Feb. 14, 2021

Dear Valued & Fellow Taxpayers,

With these challenging times, I hope this tax letter and reminder will find you well, safe and sound. Definitely, 2020 is a year that we would rather forget and should be relegated into the dustbin of history.

I empathize to those who have lost their loved ones or friends due to the pandemic.

I will be working at my home office but will entertain  clients behind my house covered patio as a safety precaution.

Please be aware that under the Tax Cut & Jobs Act of 2017, many itemized deductions have been eliminated. However, it was replaced by standard deductions. Our tax software will choose which is more beneficial to the taxpayer for potential refunds or payments.

Here are some of the basic changes for Tax Year 2020:

1. A standard deduction of $12,400 for a taxpayer  filing single.
2. A standard deduction $24,800 for married filing jointly.

Here are tax deductibles that are still in place:

1.  A home mortgage interest is still tax deductible on Schedule A through 2026.
2. Personal property or real estate taxes.
3. A college tuition fee of your children can still be claimed under the American Opportunity Credit.
4. It’s good to be charitable including your donations to your church which is 60% deductible.
5. If you spent a home improvement including a wheelchair ramp for your elderly parents, the amount spent is deductible.
6. You can claim a home mortgage interest deduction on your existing home mortgage limited to $750,000.
7. If you are over 65, a qualified out of pocket medical expenses is surgery to treat a defective vision.

Here are non-tax deductibles:

1. Starting in 2018, meals and entertainment expenses for clients cannot be deductible.
2. The reimbursement payment on moving expenses made by taxpayer’s employer.
3. If you wish to rollover your current 401 (401K) into a traditional IRA or Roth IRA you may make a tax-free rollover within 60 days of the distribution from your retirement account.
4. A personal casualty and theft losses could no longer be claimed under the TCJA except for casualty losses suffered in a federal disaster area. The deductible percentage is 10%.

Basic Taxable & Non-Taxable Tax Laws in California and Federal Returns:

1. The Railroad Retirement Tier 1 is not taxable in California.
2. California unemployment compensation is never taxable on the California return.
3. Federally, Social Security benefits are taxable but not taxable in California.
4. Bartering qualifies as taxable income in California?
5. An educator expenses are tax deductible in federal return but not in California
6. Refunds from Self-employment are not taxable in California.

Here are other basic changes in the TCJA:

1. If you sell your home, the amount that you can exclude from the gain in order to avoid paying capital gains taxes is $250,000.
2. Qualified Business Income allows sole proprietors, shareholders in an S-Corporation, partnership and trust and estates to claim a deduction for up to 20 percent of qualified domestic income from that Sole Proprietorship, S-Corporation or Partnership.
3. Beginning in 2018, the TCJA expanded the definition of “dependent” to treat someone as your dependent for purposes of several tax benefits, such as the Child Tax Credit or the Earned Income Tax Credit. A parent of the taxpayer although living apart could benefit from the credit of $500 for  “Other Dependent Credit.”
4. A bank record receipt is required for each donation that shows the amount, date, and to whom it was paid. Just be ready to obtain a Contemporaneous Written Acknowledgment (CWA).
5. Considering the new CARES laws passed, they contain a large number of benefits and subsidies for individuals and small businesses due to the Coronavirus pandemic like the Paycheck Protection Program (PPP). Certain requirements must be met in order to have this loan forgiven by the Small Business Administration. The loan cannot be used to refinance an existing business loan.
6. The partnership must furnish copies of a Schedule K-1 to the partners by the partnership return due date (or extended due date). If a K-1 is not issued, a $270 penalty for each partner will be charged.
7. A domestic Limited Liability Company (LLC), with at least two members, that does not file Form 8832 (Entity Classification Election), should be classified as a partnership.
8. In regard to calculating the Qualified Business Income of a shareholder of an S-Corporation, the best option is that an S-Corporation issues a K-1 form showing all the required information to calculate the QBI for the shareholder, shown in box 17.
9. State, local property, and sales tax expenses were generally fully deductible on a federal tax return; and that amount was transferred to a California tax return. California will not conform to the federal tax law changes. The new federal rules state that beginning in 2018, the state, local property, and sales tax expenses are limited to: $10,000.

I hope this will help you understand our current tax laws. Contact me should you have questions.

                                                          Dan E. Nino, CRTP & Notary Public

                                                 Principal, Summit Tax & Business Counselors

12540 E. Oak Creek Lane, Cerritos, CA 90703-2042

Tel. Nos. 562-508-8099 (Cell) * 562-921-5116 (Landline) * E-mail: denono1951@gmail.com