Not so Turbo Taxes After All
If you see a CPA at Geppetto’s, pay for her coffee.
But you probably won’t see many tax professional lounging about town. Over the past 18 months, the federal government has passed thousands of pages of legislation dealing with the tax code. The most impactful include the following:
SECURE Act (Dec. 20, 2019) – affected retirement plans and some other tax relief.
FFCRA (March 14, 2020) – first round of economic stimulus and tax relief with business mandates.
CARES Act (March 19, 2020) – larger economic stimulus such as PPP Loans, EIDL Grants, Employee Retention Credit (ERC) and stimulus payments to individuals.
2020 Consolidated Appropriations Act (Dec. 21, 2020) – allowed ERC for businesses that also receive PPP money and other retroactive relief; taxation changes (on the changes), and additional stimulus payments to individuals.
American Rescue Plan Act (ARPA) (March 11, 2021) – retroactive changes to 2020 tax law such as making some unemployment not taxable, eliminating the Premium Tax Credit repayment, and adding more stimulus payments.
There are many direct issues for tax filers to consider from all this legislation, but there are also grey areas with limited guidance from the IRS and conflicting guidance from the IRS versus the legislation itself in addition to secondary effects.
For example, 2020 taxes are now due on May 17, but first quarter estimated payments were due April 15. Nonetheless, you might be considered timely for the first quarter (Q1) if you make an overpayment for 2020 on May 17 and then elect to apply it to your 2021 first quarter estimated payments.
So much for the 10-second tax return.
The Feds have not been the only ones writing tax legislation, but part of the problem is the unwritten legislation. As of this writing, Sacramento has still not passed two pending bills that would harmonize California law to recent federal changes.
There is more being discussed in Sacramento than just making our returns a bit easier. Looking ahead, state legislators have proposed increased income taxes, state exit taxes and a wealth tax.
But when a conversation turns to tax changes today, the topic is normally none of the above.
The Biden administration plans to implement a major tax overhaul, not the minor tinkering in the thousands of pages of legislation from the last year and a half.
Planning opportunities are likely to arise from increases to capital gains rates, ordinary income rate, prevalence of Alternative Minimum Tax (AMT) and use of itemized deductions. The government may bring back the federal deduction for CPA fees – an expense that has become more valuable with every twist and turn in our tax system.