Unique IRA Opportunities for 2020

Article Highlights:

  • 2020 Tax Saving Opportunities
  • Traditional IRA to Roth IRA Conversions
  • Paying the Conversions Tax
  • Required Minimum Distribution (RMD)
  • 2020 RMD Waiver
  • Coordinating Distributions with 2020 Income

As bad as it has been financially for many individuals, 2020 does provide some unique tax opportunities for those who have traditional IRA accounts. These range from converting traditional IRAs to Roth IRAs, retirees making larger-than-normal IRA withdrawals, and the decision whether to take advantage of the required minimum distribution suspension for 2020. Let’s look at these prospective tax strategies to see if they might apply to you.


The first opportunity to explore is converting your traditional IRA account to a Roth IRA account. The reason you might want to do that is a Roth IRA provides tax-free accumulation and, once you reach retirement age, tax-free distributions. A traditional IRA provides tax deferral of earnings, and the distributions are taxable.

Since distributions from a Roth IRA are not taxable, but those from a traditional IRA would be, you generally pay tax on the amount converted. The government isn’t going to allow both the tax deduction when contributing to a traditional IRA and tax-free withdrawal from the Roth on the converted amount. Thus, a conversion provides the most benefit in a year when your income is low, and as a result, you receive a lower tax rate. Timing is critical, and 2020 may be a low-income year when you might find it appropriate to convert some portion of your traditional IRA to a Roth IRA.

Example: Suppose you are generally in the 32% tax bracket but find yourself in the 12% tax bracket for 2020 because of the COVID-19 pandemic. That means you can convert some portion of your traditional IRA to a Roth IRA at a tax cost of only 12% (or $120 per $1,000 converted) as opposed to $320 per $1,000 under normal circumstances.

When considering a conversion, one concern is where the money to pay the conversion tax comes from. Generally, it must come from separate funds. If it is taken from the IRA being converted, for individuals under age 59½, the funds withdrawn to pay the tax will also be subject to the 10% early distribution penalty in addition to being taxed.

Conversions can be tricky, and once made, they cannot be undone. If you reside in a state with state income tax, the conversion may also be taxable by the state. If you are considering a conversion, it might be appropriate to call for an appointment so that this office can help you analyze your conversion options properly or develop a conversion plan that fits your particular circumstances.


For 2020, the government has suspended the requirement for certain older* taxpayers to take required minimum distributions (RMDs) from their retirement plans and traditional IRAs. Just because the obligation to take RMDs has been suspended doesn’t mean you shouldn’t take a distribution in 2020.

That decision should be based on two issues:

(1) Primarily, on your need to pay for living expenses, and
(2) Secondly, sound tax planning.

Issue number one speaks for itself. However, there are times when your income is low compared to normal, and it may be beneficial tax-wise to take distribution even if you are not required to. This may be true even if you aren’t of age for the RMD to apply. In these situations, the amount of a distribution can be coordinated with your tax liability to provide a beneficial tax outcome. In some cases, the distribution could even be free from tax or at least subject to a tax substantially lower than in a normal year.

Generally, this strategy is for individuals older than 59.5 and not subject to the 10% early withdrawal penalty. However, there are times when paying the 10% penalty may even be worth it for younger individuals when the tax saving is large enough.

It is important to understand that we are talking about retirement funds. Just because you can receive them out of a traditional IRA or qualified plan for a low tax doesn’t mean they shouldn’t be set aside in a savings account for future retirement needs.

These opportunities are easily overlooked, and it can be complicated to figure out the conversion or distribution amount to optimize the tax benefits. If you have questions or would like this firm to assist you in determining the strategy that best fits your needs, please contact us.

*If not for the COVID-19 suspension, 2020 RMDs would be required by taxpayers who turned age 70½ before 2020 or reach age 72 in 2020.

Post-Pandemic Trends Shifting the Economy for Small Businesses Everywhere

While it’s true that the ongoing COVID-19 pandemic has created significant challenges for small and large businesses alike, there are also some opportunities resulting from this “new normal.”

