Since the outbreak of the Covid-19 pandemic, there have been changes to the 2019 income tax code with a significant impact on individual taxpayers. Here is a summary of those significant changes:
Income Tax Filing and Payment Deadlines
The deadlines for filing federal 2019 income tax returns, and payment of taxes due, has been extended until July 15, 2020.
Those who file for an extension will still need to file by October 15, 2020 and this applies to federal and not state tax returns, although many states have followed suit.
The deadline for paying the first quarter 2020 estimated tax is also extended to July 15, 2020, as are the second quarter 2020 estimated tax payments.
There is no interest or penalties for delayed payment until July 15, 2020.
2019 IRA Contributions
2019 contributions to an IRA is also extended til July 15, 2020 and the age limit of 70 1/2 for making contributions to an IRA has been lifted for IRAs.
Planning Tip: If you have already filed your 2019 tax return, you can amend the return to take the full deduction ($6,000 plus $1,000 for age 50 and over) as well as having contribution to a Roth IRA count for the retirement saving credit.
$300 of cash donations to charity are deductible “above the line” regardless of whether you itemize deductions.
A cash charitable contribution is deductible against 100% of your Adjusted Gross Income (“below the line”).
Donation made directly to charity from an IRA is still allowed for those who are 70 1/2 or older, up to the limit of $100,000.
Required Minimum Distributions
The Required Minimum Distribution (RMD) is waived for 2020. This means that Qualified Charitable Distributions will not have an immediate income tax effect in 2020 but will in future years as the RMD is reduced.
The IRS has not yet addressed the impact on RMD from inherited IRAs that was radically changed with the SECURE Act in December of 2019.
If you have taken your RMD for 2020, you have 60 days to roll the distribution over into an IRA.
Planning Tip: RMDs for 2021 will be increased to the extent that the RMD was not withdrawn in 2020. You could take the tax savings from not taking the RMD in 2020 and use it for the tax due on a Roth conversion.
Early withdrawal Penalties
The 10% early withdrawal from an IRA penalty if you are under the age of 59 1/2 is waived in 2020 if you, your spouse or a dependent is diagnosed with Covid-19 or if you experience “adverse financial consequences” as a result of the pandemic.
Planning Tip: The withdrawal will be taxable unless it is repaid, such repayment can be spread out over three years.
The withdrawal is limited to $100,000.
The rebates, designated as credits under the CARES Act, will not be counted as income in 2020. The rebate, up to $1,200, is based on your AGI for 2019, or if you have not yet filed your AGI for 2018.
Planning Tip: When your 2020 tax return is filed you will need to reconcile the rebate you received with the rebate you qualify for and if you received less than you qualify for then you can claim that in your 2020 return. If you received more than you were due, you do not need to repay the excess.
The tax rate for taxpayers under the age of 18 (and students up to age 24) is reduced from the compressed estates and trust tax schedule to their tax schedule or the tax schedule used by their parents, which ever is higher. This is retroactive to 2018 and 2019.
Planning Tip: Taxpayers under the age of 18 (or students under the age of 24) should amend their 2018 and 2019 tax returns.
For the latest information on the Covid-19 tax relief see the IRS website at www.irs.gov/coronavirus, or contact our office for a consultation.