit is achieved. Contributions made in the last five years cannot be rolled over.

Automatic Enrollment in Retirement Plans

Effective for years beginning after December 31, 2024, new 401(k) and 403(b) plans are required to automatically enroll employees between 3% - 10% of their salary. Employees are able to opt out of coverage but automatic enrollment significantly increases participation. All current plans are grandfathered and there are exceptions for some small businesses.

If you have any questions about your individual tax situation, please don’t hesitate to reach out. We will keep you informed of any updates as they become available.

Chris Archambault 12/14/22 Chris Archambault 12/14/22

Breaking the Code: Year-End Planning

By: Meera Bhanushali & Justin Lin

The end of the year is fast approaching! It's time to revisit tax planning strategies, review scenarios, and consider implementation prior to year-end. We have highlighted a few options in order to start the conversation.

Charitable Giving

If charitably inclined, there are a few considerations when structuring your contributions for 2022. Cash contributions made to qualified organizations are limited to 60% of a taxpayer's adjusted gross income (AGI). With static standard deduction rates for 2022, we still recommend considering bundling charitable contributions. This could be done by timing contributions (i.e. pulling forward 2023 donations to December or delaying usual 2022 donations to January) or contributing to a Donor Advised Fund (DAF).

DAFs allow individuals to fund accounts and receive a tax deduction today and distribute both the original funds and earnings to charities over time. Taxpayers can also donate appreciated stock to a DAF or directly to charities. This allows individuals to take advantage of both a charitable deduction and avoid realizing capital gains on the appreciated stock. Non-cash charitable contributions greater than $5,000 other than stock require an appraisal of items donated. One note that is consistent with previous years: all donations must be made by December 31, 2022 in order to be eligible for taxpayers’ 2022 tax returns.

Annual Gifting

For personal gifting, taxpayers may give up to $16,000 each (increased $1,000 from 2021) to as many individuals as they would like with no tax implications or any reduction of the lifetime gift and estate tax exemption. For gift tax purposes, the date of the completed gift is the date the check is cashed / funds are transferred - the check must be cashed on or before 12/31 to count for this tax year. This exclusion will increase to $17,000 in 2023.

Retirement Plans Actions

Consider making the maximum contributions to retirement accounts - 401(k)s have a contribution deadline of 12/31, while traditional IRAs, Roth IRAs, SEPs and Simple IRAs have an extended deadline of 4/15. If you are 50 or older, you may make a catch-up contribution as well.

Individuals may want to consult with financial advisors and consider converting pre-tax traditional retirement accounts to post-tax Roth accounts prior to year-end. This scenario may be attractive if 2022 income is expected at lower tax rates than typical years. The benefit, though it will result in higher income taxes for 2022, is that the post-tax assets will accumulate in the Roth and allow tax-free distributions in the future.

Flexible Savings Account (FSA) and Health Savings Accounts (HSAs)

FSAs and HSAs are pre-tax accounts that can be used to cover out-of-pocket healthcare expenses. FSA funds are required to be used by 12/31 (“use it or lose it”). HSAs allow individuals to contribute $3,650 a year and families to contribute double that amount, plus an additional $1,000 for those over 55. The contribution deadline for HSAs for 2022 deductions is 4/15.

We are also including some important tax numbers for 2023 below. Please don't hesitate to reach out with any questions on your specific tax situation.

Chris Archambault 8/18/22 Chris Archambault 8/18/22

Breaking the Code: Summer 2022 Legislative Changes

By: Danny Richmond, Intern

We wanted to provide an update on new tax legislation - both federally with the Inflation Reduction Act passed by the Senate as well as at the state level for Massachusetts residents.

Inflation Reduction Act

Passed into law on Tuesday, the bill will provide a myriad of climate and health care funding, paid by instituting a new corporate minimum tax rate of 15% on the profits of companies with more than $1 billion in annual revenue. A new 1% tax on companies buying back stock is included in the pending legislation as well. Part of the bill also increases funding for the Internal Revenue Service, which has been severely underfunded in recent years.