Behaviors have changed during the Coronavirus outbreak, and some of these could end up being favorable for small businesses. There are a few core trends, in particular, that may be opportunities just waiting to be taken advantage of by a savvy entrepreneur.

The Shift Towards Digital is Picking Up Speed

With so many people spending more time indoors (even as lockdowns lift), it should come as no surprise that the shift towards digital business is picking up speed. Now, more than ever before, companies operating in the digital space are getting more and more successful. In large part, because the options to do almost anything else were severely limited during stay-at-home phases, and we’re still not back to pre-pandemic norms.

This means that if you’re a small business owner, you don’t need to worry about finding an ideal location and renting physical office space. Once you have your goods and services accounted for, all you need is a computer, a mobile device, and an Internet connection.

Likewise, a lot of companies are enjoying success right now, integrating e-commerce channels into their business that didn’t exist in the past. If you have a product that can be shipped (or even hand-delivered), you can integrate a digital storefront into your existing website and allow people to place orders that way.

Not only is it a great way to remain operational as COVID-19 drags on, but it’s also an opportunity to “future-proof” your operations in case mass shutdowns occur again in the future.

The Flexibility of Location Independence

Teleconferencing software like Skype and Zoom is certainly nothing new. The technology has existed in some form or another dating back to the 1990s. However, COVID-19 has ushered in a new era where businesses leverage these technologies to create a whole new period of location independence in terms of how they offer their goods and services.

One of the best examples of this is taking place in gyms. Fitness classes are regularly moving online so that people can still work out and stay fit right from the comfort (and safety) of their own homes. Healthcare professionals are offering therapy and similar services over technologies like Teladoc and Apple’s FaceTime. Professional service firms are holding online consultations and meetings, which saves all parties a tremendous amount of time, effort, and travel.

City Partnerships Give Businesses an Interesting Boost

Another fascinating trend brought about in the wake of COVID-19 has to do with the unique business boosts taking place in cities across America. Case in point: restaurants.

As states begin to reopen, restaurants are among the businesses facing stringent reopening guidelines. As an example, many restaurants are only allowed to operate at 50% capacity or less. Likewise, there are less-than-normal numbers of patrons who are enthusiastic about going into a physical restaurant to enjoy a “care-free night out on the town,” with virus fears and anxieties so high.

As a result, cities have partnered with restaurants to close streets for specific periods at night and on weekends so that those businesses can set up tables outdoors. Not only does this allow them to serve far more people than they could with their actual indoor option, but it’s a great way to promote social distancing and other safety measures while boosting small businesses.

The Era of Remote Work is Upon Us

Remote work has been getting more and more popular over the last several years; however, the ongoing COVID-19 pandemic has undoubtedly acted as an accelerant. With so many Americans under strict stay-at-home orders at one point and with all non-essential businesses closed, more people were working remotely than ever before. Not only did employees realize that they enjoyed the freedom and flexibility that came with it, but their employers are also quickly realizing that most of them are just as productive at home, if not more so.

Some employers have started to wonder if, even when things go “back to normal,” they should bother calling everyone back into the office again, or allow the remote work to continue. If employees are allowed to work from home a more significant percentage of the time (or entirely, in some cases), small businesses can potentially save an enormous amount of money on utilities alone. They likely won’t need to invest in large office spaces if far fewer people are using it, representing additional cost savings and money that can be funneled into other areas of the business.

Additionally, some studies indicate that people are more productive when working from home, thus increasing not only the quality of the work but the revenue those employees can generate as well.

The Future of Payments

Last but not least, we arrive at another trend that COVID-19 has highlighted over the last several months: the popularity of cashless and contactless payments.

Paying with cash is less prevalent in the time of coronavirus due to concerns around germs changing hands. Many businesses have even gone “cashless” and will only accept card payments.

“Contactless” payments take this one step further. Along with the various smartphone options (like Apple Pay and Google Pay), many debit and credit cards now include a contactless option where consumers simply wave or tap their card on the reader to pay.

The benefits of contactless payments for small businesses are as enormous as they are immediate. For starters, younger generations tend to prefer this to traditional payments, meaning that offering it as an option could be your ticket to attracting an entirely new audience.

