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04/10/2020

Individual income tax filing, payment, and estate and gift planning amid COVID-19

    Every taxpayer in the U.S. has been or will be impacted in some way by COVID-19. From an individual income tax perspective, we have seen a number of recent federal and state legislative changes that could affect your 2019 and 2020 income tax filings and payments. Below is a summary of some of the key changes, as well as our recommendations regarding your 2019 income tax returns.

    Filing your 2019 Form 1040

    The IRS has offered payment and filing relief impacting all federal income tax returns and payments due on April 15, 2020.

    • Essentially, all income tax returns and related payments due April 15, 2020, can be deferred until July 15, 2020 (including Forms 1040, 1041, 709, 1120 and 990-T).
    • This postponement also applies to the payment of all IRA and HSA contributions.
    • Previously, Q2-2020 estimated tax payments were to keep their original due date of June 15; however, following a recent IRS update, both Q1-2020 and Q2-2020 payments are now deferred until July 15.

    We recommend that taxpayers expecting federal or state refunds file as soon as possible. 

    • If the returns you are filing reflect a mix of tax due and refunds, you can file all of the returns now so that you receive your refund quickly, and then, in those jurisdictions providing payment deferral, wait to pay the tax due until the payment due date.

    If you do not plan to file your 2019 Form 1040 by July 15, 2020, you should prepare and file an extension in advance of July 15 to avoid any future potential obstacles, and then wait until July 15 to submit your federal tax payment.

    Keep in mind that the states and localities in which you are required to file and/or pay income taxes may not provide similar filing/payment relief, so you should be sure to understand the rules in every jurisdiction in which you file returns in order to ensure timely compliance.

    Income tax planning opportunities

    • The requirement to take “required minimum distributions” from retirement accounts has been suspended for 2020. Taxpayers should review their financial position to determine if it would be advisable to forego withdrawing from retirement accounts until 2021.
    • Net operating losses (NOLs) from 2018, 2019, and 2020 can now be carried back five years, while they were previously only allowed to be carried forward. Taxpayers should review whether it is beneficial to carry back available losses.

    Opportunity for effective and efficient estate and gift planning

    We are all hopeful that this sudden drop in economic activity will be short-lived and that our lives can soon return to some type of normal. Assuming that the drop is temporary, now may be an opportunity to implement wealth, gift, and estate planning. 

    • For example, by gifting today to a trust or to the next generation directly, you may be able to move more appreciation at a lower cost, because the fair market value of the assets to be transferred may be lower now than they were three weeks ago or than they may be six months from now.
    • Grantor Retained Annuity Trusts (GRATs) are another effective way to move appreciation to the next generation in a way that is often gift tax-free.
    • Also, with interest rates at an all-time low, there are other planning opportunities to take advantage of, including intra-family loans.

    Of course, there are other strategies as well, and each is specific to the taxpayer’s unique facts. As you are looking to undertake preparation of your 2019 Form 1040, you should also consider whether to update or create wealth, gift, and estate plans. 

    Subject matter expertise

    • Lawrence M. Lipoff
      Contact Lawrence Lawrence+Lipoff lawrence.lipoff@cohnreznick.com
      Lawrence Lipoff

      CPA, TEP, CEBS, Director, Trusts & Estates Tax Services

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    Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.