Massachusetts FY23 Budget

Governor Charlie Baker signed his Fiscal Year 2023 budget on July 28. A highlight of the new budget is updating the Massachusetts income tax conformity date from the 2005 version of the Internal Revenue Code to the one in effect on January 1, 2022. We expect a few of the following changes from this conformity date change noted below, but will be awaiting further clarification from the state:

Qualified Small Business Stock guidelines
Gambling Losses
Alimony Received and Paid post 12/31/2018
Student Loan Interest Deduction

Massachusetts Tax Relief

A tax law from 1986 that’s only been triggered once before may result in Massachusetts’ taxpayers receiving almost $3 billion in relief. The law’s goal was to limit the state’s tax revenue growth to the amount of growth in wages and salaries for the year. If total tax revenue exceeds that amount in 2022, then taxpayers are due a proportional credit. The timing and form of payment or credit is not yet decided: there may be rebate payments to residents or a credit against tax liability.

Massachusetts Millionaire Tax

This November, keep an eye out for a ballot question centered around raising taxes on Massachusetts’ wealthiest residents. The “Fair Share Amendment” would create a 9% income tax rate on annual earnings over $1 million. Any earnings below $1 million would be subject to the normal 5% rate. All revenue from this new tax would go towards education or transportation, subject to appropriation.

Massachusetts House Bill 503: Currently Stalled

The Massachusetts Legislature is working to pass a $4+ billion economic development and tax relief bill that would include the following changes:

Updated Estate Tax Code
- Decrease the value of any estate of someone dying on or after January 1, 2023 by $2 million instead of the current $1 million
- Additionally, only the amount of the estate’s taxable value that exceeds the $2 million threshold is subject to be taxed, eliminating the “cliff effect” of the current code
Increasing the rental deduction from $3,000 to $4,000
Increasing the credit for dependents or other qualifying individuals to $310 each, from the current $180 credit
Matching 40% of the federal earned income credit instead of the current 30% match
Increasing the senior circuit breaker credit to $2,340, from the current $1,170 credit

Chris Archambault 5/19/22 Chris Archambault 5/19/22

Breaking the Code: Retirement Strategies with Mega Backdoor Roths

By: Justin Lin, Associate

Regardless of your age as you read this, it’s always a good time to start thinking and planning for retirement. Fortunately, there are many tax-advantaged options that can help you save the amount you need for retirement.

Backdoor Roth IRA Conversion

While taxpayers with higher income levels are not allowed to contribute directly to Roth IRA accounts, they can still take advantage of these accounts by utilizing this option. Taxpayers can make a non-deductible contribution to a traditional IRA and immediately convert it to a Roth IRA. These contributions are limited to $6,000 for 2022 ($7,000 if 50 or older). In order for this to not result in any additional tax liability, the taxpayer should not have any Traditional IRA or SEP IRA balances (though traditional 401(k) balances are OK).

Mega Backdoor Roth IRA Conversion

Since many would like to utilize over the annual contribution limit, this is where the aptly named mega backdoor Roth comes into play. First and foremost, taking advantage of this strategy hinges on your employer-sponsored 401(k) meeting the following criteria:

Allows conversion to Roth / in-service distributions
Allows non-deductible / post-tax contributions

If you’re lucky enough to utilize this strategy, you could contribute up to $40,500 to a Roth IRA or Roth 401(k) in 2022 - all of which would grow tax-free. So how exactly could you contribute almost 7x the normal contribution limit? Here’s an example along with the steps involved to execute the mega backdoor Roth.

Example: You are under 50, with a salary of $150,000. Your employer offers the mega backdoor Roth and matches 3% of your salary. If you maximize your pre-tax contribution, the total pre-tax contribution would be calculated as $20,500 + (3% * $150,000) = $25,000. The maximum post-tax contribution you could then make is the maximum annual limit of $61,000 less $25,000 pre-tax contribution = $36,000 of post-tax contributions. At this point, you have maximized your pre-tax contribution of $25,000 plus your post-tax contribution of $36,000. Then you immediately rollover the $36,000 to a Roth IRA and $25,000 to a traditional IRA. The $36,000 would grow tax-free and the $25,000 bucket would grow tax-deferred.

To execute, please review the following steps:

1) Confirm your employer’s plan offers both post-tax contributions and in-service distributions.

2) Calculate your employee pre-tax contribution. For 2022, the pre-tax contribution is capped at $20,500 ($27,000 if 50 or older).

3) Calculate your employer match on your employee contribution from #2.

4) Add items #2 and #3 - this is your total pre-tax contribution.

5) Take the total annual 401(k) contribution limit for the year of $61,000 ($67,500 if 50 or older and subtract the total pre-tax contribution (item #4). This is your post-tax contribution amount.