Likewise, contactless transactions are faster than their traditional counterparts. So, not only are you giving people additional options in terms of how they pay for your goods and services, but you’re also creating an environment where you can execute more transactions in a faster, more secure way as well. It truly is a win-win situation, regardless of how you choose to look at it.

In the end, the COVID-19 pandemic has changed the way we do business, likely for good. But for every struggle that the coronavirus brought with it, it’s also clear that it unlocked a world of new opportunities for businesses, too. That’s why, as more and more states are opening up and things are slowly returning “to normal,” a lot of small businesses are asking themselves how they can continue applying some of these new strategies for the long-term.

If your business is facing challenges keeping up with the changing demands of your customers due to COVID-19, please contact us. Your Tarlow advisor can help you seize this chance to pivot and embrace new opportunities to grow.

The IRS Is Issuing Some Stimulus Payments by Debit Card; Some Are Being Mistaken as Junk Mail and Thrown Out

Article Highlights:

  • Junk Mail
  • Stimulus Payment
  • Debit Card

If you are like most Americans, you probably receive tons of junk mail, which you tend to discard without reading. However, if you haven’t already received your stimulus payment from the federal government, it’s important to look through those envelopes carefully. The government has begun sending out its stimulus payments on debit cards mailed in plain white envelopes, which some people have discarded, thinking it was junk mail.

The Treasury has decided to send the 4 million or so individuals still waiting for their stimulus payments a Visa debit card, issued by a financial institution that the general public is generally not familiar with, in a plain envelope from Money Network Cardholder Services, also a name few will recognize. After years of counseling by the IRS and others, people have become very diligent in watching out for scams and false advertising, and mail from an unknown source in a plain envelope appears to be just another advertisement for a credit card or, even worse, a scam. As a result, many people discarded the envelope, not realizing that it contained their stimulus payment.

The taxpayers who would receive a debit card were determined by the Bureau of the Fiscal Service, a part of the Treasury Department that works with the IRS to handle the distribution of the payments.

The IRS website does caution that some payments will be issued on a prepaid debit card mailed in a plain envelope from Money Network Cardholder Services. The Visa name will appear on the front of the card; the back of the card has the name of the issuing bank, MetaBank®, N.A. The information included with the card will explain that the card is the recipient’s Economic Impact Payment Card.

For those that did discard or lose the card, they can request a replacement card through MetaBank’s customer service department by calling 800-240-8100 and selecting option #2. There is no charge for the replacement card, and you don’t need to know the card number to obtain a replacement.

Bottom line: if you are still waiting for your stimulus payment, be careful not to throw it in the trash. If you have any questions, please contact us.

The July 15th Deadline Is Fast Approaching, and It Isn’t Just for the 2019 Individual Tax Return

Article Highlights:

  • Extensions 
  • Contributions to IRAs 
  • Estimated Tax Payments for the First Two Quarters of 2020 
  • Individual Refund Claims for the 2016 Tax Year 
  • Foreign Account Reporting Requirements 

Due to the COVID-19 emergency, the IRS provided taxpayers with an automatic three-month extension to July 15 to file their 2019 tax returns and pay the 2019 tax, among other tax actions normally due on April 15. With July 15 fast approaching, it is crucial to understand that the day is more than just the deadline for filing your 2019 tax return. It is also the deadline for other tax items. Here is the rundown:

  • 1040 Extension – Those who are unable to file their 2019 individual 1040 tax return by the July 15 deadline need to file a Form 4868 extension, which will give them until October 15 to file the return. The tax liability shown on the extension should be paid with the extension form to avoid late payment penalties and interest. Penalties, interest, or additions to tax for failure to pay federal income taxes were disregarded during the April 15–to–July 15 extension-period window, but these will begin to accrue on July 16, 2020.

CAUTION: While the Form 4868 extension is an extension for filing, it is not an extension for paying your tax liability. The Form 4868 instructions say (and tax courts have ruled) that for an extension to be valid, a taxpayer must properly estimate their tax liability, enter that tax liability on the form, and file the extension by the due date of the return, which is July 15 this year.

