TAX UPDATE

Tax Changes
(Including Changes Resulting from Further Consolidated Appropriations Act, 2020)

I. REG
A. Module 1: Chapter: Gross income (Ref – X.C.1)

Exception
Gross income does not include the amount of debt discharge (in whole or in part) in
the following circumstances.
a. The discharge occurs under title 11 of the bankruptcy Code.
b. The discharge occurs when the taxpayer is insolvent.
c. The student’s debt is discharged due to-the death or total and permanent
disability of the student.
d. The student’s debt is discharged pursuant to the Higher Education Act of 1965.
e. The student’s debt is discharged pursuant to a provision of such loan under
which all or part of the debt would be discharged if the individual worked for a
certain period of time in certain professions for any of a broad class of
employers.
f. A qualified principal residence indebtedness discharged up to $ 2,000,000,
before January 1, 2021, or subject to an arrangement that is entered into and
evidenced in writing before January 1, 2021.
(Here indebtedness refers to any indebtedness which is incurred in acquiring,
constructing, or substantially improving any qualified residence of the taxpayer,
and is secured by such residence.)

B. Module 1: Chapter: Gross income (Ref – II.B.2.c.i.2)

Compensation test
The employee received compensation from the employer in excess of $120,000 (for
2016-2018) $130,000 (for 2020) during the lookback year and, if elected by the
employer, is in the top 20% of employees ranked by compensation for the lookback
year.

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 C. Module 2: Chapter: Deductions from gross income (Ref – XVI)

Tuition and fees deduction

A deduction may be claimed for qualified education expenses paid during the year. The
maximum tuition and fees deduction in 2020 is $4,000, $2,000, or $0, depending on the
amount of MAGI. The deduction is subject to the following conditions.
1. Qualified education expenses include tuition and certain related expenses required
for enrollment or attendance at an eligible educational institution. Expenses on
books, supplies, and equipment are included in qualified education expenses only if
these expenses must be paid to the institution as a condition of enrollment or
attendance.
2. The student must be the taxpayer, the spouse or the dependent.
3. The taxpayer cannot be claimed as dependent by any other taxpayer.
4. The filing status of the taxpayer is not married filing separately.

Limit on maximum tuition and fees deduction

MAGI Maximum Tuition and Fees Deduction

< $130,000 $4,000

Married Filing Jointly $130,000 - $160,000 $2,000
> $160,000 0

< $65,000 $4,000

Others $65,000 - $80,000 $2,000
> $80,000 0

For 2020, the maximum deduction is reduced when MAGI exceeds $65,000 ($130,000 for
married individuals filing jointly) and no deduction is allowed when MAGI is $80,000
($160,000 for married individuals filing jointly).

D. Module 2: Chapter: Deductions from adjusted gross income (Ref – III.A.1)

An itemized deduction is allowed for net qualified expenses paid during the year to the
extent that the payment for expenses exceed 10% 7.5% of AGI.

Total medical expenses paid for taxpayer, spouse or dependent $

(-) Reimbursement from insurance $
Net qualified medical expenses paid $

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(-) 10% AGI 7.5% AGI
Deductible medical and dental expenses
$
$

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E. Module 2: Chapter: Deductions from adjusted gross income (Ref – III.C.1)

Interest on Home Acquisition Debt

A taxpayer can deduct interest on home acquisition debt with respect to a qualified
home. Premiums paid or accrued for qualified mortgage insurance by a taxpayer
during the taxable year in connection with home acquisition debt is also considered
interest for the purpose of this deduction.

F. Module 1: Chapter: Savings (Ref – I.A.1)

Contributions
A taxpayer can claim deduction for the contributions made to one or more traditional
IRAs at any time during the year or by the due date for filing the return (that is, April
15). The taxpayer is not permitted to make contributions to a traditional IRA in the
year the taxpayer reaches 70½ 72 and older. Also, contributions at age 72 or older
are not considered excess contributions.

G. Module 1: Chapter: Savings (Ref – I.A.4)

Additional Tax
Any distribution from a traditional IRA to a taxpayer if made during the 1-year period
beginning on the date on which a child of a taxpayer is born or on which the legal adoption
by a taxpayer of an eligible adoptee is finalized, is not subject to 10% additional tax.

H. Module 1: Chapter: Savings (Ref – I.B.5)

Additional Tax
Any distribution from a Roth IRA to a taxpayer if made during the 1-year period beginning
on the date on which a child of a taxpayer is born or on which the legal adoption by a
taxpayer of an eligible adoptee is finalized, is not subject to 10% additional tax.

I. Module 1: Chapter: Savings (Ref – III.A.1)

Qualified Higher Education Expenses

Qualified higher education expenses cannot be more than $10,000 and include the
following expenses incurred for higher education.
a. Tuition and fees
b. Books, supplies and equipment
c. Room and board, if the beneficiary is enrolled at least halftime
(Please note: Qualified higher education expenses include amounts paid as principal or

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interest on any qualified education loan of the designated beneficiary or a sibling of
the designated beneficiary. The term “qualified education loan” means any indebtedness
incurred by the taxpayer solely to pay qualified higher education expenses (a) which are
incurred on behalf of the taxpayer, the taxpayer’s spouse, or any dependent of the
taxpayer as of the time the indebtedness was incurred, (b) which are paid or incurred
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 within a reasonable period of time before or after the indebtedness is incurred, and (c)
which are attributable to education furnished during a period during which the recipient
was an eligible student.)

J. Module 1: Chapter: Savings (Ref – I.A)

Traditional IRA
Under a traditional IRA, an individual is not permitted to withdraw before attaining the age
of 59 ½ and the individual (or the beneficiary) must start receiving distributions by April 1
of the year following the year in which the taxpayer reaches age 70 ½ 72.
Please note: Required minimum distribution is the minimum amount that must be
withdrawn from the traditional IRA when the taxpayer reaches age 72.

K. Module 1: Chapter: Savings (Ref – I.A.2.c)

Phase-Out: Active Participants in an Employer Sponsored Retirement Plans

The deduction may be phased-out when the individual or the individual’s spouse is an
active participant in an employer sponsored retirement plan. The deduction is phased-out
when MAGI falls within the specified range (for 2020) shown below.

Filing Status MAGI Range

Married filing jointly $103,000 - $123,000
Single individuals and head of households $64,000 - $74,000
Married filing separately $0 - $10,000

Filing Status MAGI Range

Married filing jointly $104,000 - $124,000
Single individuals and head of households $65,000 - $75,000
Married filing separately $0 - $10,000

For married individuals filing a joint return, the deduction begins to phase out when the
individual’s modified AGI exceeds $103,000 $104,000 and is completely phased out when
modified AGI is $123,000 $124,000 or more.

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