6) Take a total distribution of all post-tax and pre-tax amounts in your 401(k), convert the post-tax amounts to a Roth IRA, and convert the pre-tax amounts to a traditional IRA

Feel free to reach out so we can help you determine the best options for your individual situation.

Chris Archambault 2/1/22 Chris Archambault 2/1/22

Breaking the Code: IRS Backlog

By: Danny Richmond, Northeastern Co-Op

Monday, January 24, 2022 marked the first day of electronic filing for the 2021 tax season and the IRS is already behind schedule. With over 11 million unprocessed returns from 2020 and understaffing issues, there will surely be more delays moving into the upcoming tax season.

While the IRS has around 200 job openings, low wages paired with the chaos and complexity of the job continue to cause the IRS to lose potential employees to other similar-paying jobs. On top of that, the rise in COVID-19 case numbers results in a higher number of their employees continuing to work from home. As a result, taxpayers are struggling to connect with the IRS. In 2021, there were 282 million callers who had a slim 11% chance of reaching an employee, down from 24% in 2020 and 29% in 2019.

Due to the pandemic, distributions of three rounds of stimulus payments and the expanded child tax credit contribute to the buildup of unprocessed returns. The IRS has issued $812 billion in stimulus and over $93 billion in advanced child tax credit. These have required a significant addition to the workload of 157 million individual returns in 2020 and over 160 million expected individual returns for 2021.

If you have received any economic impact payment / stimulus checks or the monthly child tax credit prepayments in 2021, be on the lookout for letters from the IRS (Letters 6475 and 6419). These will be necessary for your 2021 income tax filings as they provide documentation of the payments received.

Please note: the IRS is now reporting that some of the letters regarding the child tax credit prepayments may contain inaccuracies. To combat these potential errors, the IRS revamped childtaxcredit.gov, which enables anyone who received advanced child tax credits to see how much they received and file an accurate return.

Despite the IRS’ delays, unprocessed returns, and refunds still waiting to be distributed from 2020, electronically filing a tax return and opting in for direct deposit / debit is the fastest and easiest process. Please reach out to us if you receive any notices from the IRS. As always, we will keep you up-to-date with the latest information available.

Chris Archambault 8/9/21 Chris Archambault 8/9/21

Breaking the Code: Tax Loophole for Crypto Losses

By: Jeffrey M. Krueger, CPA, MSA, CFP®

With the recent volatility in the crypto markets, some investors are benefiting by harvesting losses as the underlying crypto asset drops in price. Unlike stocks and mutual funds, crypto currencies are treated as “property” as opposed to “stocks and securities.” Therefore, wash sale rules, which prevent investors from using losses on a stock that they have bought back within 30 days, do not apply.

This opens an opportunity in the tax code for crypto investors to sell their crypto holdings if there is a drop from their original purchase price and immediately buy it back. This allows them to still participate if the price rebounds (without waiting the 30 days, like stocks), while locking in tax losses that can be used to offset other capital gains and/or up to $3,000 of other income.

As an example, let’s say an investor purchase 1 bitcoin at a $40,000 price. If the price dropped to $30,000, this investor could have sold his 1 bitcoin and immediately bought it back, resulting in a $10,000 capital loss. If the crypto rebounded to $45,000, the investor would be up $5,000 in total, but his tax return would show a $10,000 loss.

Where investors may be purchasing multiple crypto currencies and in multiple lots, keeping accurate records (purchase details, sales details, transfers, etc.) is vital to be able to substantiate the calculations to the taxing authorities.

Chris Archambault 6/2/21 Chris Archambault 6/2/21

Breaking the Code: Tax on Collectibles

By: Tyler Nguyen

An intriguing topic for many individuals with family heirlooms or perusers of antique stores are collectibles. Collectibles include any work of art, any rug or antique, any metal or gem (with limited exceptions), any stamp or coin (with limited exceptions), any alcoholic beverage, or any other tangible personal property specified by the Treasury. Collectibles must be held for greater than one year. Other examples of collectibles include sports memorabilia, stamps, comic books, and non-fungible tokens (NFTs). NFTs have emerged in recent months as the next hot ticket item; in short, they are digital collectibles stored on blockchains, similar to how cryptocurrency is stored.

Taxpayers that deal with collectibles can be broken up into four categories: dealers, creators, investors, and collectors. All treat income, losses, and expenses uniquely.