The monthly penalty for not filing the 1040 tax return by the July 15 due date is 4½ percent of the tax due for late filing and ½ percent of the tax due for late payment. The maximum cumulative penalty rate is 25%; however, the ½ percent per month for late payment continues until the tax is paid.

There is also a minimum penalty for 2019 returns not filed within 60 days of the return due date, including extensions. That penalty is the lesser of $435 or the amount due on the 2019 tax return.

Importantly, if you do not owe or if you are getting a refund, there is no penalty because the penalties are based on a percentage of the tax due—if no tax is due, then no penalty is assessed.

The IRS also charges interest on late payments and penalties. The rate is subject to quarterly adjustment and is currently at an annual rate of 5% of the amount owed, with interest accumulating daily.

  • Contributions to a Roth or Traditional IRA for the 2019 Tax Year – July 15 is the last day for making 2019 contributions to Roth or traditional IRAs. Form 4868 does not provide an extension for making IRA contributions. 
  • Individual Estimated Tax Payments for the First Two Quarters of 2020 – Normally, the first installment of estimated taxes for a tax year is due on April 15, and the second installment comes due on June 15. For 2020, the IRS extended these due dates to July 15, to coincide with the other COVID-19-related extensions. Taxpayers who fail to prepay the minimum (“safe harbor”) amount may be subject to a penalty for underpayment of the estimated tax. This penalty is based on the interest on the underpayment, which is calculated using the short-term federal rate plus three percentage points. The penalty is computed on a quarter-by-quarter basis, so even people who have prepaid the correct overall amount for the year may be subject to the penalty if the amounts are not paid proportionally or in a timely way. However, for 2020, penalties for failure to pay federal income taxes during the April 15–to–July 15 period will be disregarded.

Federal tax law does provide ways to avoid the underpayment penalty. For instance, if the underpayment is less than $1,000 (referred to as the de minimis amount), no penalty is assessed. In addition, two options exist for safe-harbor prepayments:

    1. The first is based on the total tax on the current year’s return. There is no penalty when prepayments (including both withholding and estimated payments) equal or exceed 90% of the current year’s tax.
    2. The second is based on the total tax amount (not including credits for prepayments) on the return for the preceding tax year. This is generally set at 100% of the prior year’s tax liability. However, taxpayers with adjusted gross income exceeding $150,000 (or $75,000 for married taxpayers filing separately) must pay 110% of the prior year’s tax liability to meet the safe-harbor test. 
  • Individual Refund Claims for the 2016 Tax Year – The regular three-year statute of limitations for 2016 tax returns typically would have expired on April 15 of this year. However, due to the COVID-19 emergency, the statute of limitations was extended to July 15. Thus, no refund will be granted for 2016 returns (original or amended) filed after July 15. An exception is if a net operating loss is being carried to 2016; in this case, the usual three-year limitation for claiming a refund won’t apply as long as the statute is still open for the year when the net operating loss (NOL) occurred. However, taxpayers could risk missing out on the refundable Earned Income Tax Credit, the refundable American Opportunity Tax Credit for college tuition, and the refundable child credit for the 2016 tax year if they do not file before the statute of limitations ends. Caution: The statute does not apply to balances due for unfiled 2016 returns. 
  • Foreign Account Reporting Requirements (FBAR) – For each United States person who has a financial interest in, signature, or other authority over any foreign financial accounts, including bank, securities, or different types of financial accounts in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, that person must report that relationship to the U.S. government during each calendar year. This reporting requirement is commonly referred to as FBAR, and the due date is the same as that for individual 1040 returns.

This report is submitted online to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), and the FBAR’s annual due date is April 15. However, FinCEN grants an automatic extension to October 15 each year, so if you missed the April due date this year, you still have until October 15 to file the FBAR. Penalties for failing to file an FBAR are severe, and individuals should not overlook overseas family accounts on which they are named as account holders or online foreign gambling accounts. If in doubt, call this office for further details.

