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Taxpayers can deduct up to $300 in charitable contributions without itemizing

The Coronavirus Aid, Relief and Economic Security Act (The CARES Act) includes several temporary tax law changes to help charities. This includes the special $300 deduction designed especially for people who choose to take the standard deduction, rather than itemizing their deductions.

This change allows individual taxpayers to claim a deduction of up to $300 for cash donations made to charity during 2020. This deduction lowers both adjusted gross income and taxable income – translating into tax savings for those making donations to qualifying tax-exempt organizations.

Before making a donation, taxpayers should check the Tax Exempt Organization Search tool on IRS.gov to make sure the organization is eligible for tax deductible donations.

Cash donations include those made by check, credit card or debit card. They don’t include securities, household items or other property. Though cash contributions to most charitable organizations qualify, some don’t. People should review Publication 526, Charitable Contributions for details. Cash contributions made to supporting organizations are not tax deductible.

Signing Wills and Powers of Attorney in the Time of COVID-19

For centuries, the law in Illinois has required that Wills and other estate planning documents be signed in the presence of two witnesses. This has been the law even during times of depression and war.  Social distancing in the time of COVID-19 has made it necessary to temporarily change the rules concerning the signing and witnessing of these types of documents. Governor Pritzker’s Executive Order makes it lawful to sign such documents via two-way audio-visual video conferences during which the testator is deemed to be “in the presence” of the witnesses (and a Notary, if necessary) via remote video teleconferencing.

 

Because COVID-19 is a highly contagious disease, patients in the hospital are not allowed to have visitors and do not have the ability to sign a new Will, change an existing Will, or execute Powers of Attorney for Health Care or for Property. Our firm’s virtual signing capabilities can be invaluable in such situations.

 

Even as we strive to stay safe and healthy by practicing social distancing, we are utilizing the Governor’s Executive Order to assist our clients with the signing of their Powers of Attorney, new Wills or changes to their existing Wills.  We have carefully studied the Governor’s Executive Order, and we have mastered the technique for the remote signing of these important documents.  It would be our honor to assist you or your loved ones with the preparation and virtual signing of any or all of these important documents.  Please do not hesitate to call upon us if we can be of help.

 

 

The New SECURE Act for Retirement Accounts

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law at the end of 2019, and it brings with it the most significant changes to retirement planning in over a decade.

Without a doubt, the SECURE Act will impact millions of Americans. The law’s major provisions are:

• Lowers costs for small employers who want to set up retirement plans for their employees;

• Increases the availability of annuities inside retirement accounts; and

• Makes major required minimum distribution (RMD) rule changes around the age and timing of withdrawal from retirement accounts by owners and beneficiaries.

 

Overview of Key Provisions of SECURE Act

1. No more “Stretch” for Inherited IRAs Under prior law, non-spouse beneficiaries of IRAs or other retirement plans could “stretch” the required minimum distributions (RMDs) from the plan over their own life expectancy. Under the SECURE Act, the beneficiary has only 10 years after the year of the account owner’s death to withdraw the entire retirement account (unless the beneficiary meets the definition of an “eligible beneficiary” under the SECURE Act.) This will significantly accelerate the distributions & resulting income tax on most retirement plans left to non-spouse beneficiaries.

(Some beneficiaries are exempted from the 10-year stretch rule: surviving spouses, minor children up until the age of majority, individuals within 10 years of age of the deceased, the chronically ill and the disabled.)

2. IRA Contributions after age 70.5 Under the old law, people who continued to work after age 70.5 could not continue to make contributions to a traditional IRA. Under the SECURE Act, those working past age 70.5 can contribute up to $7,000 ($14,000 for a couple) to a traditional or Roth IRA, provided that they have earned income in that year and meet certain additional requirements.

3. RMD beginning date raised to age 72 Previously, RMDs were mandatory for individuals starting at age 70.5. Under the SECURE Act, the new age for mandatory RMDs is raised to age 72. However, for those who reach age 70.5 by the end of 2019, your required beginning date remains age 70.5.

Next Steps: If your estate contains one or more IRA, 401(k) or other retirement accounts, we encourage you to contact the attorneys at Schlack & McGinnity to review your beneficiary designations and to ensure that your retirement accounts are set up in the most advantageous way for your intended beneficiaries.

Taxpayers Should be Wary of Unsolicited Calls from the IRS

IRS Tax Tip 2017-53, October 3, 2017

Taxpayers who get an unexpected or unsolicited phone call from the IRS should be wary – it’s probably a scam. Phone calls continue to be one of the most common ways that thieves try to get taxpayers to provide personal information. These scammers then use that information to gain access to the victim’s bank or other account.

When a taxpayer answers the phone, it might be a recording or an actual person claiming to be from the IRS. Sometimes the scammer tells the taxpayer they owe money and must pay right away. They might also say the person has a refund waiting, and then they ask for bank account information over the phone.

Taxpayers should not take the bait and fall for this trick. Here are several tips that will help taxpayers avoid becoming a scam victim.

The real IRS will not:

  • Call to demand immediate payment
  • Call someone if they owe taxes without first sending a bill in the mail
  • Demand tax payment and not allow the taxpayer to question or appeal the amount owed
  • Require that someone pay their taxes a certain way, such as with a prepaid debit card
  • Ask for credit or debit card numbers over the phone
  • Threaten to bring in local police or other agencies to arrest a taxpayer who doesn’t pay
  • Threaten a lawsuit

Taxpayers who don’t owe taxes or who have no reason to think they do should follow these steps:

Taxpayers who think they might actually owe taxes should follow these steps:

  • Ask for a call back number and an employee badge number.
  • Call the IRS at 1-800-829-1040.

Every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are the Taxpayer Bill of Rights. Taxpayers can visit IRS.gov to explore their rights and the agency’s obligations to protect them.

Should the IRS Have Forever to Assess Tax?

As most taxpayers know, the IRS generally does not have unlimited time to assess income tax against them. In most cases, section 6501(a) establishes a three-year limitations period for assessment. However, there are several exceptions to this general rule. Section 6501(c)(1), for example, provides an exception for ‘‘false or fraudulent return[s] with the intent to evade tax.’’ For those returns, the assessment period remains open indefinitely and the IRS can assess tax at any time.

…the IRS has recently taken the position that the intent can be either that of the taxpayer or the preparer.

Court decisions have created a divide on whether the requisite intent to evade tax under section 6501(c)(1) is that of the taxpayer, the preparer, or, oddly enough, the return itself.1 Although the statute is silent about whose intent controls, the IRS has recently taken the position that the intent can be either that of the taxpayer or the preparer.2 Not surprisingly, taxpayers with no knowledge that their preparers made fraudulent returns with the intent to evade tax have argued that they should not be subject to open-ended assessments for wrongful acts committed by the preparers.3

This report details the history of the unlimited assessment period for false or fraudulent returns and examines the code’s definition of fraud since 1918. It analyzes recent and not-so-recent IRS chief counsel advice and court decisions on the issue of whose fraud is relevant for the application of section 6501(c)(1). It also looks at the fairness and due process concerns that arise when taxpayers are penalized for acts committed by their return preparers.4 Finally, it concludes that taxpayers should not bear responsibility for fraudulent acts of their preparers absent evidence of actual involvement or knowledge on the part of the taxpayer.5


Kelly A. McGinnity is a partner at Schlack & McGinnity PC. This report was adapted from a research paper prepared for the tax LLM seminar at Loyola University Chicago School of Law.