Dealers & Creators

Dealers of collectibles are considered a trade or business recognized by the IRS, which means that they can deduct any expenses relating to the collectibles they deal with. Any gain / loss is treated as ordinary income and is taxed at marginal tax rates.

Creators of collectibles incur ordinary income when selling their collectibles, taxed at marginal tax rates. However, unless they can prove they are a trade or business recognized by the IRS, their expenses / losses are typically nondeductible.

Investors & Collectors

Investors selling collectibles are taxed at 28%, higher than the typical preferential long-term capital gain tax rates. Any losses are subject to the same carryforward rules as capital losses. Prior to the Tax Cuts and Jobs Act of 2017, expenses for investors were deductible, although they are currently suspended through 2025.

Collectors of collectibles will have the same capital gain treatment as investors (28%), but any expenses / losses are always nondeductible.

Charitable Planning

When donating collectibles to charities, the treatment can also vary depending on the taxpayers’ involvement and specification. For investors and collectors in which the collectible is donated to public charity and used for the charity’s exempt purpose (i.e. donating artwork to be shown in an art museum), the fair market value of the collectible can be taken as a charitable deduction. The deduction is limited to 30% of AGI; any excess deduction can be carried over to the next five years.

For situations in which the collectible is donated to a private charity, for purposes other than the exempt purposes (i.e. donating artwork to be sold for income to a science museum), or if artwork is gifted by the creator, only the cost basis of the collectible can be taken as a charitable deduction. The deduction is limited to 50% of AGI; any excess deduction can be carried over to the next five years.

There are other scenarios in which a portion of the donation would qualify as a charitable deduction. A bargain sale, when collectibles are sold to a charity under fair market value, triggers both capital gain as well as a charitable deduction. Donations of undivided fractional interest in a painting, in which the charity gains full control over the asset within ten years of donation, allow for partial charitable deductions as well.

If you are considering selling or donating the artwork or antiques sitting around your home, please feel free to reach out. There are many options available and we can help determine potential tax impact of your individual situation.

Chris Archambault 5/3/21 Chris Archambault 5/3/21

Breaking the Code: Mortgage Refinancing

By: Rachel Speigle Dunnigan, CPA, MSA, CFP®

We’ve seen many clients refinancing their mortgage over the past year due to historically low interest rates. If you’ve been considering refinancing but haven’t pulled the trigger, don’t worry - it’s not too late! Mortgage refinance rates have dropped across all loan types even over the last 10 days. While a fraction of a percent can make a substantial difference in savings, there are other considerations that may be useful depending on your individual situation.

Lender Intricacies

All mortgage lenders are different and the deals they may offer their borrowers can vary. Some may be offering refinances without closing costs or points. On the flip side, always read the fine print! Make sure you shop around, understand what fees or closing costs are being included, and how new loan terms could affect you in the future.

Be Creative

If 2020 allowed you to save up a bit of cash usually spent on vacation or restaurant visits, you might consider reducing the length of the loan with a lower interest rate. While the monthly payment may increase, the total amount spent on interest over the life of the loan may decrease significantly. If you currently have an adjustable-rate mortgage, you may think about locking into a lower rate on a fixed rate mortgage. Still stuck at home and finally getting to that bathroom renovation? A cash-out refinance might be right up your alley. There is no one-size-fits-all approach to refinancing, so make sure that you come to the table with an open mind.

Tax Implications

As a reminder, if your original home purchase or loan was on or before December 15, 2017, the maximum mortgage amount that qualifies for deductible interest if $1,000,000. For purchases after December 15, 2017, the maximum loan balance is $750,000. The amount includes loans to purchase or substantially improve your home. Traditional closing costs are not deductible. However, if you pay points related to a refinance, the points can be amortized over the life of the new loan.

Many companies have online calculators in order to quickly show the cost savings with a refinance. The low rates that we’re seeing can be attributed to the growing economy, inflation rates, and increased employment. While you can still take advantage of this current market, don’t wait too long! We are beginning to see mortgage rates inching higher as the economy recovers.

Chris Archambault 3/1/21 Chris Archambault 3/1/21

Breaking the Code: Bitcoin Basics

By: Tyler Nguyen

This month, one of our interns, Tyler Nguyen, did a deep dive into a recent hot topic - Bitcoin.