If your income tax return is still pending because of missing information, please forward that information to us as quickly as possible so that we can ensure your return meets the July 15 deadline. Keep in mind that the last week before the due date can be very hectic, and your returns may not be completed in time if you wait until the last minute. If you know that the missing information will not be available before the July 15 deadline, please contact your Tarlow advisor so that we can prepare an extension request (and 2020 estimated tax vouchers, if needed).

If you have not yet completed your returns, please contact us immediately so that we can schedule an appointment, estimate your taxes, or file an extension.

Business Loan Program Temporary Changes: The SBA and Treasury Provide New Guidance on Interim Final Rules to Clarify the Loan Forgiveness Application Timeline and Owner Compensation

On Monday, June 22, 2020, the U.S. Small Business Administration (SBA) and the Department of Treasury released new guidance about the Paycheck Protection Program (PPP), Revisions to Loan Forgiveness Interim Final Rule and SBA Loan Review Procedures Interim Final Rule.

This new guidance outlines two significant changes affecting PPP loan borrowers:

  • Application Timeline: When can a borrower apply for loan forgiveness? 

A borrower can apply for loan forgiveness at any time on or before the loan maturity date.  If; however, the borrower applies for forgiveness before the end of the covered period, and if any employee’s salaries or wages have been reduced by more than 25 percent, the borrower must account for the excess salary reduction for the full eight-week or 24-week covered period.

  • Owner Compensation: What are the expanded limitations on owner compensation? 

The release of Revisions to the Third and Sixth Interim Final Rules on June 17, 2020, increased the maximum compensation for all employees and owners. The new interim rules added that the employer portion of retirement plan funding for owner-employees of S-Corporations and C-Corporations is now capped at 2.5 months’ worth of the 2019 contribution amount. In addition, healthcare costs paid on behalf of owner-employees of S-Corporations are not eligible for forgiveness.

Additional minor revisions to existing guidance are also included in the new regulations. These updates address the extension of the covered period derived from the June 5, 2020 enactment of the Paycheck Protection Program Flexibility Act (H. R. 7010).

Tarlow is Here to Help – Please Contact Us with Questions 

Tarlow Partners and staff members are closely monitoring tax-related legislation and regulations, and new guidance from the SBA and the Department of Treasury. We will continue to send updates and communications about relevant news and changing guidelines.

We are readily available to assist business owners in submitting Loan Forgiveness applications. If you have any questions about interpreting these new requirements and maximizing PPP loan forgiveness, please contact your Tarlow advisor for assistance.

The Small Business Administration and the Treasury Department Announce Streamlined Paycheck Protection Program Loan Forgiveness Applications

On Wednesday, June 17, 2020, the Small Business Administration (SBA) and the Treasury Department unveiled a streamlined loan forgiveness application for the Paycheck Protection Program (PPP). The new five-page “borrower-friendly” application, which can be found here, provides more flexibility to small businesses to receive forgiveness on their SBA-backed loans. The original eleven-page application was released in mid-May.

The SBA and the Treasury also released a three-page EZ Version, which applies to borrowers who are self-employed or have no employees; did not reduce the salaries or wages of their employees more than 25 percent and did not reduce the number of hours of their employees; or experienced reductions in business activity as a result of the coronavirus pandemic and did not reduce the salaries or wages of their employees by more than 25 percent.

The PPP was included as part of the CARES Act, the $2.2 trillion program that included economic impact payments to individuals and aid to businesses in response to the novel coronavirus pandemic. The program was initially launched on April 3 with $349 billion in funding to help small businesses remain open and retain employees. The loans would be forgiven if businesses retained their employees for up to eight weeks. Many small businesses had problems accessing or applying for the loans and the funds were quickly depleted. The program resumed on April 27 and Congress provided another $320 billion; however, the rules, eligibility, and forgiveness criteria have constantly changed. The program does not run out until June 30 and as of Tuesday, more than 4.6 million loans worth close to $513 billion had been distributed through the program. Congress allocated about $610 billion to the PPP, leaving approximately $120 billion to $130 billion in the fund.

