uarterly Newsletter

Spring, 2020

Tax Legislation

Cares Act

The Coronavirus Aid, Relief, and Economic Security Act (“Cares Act”), the most expensive piece of legislation ever passed, was signed by the President on March 27th. Following are the most important provisions for individual and business taxpayers.

Tax Reform IIFor individual taxpayers:

For business taxpayers:

Picture4

Coronavirus Tax Relief

The Families First Coronavirus Response Act was signed by the President on March 18th. Two important features of this law are:

Secure Act

The Setting Every Community Up for Retirement Enhancement Act of 2019(the “Secure Act”) became effective December 19, 2019. While the news is generally positive, there are some taxpayer-unfriendly provisions.

A Tax Return

The Good News:

The Bad News:

The repeal and replacement of the Stretch IRA rules has received considerable press, generally quite negative. Absent special circumstances, such as spousal beneficiaries, or chronically ill or disabled beneficiaries, balances in IRAs have to be distributed within 10 years. Previous law allowed for the deferral of distributions over the lifetime of the beneficiary, setting up the possibility of tremendous tax savings, particularly with respect to gifts to very young beneficiaries.

The limited 10-year stretch still provides some tax deferral benefits, and in the case of Roth IRAs, considerable tax benefits. A significant provision of the new law is the flexibility to defer distributions within the 10-year period. There is no requirement that distributions be ratable within the 10-year period – the beneficiary can distribute the entire balance at the end of the 10-year period. While this probably would not be optimal in the case of a regular IRA (because of the bunching of income into one year and concomitant higher income tax bracket), it would provide a 10-year tax-free buildup of income in the case of a Roth IRA. Furthermore, at the end of the 10-year period, the Roth IRA beneficiary could purchase a non-qualified annuity and continue the deferral of tax for the lifetime of the beneficiary. This would not be as beneficial as under previous stretch Roth-IRA rules (because post 10-year earnings would only be tax-deferred rather than tax-exempt), but would be considerable.

We are happy to address any questions you may have about the above strategies. Feel free to contact us by telephone or email.