End of the year 2020 Newsletter
Local news from California: The Wall Street Journal just reported that California legislators, in addition to banning sales of new gasoline or diesel cars in 2035, will be adding the caveat that these new cars, “must cease to be visually interchangeable.” They want them to change their aerodynamic shape and form to all be distinguishably different from model to model. This must mean back to finned cars again. Or maybe paint flames or decorations on them so they can be identified easier. Like fighter aircraft and bombers of old. They will be known as California Models and easy to spot on the freeways, especially when they leave the state.
Recently Governor Newsome signed bill AB 979 which requires publicly held corporations to employ at least one director from an “unrepresented community” on its board this year and up to three “underrepresented-community board members by the end of 2022. The bill further lists these new directors as racially or sexually defined individuals. This is illegal because businesses are not supposed to become racist. Also, no mention that these people have anything to offer the business world besides their political affiliation. The matter is in the courts now where it belongs.
For those folks who are employed by small businesses, there is a new CalSavers retirement savings program. This state managed program provides an exemption if the firm has less than five employees. The mandatory plan was designed to provide retirement savings for people who could not afford to buy IRA plans on their own.
More local news from the Franchise Tax Board: Applications will be accepted for grants from the California Competes Tax Credit program. This program helps new businesses get started. Need tax credits for the new restaurant you planned for your early retirement? January and March are the next months to apply for the $80 million of credits.
National news from Washington: The Festivus Report for the 2020 year is now published. The detailed contents are found at Dr. Ron Paul’s website Paul.senate.gov. This report outlines the wasteful projects the Federal Government has spent for us for this past year. It totals $55 Billion dollars, which is an additional $10,006 per taxpayer added to the National Debt of almost $28 Trillion.
Some juicy details: The Cares Act sent $1.4 Billion on stimulus checks via the IRS to dead people. An Act was passed afterward called the, “Stopping Improper Payments to Deceased People Act,” which will take effect three years from now.
A federal district judge has now ruled that the $1,200 stimulus checks should have also gone to members of the penal society. Accordingly, $2.6 billion of unallocated money will be sent to those people in state and federal jails and prisons. Since their room and board is taken care of, it is assumed the money will help fund the black market, which specializes in drugs, within the penitentiary system.
Grants totaling $1.3 million were issued to Colorado State U, Wisconsin U, and Michigan U to test 20 healthy adults on muffins and shake with and without ground-up crickets. The students were not advised what they were eating. These environmental purveyors stressed Green New Deal issues to include flatulent cow extinctions. The results were not favorable. Meanwhile, the public was already eating protein substitutes for meat at McDonalds, Carl’s Junior, and other restaurants and paying for it.
Fifty lucky participants at the Oregon U helped spend $2 million for a study to determine if spending time in a hot tub for three times weekly relieves stress. What do you think?
The National Science Foundation spent $1.3 million to subsidize an insect ranching company’s operation. The company dubbed itself as, “Insect Entrepreneurs” and used the money to study Maximum yield of mealworms for protein feed and to figure out what causes them to die.
The best one had a picture of Cheech and Chong with the spending of $3.1 million in a San Francisco Baby Boomer study about edible cannabis use. They found that the users drank coffee to combat a high that becomes too much. No wonder there are so many street people there.
Last but not least is the military one which shows a real Abrams desert camouflage tank flying an ISIS flag. This is where some of the $715 Billion of lost equipment showed up in Syria. A complete paper trail of equipment turned over to Friendly Syrian and Afghan forces created a vacuum for the military black market in our best equipment.
This stuff goes on and on for 200 pages of waste and graft. Now I know why we need a bigger government, so we can spend more. I cannot continue the list because I am an accountant and need facts, not to know about more college students, PhD candidates, bureaucrats, or military people doing these things with our public money or debt.
On a local matter: Real estate property values have moved upward inversely to interest rates, so this is a great time to refi the mortgage or buy a house with cheap money. The rates vary today at between 2½% to 3% and a 30-year mortgage will last a lifetime.
