September/October 2020 Tax Tips

Refund opportunity for excess business losses

The Tax Cuts and Jobs Act (TCJA) limited the ability of noncorporate taxpayers — such as sole proprietors, partnerships and S corporations — to offset business losses against income from other sources. For 2018 through 2025, the TCJA limits deductions of “net business losses” to $250,000 ($500,000 for joint filers), adjusted for inflation. Disallowed losses may be carried forward to future tax years according to net operating loss (NOL) rules.

This year’s Coronavirus Aid, Relief and Economic Security (CARES) Act suspended these limits for 2018 through 2020, making business losses fully deductible in those years. If your losses were reduced on your 2018 or 2019 tax returns, you may have an opportunity to amend those returns and claim a refund of overpaid taxes during those years.

Extra time to invest in Qualified Opportunity Funds

If you recognized capital gains in late 2019 or early 2020, it’s not too late to reinvest those gains in a Qualified Opportunity Fund (QOF). QOFs are funds that invest in one of nearly 9,000 economically distressed Qualified Opportunity Zones designated by the Tax Cuts and Jobs Act. QOF investors enjoy a variety of benefits, including deferral of tax on reinvested gains and permanent reduction of gains on investments that meet certain holding period requirements.

Generally, to qualify for these benefits, you must invest gains in a QOF within 180 days after the sale or exchange of the capital assets that generated them. But in Notice 2020-39, the IRS extended this deadline. If you sold assets for a gain that’s eligible for investment in a QOF, and the 180th day would have fallen on or after April 1, 2020, and before December 31, 2020, you now have until December 31, 2020, to invest that gain in a QOF.

Retirement plan elections may be signed remotely

In response to the COVID-19 pandemic and the need for social distancing, the IRS issued Notice 2020-42, providing temporary relief from the requirement that certain retirement plan elections, including spousal consents, be signed in the physical presence of a plan representative or notary public. Through the end of 2020, this requirement will be deemed satisfied for elections executed using live audio-video technology, provided certain procedures are followed. The guidance is intended to facilitate coronavirus-related distributions and plan loans according to the CARES Act. However, the temporary relief applies to any election that requires a signature in the presence of a plan representative or notary.

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