Leyla Hanson, CPA Sunnyvale

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How does the Cares Act affect withdrawals from my retirement account?

If you have experienced financial hardships due to the pandemic, the Cares Act waives the 10 percent penalty for withdrawing money from IRAs and defined contribution plans, such as a 401(k) or 403(b). Coronavirus-related distributions can be taken for the following reasons:

Be aware that the 10 percent waiver only covers withdrawals up to $100,000 made on or after Jan. 1. until Dec. 31, 2020.

If I were to withdraw money from my retirement account, when will I have to pay taxes under the Cares Act?

You have up to 3 years to pay taxes on the withdrawal. You can repay all or a portion of the distribution within three years, and the repayments will not be counted toward the annual contribution limits. For 2020, the maximum contribution to a 401(k) or similar retirement plan is $19,500. If you're 50 or older, you can also contribute an extra $6,500. The annual limit for an IRA is $6,000, with a $1,000 catch-up limit if you're 50 or older.

How does the Cares Act impact my 2020 Required Minimum Distribution (RMD)?

You are required by law to take withdrawals from your IRA, SIMPLE IRA, SEP IRA or retirement plan such as a 401(k) once you reach the age of 72. (It was 70½ before 2020.) But the Cares Act waives RMD payments for 2020, including for inherited IRAs.

Does CA conform to the federal early withdrawal penalty waivers for distributions from qualified retirement accounts under the CARES act?

Yes, the federal early withdrawal penalty waivers for distributions from qualified retirement accounts under the federal CARES act also applies for CA income tax purposes. The FTB's COVID-19 FAQs can be found at: www.ftb.ca.gov/about-ftb/newsroom/covid-19/help-with-covid-19.html

I heard I can carryback my net operating losses under the CARES Act. Is that correct?

Yes, the CARES Act allows a five-year carryback of any NOL generated in a taxable year beginning after December 31, 2017, and before January 1, 2021. In addition, fiscal year 2017 returns (i.e. returns that began before January 1, 2018, and ended after December 31, 2017) can now be carried back two years as a result of the technical correction to the effective date language in the TCJA, which originally applied the prohibition on carrybacks to taxable years ending after December 31, 2017.

Are carryforwards of NOLs still indefinite?

Yes. The CARES Act still allows for an indefinite carryforward period.

Do the NOL carryback provisions apply only to C corporations?

No. The NOL carryback rules also apply to individuals, estates and trusts and tax-exempt organizations filing Form 990-T, Exempt Organization Business Income Tax Return, to report unrelated business taxable income.

Are the modifications for NOLs in the CARES Act applicable for CA income and franchise tax purposes?

No, these modifications for NOLs do not apply for CA income and franchise tax purposes.

Income Taxes for Individuals, Start-ups & Small Businesses
leyla@leylahansoncpa.com  ::  408.732.9205
located in Sunnyvale, California

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