Article Highlights: Background How to Compute the Payment Advance Payments Based on 2019 or 2018 Tax Returns Advance Payments for Retirees, Disabled and Veterans Advance Payments for Non-filers Schedule Payment by Check 2020 Return Payment Reconciliation Millions of Americans have already received their economic impact payments authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. If you have not received a payment or received an amount larger than you anticipated, you may be looking for some answers. But first, a little background on the payments: The payment is actually a refundable credit that will be computed on your 2020 tax return based upon your 2020 family composition and adjusted gross income (AGI) that is being paid in advance. The credit is $1,200 for each individual other than dependents. Each individual (or married couple) with a dependent child under the age of 17 will receive an additional $500 for that child. There is no additional $500 credit for children 17 or over or for other dependents. The payments are meant to assist lower-income individuals and families, so the amount of the payment is reduced for higher-income individuals. The reduction begins when a single individual’s AGI reaches $75,000 ($150,000 for married couples). For those that file as head of household, the reduction begins at $112,500. Payments are reduced by 5% of AGIs exceeding these thresholds. No payment will be made to someone without a Social Security number. If this refundable credit is based on a 2020 tax return that won’t be filed until next year, how does the IRS know how much to pay in advance? Good question! Since the purpose of these advance payments is to quickly get money in the hands of those who need it during this crisis, the government looked for a way to estimate the advance payments, and the most expeditious method was to base the payments on family composition and income from 2019 tax returns or 2018 returns for those who haven’t yet submitted their 2019 returns. You can use the table below to compute what your advance payment would be based upon your 2019 or 2018 filed return and what the credit will be on your 2020 return. ECONOMIC IMPACT PAYMENT Year on which the payment is based (2018, 2019 or 2020): year year LN1 Enter your AGI(1) LN2 If you filed jointly with your spouse, enter $2,400; otherwise, enter $1,200 LN3 Number of dependent children under the age of 17 LN4 LN3 times $500 LN5 Tentative payment: LN2 plus LN4 LN6 Enter the amount that corresponds to the filing status you used on the tax return: Unmarried (and MFS(2)): $75,000 Head of household: $112,500 Married filing a joint return: $150,000 LN7 Subtract LN6 from LN1 (but this line should not be less than zero) LN8 LN7 times 5% LN9 Economic impact payment (LN5 minus LN8, but not less than zero) (1) Find your AGI on 2019 Form 1040 or 1040SR, line 8b, or on 2018 Form 1040, line 7 (2) MFS = married filing separately Where the 2019 or 2018 return resulted in a refund and included direct deposit information, the advance payments were direct deposited into individuals’ or couples’ bank accounts. These direct deposits were made very early in the process. There have been hiccups in which bank account information had changed since the returns were filed, in which case those individuals have to wait for a check to be mailed later. By now, you should begin to see where some problems might arise. Suppose you and your ex-spouse filed a joint 2018 return and were divorced in 2019 but haven’t filed your 2019 returns yet. Where will the joint payment go based upon the 2018 return? Or suppose you added a child to your family in 2019 but didn’t file the 2019 return in time, and the payment was based on your 2018 return. Your payment will not include the extra $500 for your dependent child. We could go on and on with all sorts of scenarios that are creating unexpected results. These payments are due to more than just those who filed a 2019 or 2018 tax return. There are many Americans who are not required to file a tax return, including retirees receiving Social Security (SS) or Railroad Retirement, SS disability, SS survivor’s benefits, and veterans’ benefits, as well as those who should have filed returns but have not and the homeless. To reach as many of those individuals as possible, the IRS is automatically making payments of $1,200 to recipients of Social Security or Railroad Retirement, SS disability, SS survivor’s benefits, and veteran’s benefits who have not filed a 2018 or 2019 tax return. Of course, the IRS has no way of determining if individuals in these categories have spouses who are not receiving benefits or if they have dependent children under the age of 17. These individuals were given the chance to provide their spouses’ and dependent children’s information to the IRS prior to payments being made. Unfortunately, the time to provide that information has passed. Where the IRS has direct deposit information, the payment will be deposited into the individual’s bank account. Others will have to wait for a paper check. Those who are not in any of the previously discussed categories can provide their information to the IRS by using the non-filer tool on the IRS web site. If the IRS does not have your direct deposit information, it has changed, or the bank rejected the IRS’ attempt to deposit the payment, you will receive the payment by check. The checks are being issued to the lowest-income individuals first, where the need is the greatest, followed by others with increasing incomes. Here is the estimated release schedule for the payments by check.

