TAX BAR BULLETIN: Volume 37, No. 2

Current Items:                                                             

  1. TMD on RMD
  2. Morals and the Great Divide
  3. Recovery Credit
  4. Be Charitable

1). The biggest tax bonus any taxpayer can have is being lucky enough to have a tax exempt vehicle. I don’t mean a new Tesla which gets all kinds of credits and deductions both at the federal and state level. I’m talking about an IRA or pension plan of some kind. Long ago when the government realized that people would not be able to live on their meager allowance provided by the Social Security safety net, it legislated the answer with a private retirement vehicle to shoulder the bulk of retirement living expenses. So the idea was invented to keep assets and their accumulated income away from the tax authorities until the day a taxpayer began drawing against it. This of course is an oversimplified view of a taxpayer’s rights with regard to his IRA or other pension plan but it does make the point. Frankly, when I was a young lawyer I thought making contributions to a pension plan even though currently tax deductible was like throwing money down the toilet considering that I would not get my hot little hands on it until I was an old geezer of at least 65. But now having reached such an incredible vantage point, and beyond, I appreciate the miracle provided by Congress in those long ago days. To avoid taxpayers accumulating these funds and passing them on to other beneficiaries upon their death without immediate taxation, Congress invented the idea of the RMD… The Required Minimum Distribution. This is the yang provided for the ying in tax law. Congress was concerned that older people would not pay their just due by postponing tax distributions from their pension plans forever. So a formula was born to require those taxpayers to take a certain amount of that pension plan annually after they hit the age of 70 1/2, these days now 72.That RMD would be taxable in the year the taxpayer got it. Failure to do so carries with it all kinds of nasty tax consequences. Now in 2020 those who took their RMD early in the year were given a special tax dispensation if they returned it to their pension plan by August 2020. For those who did not take an RMD at all no tax consequences followed. That is for 2020 people with pension plans got a free ride even if they were in fact of the age requiring an RMD distribution. But now it is 2021 and so the issue arises; will this be a replay of 2020. Noteworthy is the fact that nothing seems to be pending in Congress to address this issue of delaying the RMD requirement. One school of tax thought says postpone receiving your RMD as long as possible since the pension plan itself is not currently taxable on any income or gains on the assets included in that plan. So one should string the tax people along as long as possible with tax deferral. Of course the other school of thought is “eat drink and be merry”… That is grab the money while you still can and do something fun with it. Recognizing that an older person’s investment horizon may be a relatively short (these days that could be a few weeks) that philosophy may have considerable merit. Should your demise come sooner rather than later you will utter your last words: “Damn it.” Leaving all that money on the table will hurt. There is nothing worse than realizing that your beneficiaries of your pension plan will in fact live much better than you did with funds they inherit and not by the sweat of their own brow. But for this current year one should pay attention to what comes down in the next months as to this RMD issue. You can then decide for yourself whether tax deferral by leaving the funds where they are or throwing yourself a decent lifetime party complete with gifts you provide for yourself should be your tax plan.

2) I have frankly been doing some research outside the immediate tax area. This was stimulated by the number of people I have heard on the great Red and Blue divide. What is often said is: “How could anyone… believe, behave, and support someone, like that.” How could they in fact? In my last bulletin I suggested one explanation could be a mental imbalance requiring medication and long talk therapy sessions. But I have come to realize that perhaps there’s something more to what divides us currently. It could be that we have failed to understand that people have different moral foundations. That is they value authority, loyalty and purity in varying degrees. There is considerable agreement as to what kind of basic behavior a human should engage in. Neither Democrats nor Republicans suggest we should eat our young, destroy our planet and each other. This is not an awakening I’ve come to by myself. I have been reading a book by Arthur Brooks called “Love Your Enemies.” What it describes is that our differences of moral opinion have risen to the level of contempt. That contempt means we don’t hold people with different views as having any merit whatsoever. They are trash, evil, having no redeeming qualities. Certain politicians have fueled this contempt as it paves the way for control and that is what makes it dangerous. But that is not an excuse for the rest of us no matter our affiliation for continuing a culture of contempt. Not to sound too drippy here but Brooks suggests that the answer is Unity and Love…turns out the Beatles were right after all…All you need is….

3) If you have received a stimulus payment for 2020 the good news is, it is not taxable. Further, that payment is actually part of a special tax credit included on your 1040; the recovery rebate credit. So IRS says there is a form to claim this credit and should the credit be greater than the amount you received in your stimulus check you will get a boost on your income tax return. If the amount you got in stimulus payment was greater than this credit of course you will get nothing further. IRS has sent notices to taxpayers who have received these payments and says it will be doing the same thing for any additional payments made. As to unemployment benefits no such luck. They are taxable income.

4) The purpose of a charitable organization for any tax-exempt entity is to do the work more cost-effectively and perhaps intelligently than government. By allowing taxpayers to deduct some or all of the payments made to such an organization the taxpayer donor and the recipient donee both make out. For tax year 2020 taxpayers will be allowed to deduct up to $300 in addition to taking the expanded standard deduction. If you happen to be at a loss for a charitable organization to receive your kind donation may I suggest: The Thoreau Society out in Concord Ma. You know that guy with the hut at Walden Pond. Okay, that was a plug as I am on the Board of Directors. Look it up at