It is time again to start thinking about filing your income tax returns. This season we have to reckon with many new and complex provisions, most of them delivering taxpayer relief related to the COVID-19 pandemic.
Here are a few to consider.
Retirement Plans: RMDS and Distributions
For retirees, the CARES Act suspended required minimum distributions (RMDs). This could open some possibilities for tax savings. Capital gains could be recognized at a lower tax rate than they would have incurred in a higher income year.
A long-term benefit of a Roth Conversion at a lower tax rate could offer a great deal of benefit. The Roth account can grow tax-free until the owner’s death without making any distributions.
The CARES Act also eased rules allowing early distributions from eligible retirement plans in 2020 for pandemic related reasons. It also provided generous recontribution timetables.
A qualified individual for purposes of a coronavirus related distribution includes not only those who contracted the illness but individuals, spouses, or other household members. Qualified individuals self-certify their eligibility to plan administrators.
Above-the-line Charitable Contributions
Also new for 2020 on the first page of Form 1040 is an opportunity for taxpayers who do not itemize to claim up to $300 in charitable contributions as a deduction in determining AGI.
Relief for Individual Taxpayers — Recovery Rebate Credit
Taxpayers who were eligible for an advance payment of a recovery rebate credit, known as an economic impact payment, but did not receive it can claim a refundable tax credit in the corresponding amount: $1,200 for a single taxpayer or $2,400 for married taxpayers filing a joint return, plus $500 per qualifying child. Like the payment, the credit has income phase out provisions. No credit is allowed to taxpayers who could be claimed as the dependent of another taxpayer, to nonresident aliens, or to individuals without a Social Security number.
The IRS used information from taxpayers 2019 or 2018 returns to determine who was eligible and the bank direct deposit information or address for where to send the payment.
Paul Toepel is a CPA who has lived in Las Sendas for more than 19 years. His firm, Toepel Company, PC, is a full-service, Mesa-based CPA firm offering a variety of services for more than 30 years.
These services include tax preparation and representation, accounting, fraud prevention, and QuickBooks setup and support. Their mission is, “To provide exceptional service, knowledge and experience, all while making you and your business successful.”