You know that long list of ways that the coronavirus has affected our lives? Well, here’s another one. The Internal Revenue Service has completely flipped a switch on its priorities, and it is not even looking at paper tax returns that are being sent to it. The idea of all those envelopes piling up somewhere is a bit mind-boggling, but it’s apparently what’s happening as the Treasury Department focuses on generating the stimulus checks that American taxpayers need to get through the crisis. If you don’t owe the IRS money and you’re not looking to amend a previously filed tax return, this shift won’t mean much to you. You can rest easy knowing that the tax return and payments that would have been due in April are now not due until July 15th. But if you were hoping to get a refund from a previous year’s return via a return you amended (or need to amend), or if you owe the IRS money, you need to pay attention. For the first of these two categories – the folks with amended returns – what you need to know is that you’re not likely to see any kind of response for quite a while. There’s no way to find out what the status is and the agency is pointedly advising people not to interpret the lack of response as a need to send in a new one. Doing so would just confuse things more. You need to sit tight. If, however, you owe the IRS money from before the crisis occurred, there are no breaks on the penalties and interest that are stacking up. It may take the agency a while to get around to figuring it out, but if you decide to sit and wait ‘til you hear from them, you’re going to be in for a big shock. Your liability is not only still there, it’s adding on interest from the time that it was due. This is true on amended returns that reflect a liability as well. How much could the interest and penalty add up to? In a word – it could add up to a lot. Not only do you owe the original amount, you are also subject to accruing interest and a failure-to-pay penalty of 0.5% of your original liability for each month (or partial month) that it hasn’t been paid. That can rack up to 25% of the liability. There’s also a penalty if you failed to file on time, and that can add up to another 5% of the amount that you owe each month. Even if you can’t afford to pay your entire liability all at once, you’re much better off paying small parts over time than waiting and having all of that interest added to your debt. You can contact the IRS online to arrange for one of their installment agreements. Remember that mountain of returns piling up somewhere? Keep that in mind when you’re ready to send the IRS your money and If you are including a check, be sure to get a proof of mailing in case you have to prove to the IRS that the interest and penalties stopped accruing with your filing and payment. Of course, you can opt for paying electronically via direct payment. Don’t worry about the fact that the paperwork is sitting in that big pile. The agency will eventually get around to going through it.If you have any questions about your old tax bills or current IRS operations, please contact this office.

Article Highlights: Foreign Income Exclusion COVID-19 Interference Maximum Exclusion Waivers Example The IRS has provided relief for taxpayers who were working abroad and returned to the U.S. because of the COVID-19 pandemic before meeting the foreign residency requirements that would qualify them to exclude or deduct all or a portion of the income they earned while working in a foreign country. Background - U.S. citizens and resident aliens are taxed on their worldwide income whether they live inside or outside of the U.S. However, qualifying U.S. citizens and resident aliens who live and work abroad are often eligible for significant tax breaks: All or part of their foreign salary, wages, or amounts received as compensation for their personal services may be excluded from U.S. income tax. This exclusion applies to both employees and self-employed individuals but is not available to federal government employees. The maximum amount that can be excluded is inflation-adjusted for each year. For 2019, the cap was $105,900, and for 2020, it is $107,600. There are two ways workers qualify for an exclusion: One is by living in a foreign country for an uninterrupted period of a full year, and the other is by residing in a foreign country for a period of 330 days in any consecutive 12-month period. The first way is called the bona fide residence test and the second is the physical presence test. However, through no fault their own, many of these individuals were forced to interrupt their foreign work assignments and residency to return to the U.S. due to the COVID-19 outbreak, and in doing so, would no longer meet the foreign residency or presence requirements to qualify for the exclusion. Luckily for these taxpayers, the tax code includes a provision that allows the IRS to waive the required foreign residency and presence periods in case of war, civil unrest, or other adverse conditions. Using that provision, the IRS has provided COVID-19 waivers:

Article Highlights: Deduction for Mortgage Insurance Premiums Exclusion of Principal Residence Indebtedness Forgiveness Income Residential Energy Property Tax Credit Above-the-line Deduction for Tuition & Related Expenses More Favorable Kiddie Tax Computation Alternative Fuel Vehicle Refueling Property Tax Credit Qualified Fuel Cell Motor Vehicle Tax Credit 2-Wheeled (Motorcycle) Vehicle Tax Credit Tax Credit for Building New Energy Efficient Homes You may be one of the many taxpayers eligible for a refund from their 2018 tax return. Last December, tacked on to an Appropriations Act, Congress passed the long-awaited extenders bill. This bill had been lingering in Congress for about 2 years and extended several beneficial tax provisions that had expired after 2017. As a result, these provisions were retroactively extended to 2018 and most are continued through 2020. This opens the door to amending your 2018 return for a refund if any of the following provisions apply to you. Here are the retroactive tax benefits: Mortgage Insurance Premiums – Mortgage insurance is generally required if a borrower makes a down payment of less than 20 percent of the cost on the purchase of their home. Although premiums are paid by the borrower, insurance protects the lender from losses if the borrower were to default on the loan. For FHA loans, borrowers must pay a mortgage insurance premium. These premiums are generally deductible as home mortgage interest when a homeowner itemizes deductions. To be deductible, the insurance premiums must be for an insurance contract issued after December 31, 2006 insuring loans for the purchase of a first or second home or for the refinance of those loans. However, the deductibility of these premiums begins to phase out for higher-income taxpayers when their AGI (adjusted gross income) exceeds $100,000 ($50,000 for married taxpayers filing separately) and is fully phased out if the AGI exceeds $109,000 ($54,500 for married taxpayers filing separately). Discharge of Qualified Principal Residence Indebtedness Exclusion – When an individual loses their home to foreclosure, abandonment, or short sale or has a portion of their loan forgiven under the HAMP mortgage reduction plan, they generally end up with cancellation of debt (COD) income that is taxable unless the taxpayer can exclude it based on specific provisions of the tax code. For example, a taxpayer can exclude their COD income to the extent they were insolvent immediately before the event occurred by using the insolvency exclusion. After the housing market crash more than 10 years ago, Congress added the qualified principal residence COD exclusion, which allowed taxpayers to exclude up to $2 million ($1 million if married and filing separately) of COD income to the extent it was discharged debt used to purchase the home (not equity debt). This COD exclusion was temporarily added in 2007 but expired at the end of 2017. Luckily, those who had home purchase debt forgiven and paid taxes on that forgiven debt in 2018 may very well be able to amend their 2018 returns to exclude that COD income and get a refund of the taxes paid on the COD income. Residential Energy Property Credit – The residential energy property credit provides for a 10% non-refundable credit eligible property costs (does not include installation costs) with a lifetime credit of $500. Energy savings property includes certain energy-efficient insulation materials, asphalt roofing with appropriate cooling granules, metal roofing with appropriate pigmented coatings, exterior windows, skylights, storm doors, air circulation fans, air conditioning, furnaces and hot water heaters. However, there are also per-item lifetime credit limits: o Qualified Windows & Skylights: $200 o Qualified Advanced Main Air Circulating Fan: $50 o Qualified Hot Water Boiler: $150 o Qualified Energy-Efficient Equipment: $300 Example: You installed an energy efficient furnace in 2018. The cost of the furnace itself without the installation costs is $4,000. The credit is the lesser of $400 (10% of $4,000) or $300; but if you’d installed other energy-efficient equipment in any prior year since this credit first became available in 2006 and claimed a $200 credit at that time, you would have only $100 remaining of the lifetime credit allowance, and your credit for 2018 would be limited to $100. Above-the-line Tuition & Related Expenses Deduction – A deduction from your income for tuition and related higher education expenses (if not used for education credits) is allowed, even if you don’t itemize your deductions. The maximum deduction is $2,000 or $4,000 depending upon your AGI. This deduction is totally phased out for taxpayers with an AGI of more than $80,000 ($160,000 for married taxpayers filing jointly). For example, if you are in the 12% tax bracket, a $4,000 deduction would net you a $480 refund. Kiddie Tax – Tax reform changed how the income of dependent children is taxed, causing a child’s unearned income to be taxed at fiduciary rates that very quickly reach the maximum tax rate of 37%. That change created an unintentional tax increase for survivors of service members and first responders who died in the line of duty (because the death-related payments their children receive are considered unearned income). Because of this, Congress retroactively