What is Bitcoin? Bitcoin was the first type of cryptocurrency, developed in 2008 by an anonymous person. What makes Bitcoin and other cryptocurrencies so unique is that there is no centralized system (like banking) that may swap the supply or the valuation of the currency. One way Bitcoin in particular is not centralized is in its "blockchain" - a database that is not controlled by or stored on one particular system but is constantly added to in "blocks" during each transaction of Bitcoin.

Living up to its name, cryptocurrency uses algorithms / keys in order to keep track of transactions, to create new units (mining), and to keep the identity of the person using cryptocurrency anonymous.

Bitcoin has steadily started to gain more and more mainstream popularity in the past few years - a lot of that due to the speculation around it and its skyrocketing value. Many investors have high hopes for Bitcoin to increase further. Companies, including Tesla and Square, have recently disclosed that they are holding over $1 billion worth of Bitcoin. Tesla is even planning to accept Bitcoin as payment. Despite these advances, there are still barriers to navigate until Bitcoin is able to be widely used for purchases. Many Bitcoin transactions include converting Bitcoin to a fiat currency, which creates a burden on the companies that handle those transactions and causes fees to be high for the consumer.

How is Bitcoin stored? Bitcoin and other currencies have private keys associated with them that must be entered in order to access them. Individuals set up "wallets" that store these keys and allow the user to access their cryptocurrency (e.g. web wallets to access private keys to make transactions easier at the cost of security or USB drives that store the keys). Without the keys, it is impossible to use the cryptocurrency. If an individual were to lose the keys or if they cannot remember the password, they have no other way to retrieve their cryptocurrency.

Is Bitcoin taxed? On page 1 of the 2020 Individual Tax Return, the IRS has included a required question inquiring if taxpayers have received, sold, sent, exchanged, or acquired (any type of transaction) virtual currency in 2020. Cryptocurrency is treated as capital property, and the taxpayer has to pay capital gains tax when selling any form of cryptocurrency. Selling also includes any type of exchange of any cryptocurrency for goods or services (the taxpayer does not have to receive cash consideration for it to be considered taxable income). "Mining" cryptocurrency leads to cryptocurrency being recognized as ordinary income for the taxpayer. While becoming a more mainstream conversation, many don’t realize that these transactions are subject to taxation. Similar to traditional capital gains, it is very important to keep track of the basis in cryptocurrencies.

Chris Archambault 2/8/21 Chris Archambault 2/8/21

Breaking the Code: Tax Season Updates

By: Meera Bhanushali

We wanted to keep you up-to-date on our current expectations for this tax season as well as new policies from President Biden’s administration. At the height of the pandemic last spring, the IRS extended the 2019 tax season filing deadline to July 15th, 2020, giving taxpayers three extra months to file and pay Federal tax. Many states followed suit. As of now, we expect that the deadline will not be extended. Until any guidance is released from the IRS, please assume that the 2020 tax filing deadline remains April 15th, 2021.

Recovery Rebate Credit / Economic Impact Payment

President Biden has issued an executive order asking the Treasury Department to re-evaluate the delivery structure for stimulus checks. This will ensure that all Americans who are entitled to the payments receive them if they have not yet. An estimated 8 million eligible Americans did not receive the first $1,200 stimulus checks authorized through the CARES Act. Those same people may have also been left out of the $600 checks that were issued in December.

The Treasury Department has said that they will help rectify this by creating online tools to claim payments as well as establishing outreach efforts to let impacted individuals know they may qualify for the money. The Treasury Department plans to add simple options for individuals who have not filed tax returns, including those who do not have internet access or who may not speak English. The IRS is urging those who may be missing payments to file for a recovery rebate credit.

If you received an economic impact payment (EIP), the IRS will be sending out two notices: Notice 1444 for the first round of EIPs in Spring 2020 and Notice 1444-B for the second round of EIPs in December 2020 / January 2021. If you’ve received these notices, please let us know and provide a copy of the notice for our records. We have also added a question on your tax organizer to document the amount of the payment. Only individuals eligible to claim the Recovery Rebate Credit will need to file this information.

Unemployment Benefits

Unlike stimulus payments, unemployment benefits are taxable at the Federal and State level. Individuals who received unemployment compensation last year should expect to receive a 1099-G to file with their tax returns. A new bill, currently in Congress, may extend certain unemployment benefits during 2021. We will keep you informed if this is signed into law and what tax effects it may have.