Now, about taxes: A new $300 deduction is allowed on the federal returns. It allows you to deduct this maximum paid to charities without itemizing. Works the same as the $250 deduction for credentialled school teacher/educator expenses.
If you’re self-employed, an independent contractor or a freelancer, in prior years you received Form 1099-MISC from businesses to which you provided more than $600 in services. Starting with the 2020 tax filing season, you’ll be receiving Form 1099-NEC instead. The Form 1099-NEC is used exclusively to report nonemployee compensation. You may still receive a 1099-MISC if your income is derived from rents, royalties, fishing boat proceeds, health care payments, payments in lieu of dividends or interest, crop insurance proceeds or gross proceeds paid to an attorney.
If you have been newly divorced since 2018 and are paying alimony, the rules have changed. Before then, the party paying the alimony was allowed a deduction, same as spousal support, for amounts paid. The receiving spouse or ex-spouse would report the amount as income. Now, no deduction or reporting is allowed. Since these matters last many years until the receiving party remarries or dies, the old rules are still in place for divorces adjudicated before the 2018 date.
There is a check box for Cryptocurrency this year. If you have bought or sold Bitcoin or any other cybermoney we need to check the box for you. If you have sold or exchanged any cybercurrency during the last year, you need to determine and report any profit from the transaction with appreciated cyber coin values.
There is another checklist for foreign bank accounts or money in trusts. If you had $10,000 in foreign accounts at any time last year, we need to file a FBAR report to the Gov. This is how they know what you are up to under the guise of terrorism financing and money laundering. I have seen fines as big as $20,000 for not reporting.
Many businesses have received Federal funding under the Paycheck Protection Program PPP this past year because of the economic pandemic shock. The IRS has ruled that if the loan is forgiven, the expenses paid with the loan [now a grant-refund of tax monies] are not deductible.
Minimum Required Distribution (MRD) withdrawals has been changed from age 70 1/2 to 72 years beginning with last year (SECURE Act). Your pension administrator should notify you when this affects your account.
Gift taxes are exempted on the first $15,000 paid out each year per person, same as before.
The federal estate tax exemption per person (X 2 with spouse) has been raised from $11.58 million last year to $11.7 million this year. At this time there is no California estate tax. Beware however, the discussions on estate taxes are that the big exclusions may vanish with the new administration.
Mortgage interest deduction is limited by initial financing loan balance of not more than $750,000 maximum value. Refinancing and second trust deed equity loans can affect deductions. Remodeling expenses can be used for additional financing, not to exceed the $750,000 limit. Second homes must be included in the $750K. Best to see what is on the 1099 forms from mortgage companies this year and do some good guesswork.
New exceptions apply for pension withdrawals (up to $100,000) normally subject to underage withdrawal penalties, if the owner had COVID virus infection.
New IRS collection guidelines are eased for COVID virus-affected tax liabilities and installments.
Security wash sales (selling a security and replacing it for tax purposes) are a year-end phenomenon whereas people sell their portfolio in December to take advantage of tax losses and replace it in January. The rule is that it is a wash sale (loss not applicable) unless the replacement securities must have been purchased at least 61 days afterward.
The SECURE ACT also allows retired people to continue to fund IRAs as long as there is earned income to offset it. The old age of 70 ½ limit on contributions is now history.
Good news about inflation: the official inflation rate for last year was only 1.4% thanks to oil prices and the pandemic. An increase is on the way for Social Security patrons, less a larger Medicare deduction.
Final 2020 tax estimates are due by the 15th this month.
If you are considering an insurance annuity see us and we will find one that suits your needs.
Last but not least. Betty Chute, my prior spouse passed away in May 2020. She was 82 years old. Many of my older clients will remember her as the little lady helping us put the tax returns together or on the phone during our Riverside years. May she RIP.
Happy New Year! We hope you had a great holiday season. We appreciate your business and look forward to assisting you during the upcoming tax season.
Phil Chute, EA & Staff