changed the kiddie tax computation back to the way it was before the tax reform change. This allows a child’s return for 2018 to be amended to use the old method of taxation if it provides a better outcome, which will usually be the case if the child received survivor’s benefits in 2018 and can provide a substantial refund. In the case of other children subject to the kiddie tax, both methods will need to be figured to determine whether amending the child’s return is appropriate. Alternative Fuel Vehicle Refueling Property Credit – The credit is 30% of the cost of the refueling property divided between business and personal use. The following are the credit limitations: o Personal use is limited to $1,000 per home and is a non-refundable personal credit allowed against the regular tax and the AMT (alternative minimum tax). o Business use is limited to $30,000 and is a general business credit reported on Form 3800; any amount of the credit not used in 2018 will carry back to 2017 and then forward to 2019. This will provide a substantial tax credit for those who installed refueling property in 2018. Qualified Fuel Cell Motor Vehicle Credit – Although rare, the purchase of a qualifying fuel cell vehicle in 2018 can provide a considerable tax credit. A qualifying fuel cell vehicle is one that is propelled by combining oxygen and hydrogen to generate electricity. This credit is not limited to passenger vehicles but also applies to big rigs used in business. The credit is based upon the gross vehicle weight rating (GVWR) of the vehicle: o $4,000 – GVWR not more than 8,500# o $10,000 – GVWR > 8,500# but < 14,000# o $20,000 – GVWR > 14,000# but < 26,000# o $40,000 – GVWR > 26,000# 2-Wheeled (Motorcycle) Vehicle Credit – Although most bikers are not looking for a quiet ride, there is an electric vehicle credit equal to 10% of the cost (maximum credit $2,500 per vehicle) of electric-drive purchased motorcycles with a battery capacity of at least 2.5 kilowatt hours, weight less than 14,000 pounds, and highway capability of 45 mph. If you purchased an electric motorcycle in 2018 that meets these requirements, you can amend your return for a tax credit of up to $2,500. Credit for Building New Energy Efficient Homes - Provides a building contractor with a credit of $2,000 for site-built homes and $1,000 or $2,000 for manufactured homes that meet certain energy savings requirements (energy savings 30-50% for manufactured homes and 50% for site-built homes).

Article Highlights Traditional IRA Roth IRA Selecting the IRA Type for You Penalties Conversions Spousal IRAs Retirement Distributions The tax code offers two types of IRAs; one is referred to as the traditional individual retirement account (IRA), so named because it was the first type of IRA available, having been created by Congress back in the 1970s. The second type is the Roth IRA, established in 1997 and named after William Roth, who was a senator from Delaware. Traditional IRA – The tax benefit of a traditional IRA is that it provides a tax deduction for the amount of the contribution up to the maximum allowed for the year. Higher income taxpayers that also participate in their employers’ retirement plans, such as a traditional pension plan or a 401(k) plan, can make contributions, but the deductibility of their contributions phase out as their adjusted gross income (AGI) increases. IRA Contribution Limits Year Under Age 50 Age 50 and Over 2013 through 2018 $5,500 $6,500 2019 through 2020 $6,000 $7,000 The annual contribution limits are inflation adjusted periodically and include an additional catch-up amount for taxpayers age 50 and over. To make a contribution, an individual must have earned income (income from working, such as wages or some form of self-employment income). There are special provisions in the tax law that allow taxable alimony, non-taxable military combat pay, and certain taxable fellowships and stipends to be treated as earned income for purposes of the earned income limit. The maximum contribution is the lesser of the earned income or the IRA contribution limit amount for the year. Example: Phil, who is age 65, only worked part time during 2020 and his wages were $5,000. His contribution limit is the lesser of his earned income, $5,000, or the IRA contribution limit, $7,000. Thus, Phil can contribute any amount up $5,000 for 2020. The traditional IRA deduction begins to phase-out when an individual who makes a traditional IRA contribution is also an active participant in a qualified retirement plan and their AGI has reached certain inflation-adjusted thresholds. The deduction is fully phased out for unmarried filers when their AGI reaches an amount $10,000 over the threshold. For married taxpayers and certain surviving spouses, full phase-out is achieved when their AGI is $20,000 over the threshold. Those using the married separate filing status who are active participants in their employer’s qualified plan generally are not allowed a deduction once their AGI reaches $10,000. Phase-out Threshold for Active Participants in Qualified Pension Plans Filing Status 2018 2019 2020 Single & Head of Household $63,000 $64,000 $65,000 Joint & Surviving Spouse $101,000 $103,000 $104,000 Married Filing Separately Zero Zero Zero Generally, when funds are withdrawn from an IRA, the distribution is fully taxable, including the amount contributed and the earnings. An exception applies when a taxpayer elects not to take a deduction or when the deduction has been phased out. Contributions that were not deductible are recovered tax-free proportionally to each distribution. For example, if 8% of the overall contributions to a traditional IRA were nondeductible, 8% of each distribution will be tax-free and 92% will be taxable. Traditional IRAs are recommended for those that may need a tax deduction in order to afford to make a contribution or those who are contributing later in life and cannot substantially benefit from a Roth IRA’s tax-free accumulation and whose income during retirement will be in a tax bracket substantially lower than it was when they were making the contributions. Roth IRA – The tax benefit of a Roth IRA is quite different than that of a traditional IRA. With a Roth IRA, a taxpayer gets no tax deduction when contributions are made. However, the taxpayer gets tax-free accumulation, and at retirement, all distributions are tax-free, including the account’s earnings (if a five-year required holding period is met). The annual contribution limits for a Roth IRA are the same as for a traditional IRA, including the need for earned income. However, for higher-income taxpayers, the amount they can contribute to a Roth IRA is reduced as their AGI increases above an inflation-adjusted threshold established for their filing status. Roth IRA Contribution Limit Phase-out Range Year Married Filing Joint Married Filing Separately All Others 2018 189,000 – 199,000 0 – 9,999 120,000 – 135,000 2019 193,000 – 203,000 0 – 9,999 122,000 - 137,000 2020 196,000 – 206,000 0 – 9,999 124,000 – 139,000

The coronavirus pandemic has changed our lives in many ways, and whether you’re thinking about the physical and social aspects or the financial aspects, there is no clear end in sight. The American economy has fallen to a dramatic degree, and an astounding number of people have lost their jobs or been furloughed for an indefinite period of time. If you and your partner are among the millions whose finances have been impacted by current events, now is the time to make sure you have a plan in place to allow you to work together through the crisis. There are many positive, constructive steps you can take that will make sure you’re both on the same page and understand your priorities and needs. We suggest starting with the following five steps. 1. Make a date to discuss your finances. It’s a mistake for either of you to assume that you have a full picture of what your economic situation is without first sitting down and having an open and honest discussion. Whether you include your financial advisor or not, set aside a specific time when you can sit quietly and without interruption and go over all of your appropriate documents and records. Though there’s a lot to talk about and conversations about money can get tense under the best of circumstances, try to prioritize these three areas at a minimum: Monthly expenses – Make sure you each know how much is being spent over the course of a one-month period. Understanding what money is being spent on and how much is being spent is the first step in creating a budget. Money on hand – Review how much cash is available in your joint accounts, whether those are checking or savings. Once you’ve assessed your available money, determine how long you’d be able to live on it if one or both of you were to become unemployed and stop having cash coming in. Employment – Have an open and honest discussion of each of your jobs, what the chances are of either of you becoming unemployed, and what you will do should that happen. This should include a plan for covering one another’s expenses in the event that one of you loses your job and the other remains employed. This is a difficult discussion to have, and the reality that is revealed as a result of this conversation may be frightening. But once you’ve had this conversation you can both feel more in control and will have a better understanding of what kind of sacrifices you may need to make to get through the crisis. You can also feel more confident in knowing that there’s a plan in place should one of you become unemployed. 2. Create a cash cushion It may feel like it’s too late to create an emergency fund but setting aside even a small amount of money on a regular basis is a good idea. Ideally people should have an emergency fund that will provide enough cash for three to six months of expenses, but even if you didn’t go into the COVID-19 crisis with that much on hand, as long as you have any surplus money coming in you should start setting it aside now. If you do so, you’ll be better prepared for the additional stress caused by unexpected illness or job loss, as well as for rainy day expenses such as repairs. Make sure that whatever money you set aside for this purpose is available to you without delay. It’s an emergency fund, so you don’t want to be forced to fill out papers or pay penalties in order to get a dispersal of your money.