Monday, December 28, 2020
THE YEAR IN TAXES 2020
2020 was a year unlike any other. The COVID-19 virus affected the lives of every single person in America.
It was the first year in my tenure, and probably in history, that the mid-April initial filing and paying deadline for federal, and most state, income tax returns was extended – to July 15, 2020. Taxpayers had until July 15th to file their 2019 federal returns and pay any tax due, without penalty or interest, and to make the first two quarterly federal estimated tax payments.
The 2020 tax-filing season – my 49th - ran smoothly for me, despite the pandemic. There were no auto, computer, equipment, or weather issues of consequence. I have been working at home for more than a dozen years, so the “stay at home” order issued at the end of March did not affect me. And my business did not suffer financially from the virus – clients continued to send me their stuff, although some later than usual, and money continued to come in. But much less was going out. My business and personal expenses were greatly reduced.
I ended the extended tax filing season with only 7 GDEs (the “E” is for “extension”) - obviously due to the extended deadline - and ended the year preparing 12 less sets of returns than I did in 2019.
There were no real changes to tax law that affected returns prepared in 2020, other than the last-minute retroactive extension of the now infamous “extenders” by Congress at the end of 2019, a common practice, which affected very few of my clients.
The big change in federal forms for the year was what I call the return to sanity. The completely ridiculous “postcard” format of the 2018 return was gone and the 2019 Form 1040 was most certainly “more better”, with a return to a more logical flow of information. There was a new Form 1040-SR for senior filers, created for no other reason than it was required by the Bipartisan Budget Act of 2018, which was line-for-line exactly the same as the 2019 Form 1040 except it has bigger print and included a Standard Deduction chart. And the previous 6 supplemental schedules to the 1040 was reduced to 3.
Thankfully, the excessive federal under-withholding FU for 2018 was for the most part fixed for 2019 income. As a further correction to the problem, at the beginning of the year the IRS issued a new Form W-4 for calendar year 2020 withholding which completely did away with the concept of “withholding allowances”. The revised format, while more involved and complicated, appears to be, in my opinion, an improvement - but I will have to wait until the 2021 filing season to find out if it caused any under-withholding issues.
There was no change for me to New York State return filing, but there was a change to my NJ filings. The NJ Division of Taxation did away with its online NJWebFile system, which I had used whenever possible to submit NJ returns in the past. But it was replaced with a superior “New Jersey Online Income Tax Filing” system, which allowed me to electronically submit all 2019 NJ-1040s (NJWebFile had many limitations), and request direct deposit of refunds when applicable, online free of charge without the need for separate email addresses and passwords for each return. I used this system for just about every NJ return I prepared, except for a few balance due returns.
The biggest issue for 2020 was the excessive IRS delay in issuing refunds, regardless of how the return was filed. The IRS offices were closed due to the pandemic from the end of March through mid-July and nobody was opening the mail or processing returns. When the offices finally opened up again there was a huge backlog of returns and correspondence to process. However, when refunds were finally issued they did include interest from April 15th until the issuance of the payment. For the most part, state refunds, at least for my clients, were not similarly delayed.
There was one major piece of tax legislation affecting 1040s that was signed into law (on March 27th) in 2020 – The Coronavirus Aid, Relief and Economic Security Act (aka CARES). Among other things, including business and payroll tax credits and benefits, the Act provided for –
* “Recovery Rebate” stimulus payments of up to $1,200 per taxpayer and $500 per qualifying child, phased-out based on AGI,
* penalty-free withdrawals of up to $100,000 from retirement accounts for “coronavirus-related distributions”,
* a waiver of 2020 Required Minimum Distributions (RMDs) from retirement accounts (no RMD was required for anyone for 2020), and
* an “above-the-line” deduction on the 2020 Form 1040 (or 1040-SR) of up to $300 of qualifying charitable contributions for taxpayers who do not itemize.
The stimulus payments were to be calculated based on 2019 tax return information, but due to the closing of the IRS offices and the delay in processing 2019 returns many were based on 2018 information. The payment will be reconciled on the 2020 tax return and those who did not get a full, or any, payment can claim a refundable credit for any shortage when filing their 2020 return.
As of this writing deplorable and despicable Trump has refused to sign the second bi-partisan COVID economic stimulus legislation (part of the “‘‘Consolidated Appropriations Act of 2021’’) - passed just before Christmas - which would provide $600 stimulus payments, extended unemployment checks and eviction protection, and extend and refine some tax benefits – after it had been announced that he would. His action was definitely NOT because he cares about Americans getting $2,000 instead of $600 - but because Trump wants to punish McConnell for not publicly endorsing and supporting his demented election delusions. We will need to see if Congress will override any veto – stay tuned here at TWTP for updates. THIS JUST IN - idiot Trump has finally signed the legislation. Look for a review of the 1040 components of the ACT here in a few days.
The 2020 election – Biden’s win a true victory of intelligence and patriotism over ignorance and hate – put an end to our national nightmare (i.e. the Trump presidency). The Democrats maintained control of the House, but we will need to wait until the special Georgia election in January 2021 to see if the Republicans lose control of the Senate. If Republicans remain in control there will be little to no chance of any substantive non-COVID related tax legislation being enacted until at least 2023.
So, my fellow tax pros, as I ask you each year at the end of my year in review – did I miss anything important?