The tax season this year – 2020 taxes filed in 2021 – will be unlike recent years for many reasons. One major change is the almost certain delays you may expect in connection with the preparation and filing of your taxes. The potential for delay is based on several factors, most of which will be out of your control but which you may want to understand and allow for this year. 

First, we have the substantial backlog at the IRS for 2019 returns that have NOT yet been processed. Between individual returns and business returns, over ten million are outstanding.

There is no time like the present for investors to consider their financial situations and planning and act to make changes under current rules. With the national debt sky-high, the economy ravaged by COVID lockdowns and everyone seemingly asking for funding of a wide variety of pet projects, the one thing that seems certain is that the government will be squeezing more revenue out of taxpayers. Make no mistake: this revenue seeking won’t simply impact high income and wealthy taxpayers. Taxpayers at all levels of the economy will be facing increased government demands not simply for income tax but for increased taxes on services, on the sale and consumption of goods, on ownership of real and intangible property and more.

A popular approach to investing is offered through the Robin Hood app. This service allows an investor to participate in the market without requiring any minimum investment and without charging any commission on the trades by an investor. Available investment choices include stock, ETFs, options, a number of ADRs, and even cryptocurrency. A margin account is also available, subject to meeting the regulatory requirement of a $2,000 minimum. The Robin Hood service is offered as a web platform or as a mobile app trading platform.

Not every product or service sells itself and those offering most products and services devote substantial effort and funding to ensure that the desired sales happen. In the financial industry, a firm’s offering of incentives to its sales employees to push particular products has (rightly) come under fire and increasing regulation to the point that many incentive programs have been terminated or at least significantly limited.

One reason for the change is that although the firm compensates those salespeople, the funds for that compensation ultimately come from the customers.

Most IRA owners have named one or more primary beneficiaries to the account in the event of the owner’s death. Oftentimes successor beneficiaries are also named to ensure the funds pass as desired where the primary beneficiary has died as well. The beneficiaries will be required to take distributions as specified in the tax code and pay the associated taxes, though they may also take additional distributions as desired. The distributed funds are not protected from the beneficiary’s creditors and a spendthrift may quickly exhaust the IRA.

As the pandemic with its related restrictions and uncertainties drags along, we are seeing more clients changing their near-term plans and goals.  Initially, many of us simply deferred activities, presumably for a few months while the pandemic (hopefully) ran its course. Now, with no clear end to the pandemic nor any return to something approaching normalcy in sight, people are making significant changes to their plans. These changes are wide ranging and appear to have affected different age groups in markedly different ways.

After all the hype and noise about Form CRS, which was first required to be issued this summer, it appears that the intended audience – investment clients – are generally uninterested in the new disclosures and not engaged in the process of asking questions of their advisers. Research shows that almost no-one who received the new form, among the tens of thousands of clients who did, raised any issue or question with their advisor regarding Form CRS and its use.

Not surprisingly, this logically fits in with the response of clients to required disclosures generally: adding a few new pages with a somewhat different approach to the pile does not engender interest in persons already overwhelmed with information and fine print (much of it irrelevant and/or confusing).

A feature of many 401(k) plans (as well as 403(b) and 457 plans) is the ability of the plan participant to take a loan from the plan to assist in meeting near term goals. This is particularly effective where there is no other desirable source of funds and the participant has stable employment. Such a loan can be a real benefit in times like the present where the pandemic has caused stress and change from what used to be normal.

The primary reason for considering this source of funding is the ability to avoid having the loan treated as a taxable distribution from the plan and so not subject to either regular income taxation or to the ten percent penalty assessed on early distributions for those younger than age 59½.

The question of what happens with one’s assets at death is a major aspect of planning for many of us. Necessarily, that planning must address the possibility of death being earlier or later than what normally might be expected and so directions should be in place to meet any eventuality. Of course, the beauty of the planning is that in most cases we can revisit the plan and update as circumstances change and time passes.

That brings us to those who have invested in qualified retirement plans and who have children who are presently minors.

In this rather unusual year, it is important that you do not forget to file your Federal Income Tax return this week. Many, many taxpayers took advantage of the IRS postponing the due date for the 2019 tax returns by 91 days to July 15, 2020. This step was taken in response to some of the confusion and uncertainties surrounding the pandemic and was meant to be a help to taxpayers but not an excuse from the obligation of filing and paying tax.

Of course, taxpayers may still request an extension to the filing of their returns until October 15, 2020, provided of course that the taxpayer pays the amount due by July 15, 2020.