Earlier this month, Congress provided more flexibility by passing the PPP Forgiveness Act to encourage more businesses to sign-up and to alleviate concerns regarding the loan forgiveness.  This was helpful to businesses such restaurants and the hospitality industry.  It extends the covered period from eight to 24 weeks, amends the requirement that no more than 25 percent of the loan forgiveness amount be attributed to non-payroll costs, and allows up to 60 percent to be used for non-payroll costs. The bill also included several other changes, including extending the deferral of payments of loan principal, interest and fees, from the current six months, until the date when the SBA pays the forgiveness amount to the lender. The new loan forgiveness application from the SBA reflects these changes.

The EZ application requires fewer calculations and less documentation for eligible borrowers. Details about the applicability of the various provisions are available in the instructions accompanying the new EZ application form. Both applications give borrowers the option of using the original eight-week covered period, if their loan was made before June 5, 2020, or the extended 24-week covered period under the new law. According to the SBA and the Treasury, the changes will result in a more efficient process and ease the process for businesses to realize full forgiveness of their PPP loan.

Please view the following applications for more information:

The EZ Forgiveness Application

The Full Forgiveness Application

The SBA’s new Interim Final Rule revises the previous Third and Sixth Interim Final Rules, published on April 14, 2020, and April 28, 2020, respectively. It specifically addresses the amount of employee compensation that may be forgiven under the extended 24-week covered period. While forgivable employee compensation was previously capped at $15,385 per individual, based on the annual covered salary cap of $100,000 and an 8-week covered period, the cap under the new 24-week covered period is $46,154 per individual employee. The annual covered salary cap remains at $100,000 per employee. However, owner compensation is specifically excluded from the $46,154 cap, although the forgivable figure does rise from the previous $15,385 cap under an 8-week covered period to $20,833 (a multiplier of 2.5 months is used for 24-week covered periods).

Tarlow is Here to Help – Please Contact Us with Questions

Tarlow Partners and staff members are closely monitoring tax-related legislation and regulations, and new guidance from the SBA and the Department of Treasury. We will continue to send updates and communications about relevant news and changing guidelines.

We are readily available to assist business owners in submitting Loan Forgiveness applications. If you have any questions about interpreting these new requirements and maximizing PPP loan forgiveness, please contact your Tarlow advisor for assistance.

Senate Passes the Paycheck Protection Flexibility Act to Provide Direct Relief to Small Businesses, Proceeds to President Trump to Sign into Law

On the evening of Wednesday, June 3, 2020, the U.S. Senate unanimously approved legislation to fix the Paycheck Protection Program (PPP) by providing direct relief to small businesses affected by the coronavirus pandemic. Senate Majority Leader Mitch McConnell, R-Ky., requested a unanimous consent vote and the vote was nearly unanimous at 417-1.

The bill, which was passed by the House of Representatives on May 28, 2020, now proceeds to President Trump to sign into law. The legislation:

  • gives small businesses more time to use Paycheck Protection Program loans, increasing the deadline from eight weeks to 24 weeks.
  • amends the 75/25 rule for how much businesses must spend on payroll versus non-payroll costs to get full forgiveness of the loan to 60/40. This gives businesses more flexibility to use the loans to pay for expenses other than payrolls.
  • moves the deadline to rehire workers from June 30 to December 31.
  • extends the two-year term for the loans to five years, among other provisions.

Under the PPP program, loans for restaurants, hotels, and other small businesses would convert into federal grants if recipients adhere to conditions, including spending the loan amount within the required time.  The previous eight-week requirement to use the funds to carry out the terms of the loans had been very restrictive to caterers, museums, gyms, and other small businesses.

Many businesses reported an inability to rehire employees because they are making more on unemployment than they made working. The bill extends the deadline to rehire employees to align with the expiration of enhanced Unemployment Insurance. This was created through the CARES Act, and in some cases is higher than the median wage in 44 states.

Negotiations to expand the PPP’s flexibility have been in process for weeks since the Senate’s Memorial Day recess without being able to pass its own version of the House legislation.

Tarlow is here to help!

Our Partners and staff members are closely monitoring tax-related legislation and regulations and will continue to update you by sending communications about relevant news and changing guidelines. If you have any questions, please contact your Tarlow advisor.