Interest from IRS Taxable

Last year, the IRS had closed between March and August 2020, creating a severe backlog in their services. For this reason, the processing of tax returns and issuing of refunds was quite behind typical years. If taxpayers received a refund on their 2019 tax returns, they may have also received interest income on the refund amount. This interest income is taxable and will need to be reported on federal income tax returns. Individuals who received interest of $10 or more should receive a form 1099-INT from the IRS. This is also relevant at the state-level for interest on tax refunds.

Non-Employee Compensation

The IRS has introduced a new Form 1099-NEC for tax year 2020, specifically for reporting non-employee compensation for freelancers and contractors. This income is currently defined as payments on a contract basis to complete a project or task for individuals not on payroll. These payments were previously reported on a 1099-MISC which is now used for miscellaneous, rental, or royalty income.

As mentioned previously in this article, we expect further legislation and executive orders in the coming weeks and months. We will be following these updates and will provide information as we see changes to tax law or impacts to our clients’ financial situations.

Chris Archambault 1/5/21 Chris Archambault 1/5/21

Breaking the Code: New Changes for the New Year

By: Rachel Speigle Dunnigan, CPA, MSA, CFP®

On December 27, 2020, President Trump signed into law the new COVID-19 Relief Bill (Consolidated Appropriations Act, 2021). Along with other expected changes for 2021, this new legislation has a range of provisions that we wanted to highlight.

Paycheck Protection Program (PPP) Loans

PPP has been reopened with more money allocated for businesses in need. Along with a few notable updates here, borrowers are now permitted to apply for a second PPP loan. The Second Draw loan program (PPP2) is comparable to the first round with a few exceptions: maximum loan amount of $2 million; businesses must employ 300 or less employees; businesses must have used or will use the full amount of the first loan; must show a 25% gross revenue decline in any 2020 quarter compared to 2019. PPP2 applications are open until March 31, 2021 or until funds are exhausted.

For first-time borrowers, the guidelines are still the same - $10 million limit for businesses with a maximum of 500 employees. Expenses eligible for loan forgiveness may now also include expenditures for personal protective equipment / worker protection, software, accounting, cloud computing needs, and suppliers’ expenditures for essential operations. An important clarification with this new bill is that business expenses paid with the proceeds of a PPP loan are tax deductible. 501(c)(6)s with less than 300 employees and less than 15% of receipts from lobbying are now also eligible to apply for loans.

Economic Impact Payments

The new stimulus checks will be quite similar to those received in the spring and summer of 2020. A maximum of $600 for individuals ($1,200 for joint filers) and $600 for each qualifying child will be provided as a payment for US taxpayers. These amounts are subject to a phaseout of adjusted gross incomes greater than $75k (single) and $150k (joint filers). If individuals received a payment via direct deposit for the first stimulus payment, the same payment method will be used. There is no way to update the payment information for the second stimulus payment. If you are eligible for the stimulus payment but did not receive it, there will be a line item for a credit on your 2020 tax return filing to correct this.

Other Changes for 2021

Temporarily allows a 100% business expense deduction for meals through 2022 (required to be spent on food and beverages provided by a restaurant)
Extended $300 additional weekly unemployment benefits until March 14, 2021
Extended Pandemic Unemployment Assistance program for self-employed individuals
Extended Employee Retention Tax Credit for businesses with a drop in gross receipts or suspended business (fully or partially)
Extended $300 charitable deduction of taxable income for individuals who do not itemize deductions ($600 for joint filers)
Extended allowance of charitable deduction up to 100% of adjusted gross income
Temporary allowance for rollover of unused flexible spending account funds from 2020 to 2021 and 2021 to 2022 (companies must opt-in for employees to take advantage of)
Permanent threshold of 7.5% of adjusted gross income for medical expense deductions
Permanent allowance of retirement-plan withdrawals up to $100k for federally declared disasters; withdrawals taxable or required to be repaid within 3 years
Inflation adjustments and thresholds for tax brackets, standard deductions, retirement and healthcare account contributions, and estate tax lifetime exclusion

As always, please do not hesitate to reach out to us if you have any questions about your specific situation. We will keep you informed of any updates as they become available.

Chris Archambault 12/1/20 Chris Archambault 12/1/20

Breaking the Code: 2020 Year-End Tax Planning Considerations

By: Rachel Speigle Dunnigan, CPA, MSA, CFP®

While there is still uncertainty regarding the future of tax reform or expected changes in 2021, we wanted to highlight a handful of options for our clients to read through, evaluate, and consider implementing prior to the end of the year.

