On December 21, 2019 President Trump signed into law a spending bill that included good news for taxpayers in Southeastern NC. The spending bill included retroactive major disaster related tax relief that we know will put more money back into taxpayers’ pockets. The legislation also included some retroactive implementations of previous expired tax deductions and credits as well as changes to retirement plans. With retroactive tax changes on income tax years already filed, amended returns will be required.

We are going to walk through some of the changes, starting with those we think will have the biggest dollar impact on our client base. This is an early analysis and as the dust settles and the tax code is implemented some of the specific details may change, but the legislation looks favorable for taxpayers.

There are several Disaster Tax Relief retroactive changes passed that will lead to large refunds, especially for business owners. 

Business Owners – Disaster Relief
This one is HUGE. There is a credit for employers for retaining employees in an area impacted by major federal disasters, such as Hurricane Florence in 2018 or even Hurricane Dorian in 2019. We expect that this will bring significant refunds for businesses with employees.

Here is how the credit generally works: it is a credit of 40 percent of wages from the first day inoperable to the date at which the trade or business resumed significant operations. The wages for the credit are capped at $6,000 per employee. This credit will be significant for many companies with employees.

Individuals – Disaster Relief
There are also some retroactive individual changes that will result in found money. They have made it easier to deduct casualty theft and losses from 2018 and 2019 federally declared major disasters. Since they’ve made it easier, taxpayers will typically receive more money back than they would have without this change. This is one of the big ones that taxpayers were waiting on prior to filing their 2018 income tax returns. 

Tax Extenders
There were several retroactive tax changes which are known as tax extenders. These portions of the tax code are typically extended at the last minute, hence the name. However, they were not extended for 2018 but now have been done so retroactively through 2018. Here is a list of them:

1. Ability to exclude from income the forgiveness of debt related to primary residence.
2. Mortgage Interest Insurance is deductible again (assuming that you itemize deductions).
3. Qualified tuition deduction is allowed in lieu of education tax credits.
4. Several credits related to energy efficiency, renewable energy, and alternative fuel (think electric cars).

Retirement Plan Rule Changes
There are some changes to retirement plan rules for 2020 and beyond that taxpayers need to be aware of:

1. Starting for individuals who turn 70 ½ in 2020 or later, the mandatory Required Minimum Distributions (RMD) age will be 72 years old.  This is the age when you are required to start taking money out of retirement accounts unless you want to be penalized for not doing so.
2. Inherited retirement plans will no longer have as much flexibility on how long you have to withdraw funds (unless a surviving spouse).  It will now generally be limited to 10 years.
3. The age cap on contributions to IRAs for someone over 70 ½ has been removed (assuming they are still working).
4. You will able to withdraw penalty free up to $5,000 within a year of the birth or adoption of a child.

Our goal today was to highlight to you the retroactive federal income tax benefits from disaster relief and tax extenders.  With the amount of retroactive changes and the size of the impacts, we expect there will be a lot of 2018 amendments filed in 2020.

Caroline Montgomery, CPA (NC License Number 39017), MSA, is tax manager and partner of Adam Shay CPA, PLLC. The most rewarding part of what she does is helping business owners and individuals achieve their goals, all while working with a dynamic team that is growing quickly. The firm focuses on a proactive approach by encouraging clients to minimize taxes via income tax planning and projections, or by focusing on other areas of their business as part of the firm's Virtual CFO services. The firm also offers tax preparation, fraud and forensic accounting and tax issue resolution services. She moved to Wilmington in 2014 and started at the firm in 2015. Caroline graduated with her her undergraduate and graduate degree in 2010 from East Carolina University. She is actively involved with NourishNC as their Treasurer and enjoys volunteering with various organizations throughout New Hanover County. In her free time, Caroline enjoys spending time with her husband, Mike, and dog, Mason, as well as travelling and going to the beach.