Changes to Your 2020 Tax Return

We’ve been getting a lot of questions about changes to 2020 Tax Returns. Here are a few things to note:

Charitable contributions

Due to the CARES Act, charitable cash contributions up to $300 are temporarily above-the-line deductions. Meaning you don’t have to itemize to claim those deductions.

Many taxpayers are grappling with this because of the increased standard deduction under the Tax Cuts and Jobs Act (TCJA). 

Stimulus Checks

The stimulus checks received earlier in the year will be reported and reconciled on a separate reconciliation on the tax return. The details have yet to be released. However, suppose a taxpayer was entitled to a stimulus check and didn’t receive one. In that case, he/she will receive it through the tax return reconciliation. Suppose a taxpayer received too much (the payments were based on prior year income). In that case, the taxpayer will not be expected to pay the excess back. will be reported / reconciled on a separate portion of on the tax return.  Official details haven’t been released.  However, remember that payments were based on prior year income.

Required minimum distributions (RMDs) 

For distributions required to be made after December 31, 2019, the age for beginning mandatory distributions is changed to 72 for IRA owners reaching age 70 ½ after December 31, 2019.

The required beginning date for IRA owners who haven’t reached age 70 1/2 by the end of 2019 is April 1st of the year following the year of the owner’s 72nd birthday. 

All RMDs have been suspended for 2020 because of the CARES Act passed in March.  It is too late if you have already taken your 2020 RMD and change your mind.  Unfortunately, you can’t return it. 

Qualified Charitable Distribution 

Normally, a distribution from a traditional IRA incurs taxes since the account holder didn’t pay taxes on the money when they put it into the IRA. However, account holders who are at least age 70 ½ may make a contribution directly from a traditional IRA to a qualified charity and can donate up to $100,000 without it being considered a taxable distribution. The taxpayer will receive a 1099R for the transaction and should notify their tax preparer that it was a qualified charitable distribution so there is no tax effect on adjusted gross income on the tax return. 

To avoid paying taxes on the donation, the donor must follow the IRS rules for qualified charitable distributions (QCDs)—aka, charitable IRA rollovers. Most churches, nonprofit charities, educational organizations, nonprofit hospitals qualify. These donations will also not be included in the account at the end of 2020 and therefore not included in the 2021 RMD calculation. 

This tax break does mean that the donor can’t also claim the donation as a deduction on Schedule A of their tax return. Other donations to charity that don’t use IRA funds, however, can still be claimed as an itemized deduction. Since the Tax Cuts and Jobs Act increased the base standard deduction, fewer taxpayers will itemize on Schedule A, making the upfront deduction potentially even more important. 

For 2020, the base standard deduction is:

  • $12,400 for individuals or married individuals filing separately
  • $18,650 for heads of household
  • $24,800 for married couples filing jointly
  • Taxpayers who are at least 65 years old or blind can claim an additional 2020 standard deduction of $1,300 ($1,650 if using the single or head of household filing status).
  • For anyone who is both 65 and blind, the additional deduction amount is doubled.   

So, if you are married filing jointly and age 65, the standard deduction hurdle to reach to itemize is more than $27,400, quite difficult for many retired taxpayers to reach. Taxpayers whose annual income affects their Medicare premiums might also find that this provision helps control the premium cost.

Neither the firm or its agents or representatives may give legal or tax advice. Individuals should consult with qualified professionals in these areas regarding applicability of this information to their situations.