Charitable Contributions

This is a great topic to highlight on Giving Tuesday with a few differences this year. Qualifying cash donations are typically limited to 60% of a taxpayer’s adjusted gross income (AGI). This limitation has been suspended for 2020 so that individuals can deduct up to 100% of their AGI for qualifying cash donations.

The CARES Act allows an additional $300 charitable deduction on qualifying cash donations even for individuals who take the standard deduction. One note that is consistent with previous years: all donations must be made by December 31, 2020 in order to be eligible for taxpayers’ 2020 tax returns. As a heads up, Massachusetts is currently reviewing their state charitable tax deduction. If restored, this will create a tax incentive for giving without requiring taxpayers to itemize deductions - potentially beginning as early as 2021.

Required Minimum Distributions (RMDs)

The CARES Act waived all RMDs for 2020, as well as updated the RMD age tables. The Required Beginning Date is now April 1 following the year the taxpayer turns 72 (for employer retirement plans like 401(k)s, this can be delayed until retirement if still working).

Roth IRA Conversion

Since RMDs are suspended for this year, taxpayers could consider converting the equivalent amount to a Roth IRA. Any future growth of Roth IRAs is tax-free as long as distributions qualify. This could be an especially attractive option if you expect tax rates to increase in the future.

Tax Loss Harvesting

While there are rules to keep an eye out for, such as wash-sale, now is a great time to evaluate investments at a loss with financial advisors. If able to utilize, this strategy is helpful in order to offset other capital gains realized. As a reminder, taxpayers are limited to a $3,000 capital loss deduction when offsetting ordinary income.

Annual Gift Exclusion

Taxpayers may give up to $15,000 each to as many individuals as they would like with no tax implications or any reduction of the lifetime gift and estate tax exemption. For gift tax purposes, the date of the completed gift is the date the check is cashed/funds are transferred - the check must be cashed on or before 12/31/20 to count for this tax year.

We have also included some important tax numbers expected for 2021 below, assuming no changes. As always, we will continue to keep you informed of any expected tax updates as they occur. Please don’t hesitate to reach out if you have any questions about your specific situation.

Chris Archambault 11/4/20 Chris Archambault 11/4/20

Breaking the Code: Paycheck Protection Program Forgiveness Application for Loans Under $50,000

By: Rachel Speigle Dunnigan, CPA, MSA, CFP®

Earlier this year, we wrote about the CARES Act and the Paycheck Protection Program Flexibility Act. A major incentive of these loans was the potential for forgiveness if the funds were used according to the program’s guidelines. Now that the application for forgiveness has been released, we wanted to walk you through the process.

Loan Forgiveness
In order to qualify for full forgiveness, 60% of the loan must have been used for payroll expenditures during the covered period. The remainder of the loan must have been used for other costs that are eligible for forgiveness (mortgage interest, rental or lease payments, utilities related to the business, etc.)

Application
In early October, the Small Business Administration (SBA) released a simplified loan forgiveness application for borrowers with loans of $50,000 or less. This Form (SBA Form 3508S) requests information regarding any Economic Injury Disaster Loan (EIDL) or PPP loans that taxpayers may have received: SBA & lender loan numbers, loan amounts, the loan disbursement date, employee counts, and forgiveness amount. Along with the loan related information, taxpayers will also need to provide basic information on their business.

Currently, EIDL advances do not qualify for forgiveness. If a taxpayer received both a PPP loan and an EIDL, the EIDL advance received will be backed out of the total forgiveness amount of the PPP loan. The forgiveness amount on the application should report the total of the PPP loan, regardless of the EIDL advance.

Timing
After loans have been used, borrowers have up to ten months after their covered period to apply for forgiveness without any loan payments coming due. The expiration date on the application is not the required filing date - it is merely a placeholder to allow the SBA to update the form at that time. The current expiration date is listed as 11/30/2020.

As we’ve seen for other planning considerations in 2020, many businesses and politicians are lobbying for changes to the current process. Some expect automatic forgiveness (no application needed), but there are no new updates at this time. While we are still waiting on further guidance for loans greater than $50,000, we recommend beginning to compile underlying support for reports and documentation that will likely be needed from payroll providers.

As always, we will continue to keep up-to-date on the current regulations and guidelines and will plan to keep you informed as well. Please don’t hesitate to reach out if you have any questions about your specific situation.