As we move toward the new 2020 tax return due date of May 17, 2021, I want to remind you of a few items that are new for this fling season and easy to overlook.
The first is a charitable contribution deduction for folks claiming the standard deduction. In prior years if you claimed the standard deduction, that meant you didn’t have to total all those medical receipts, property and vehicle tax receipts, and church and other charitable donation receipts. For 2020, everyone claiming the standard deduction is eligible for an additional deduction, claimed before Adjusted Gross Income, of up to $300 for qualified charitable contributions. You don’t get this additional deduction if you itemize, and you have to have made the contribution by cash or check (non-cash doesn’t count).
The CARES Act passed last year waived Required Minimum Distributions (RMD) for retirees. You could repay your IRA if you were able, but you had to do that by August 31, 2020. If you did repay your IRA, and your original distribution included withholding taxes, and you also repaid those, don’t forget to claim a credit for the withholding on your 2020 return. Even though you repaid the taxes the money still went to the government. RMD’s are not waived for 2021 so be sure you take your 2021 distribution before the end of the year.
There have been a lot of questions and confusion about stimulus payments and the Recovery Rebate Credit. As of today, there have been three rounds of payments. The first two were an advance on your 2020 tax, and if you didn’t get the full amount you were entitled to you can claim a recovery rebate credit on your 2020 return for any unpaid amount. Round three, which began recently and is currently being sent to eligible taxpayers, is an advance on 2021 tax so any underpayment will be corrected on next year’s return.
Our understanding is you don’t have to repay most overpayments. There are some special situations where you aren’t supposed to keep an overpayment but those generally only apply when the recipient is deceased and died before the payment was made. Otherwise, most overpayments don’t have to be returned.
The most recent tax bill also excluded from tax the first $10,200 of unemployment compensation for each eligible taxpayer. That means if both spouses collected unemployment in 2020, and each collected more than $10,200 in unemployment, each would be eligible for the exclusion. This exclusion only applies for taxpayers with less than $150,000 in income and there are still a lot of questions about the program. Our understanding is that, if you have already filed and paid tax on unemployment but qualify for the exclusion, you won’t have to amend your return. The IRS will calculate the overpayment amount and refund it to you. I strongly advise you, if this is your situation, to make sure when they do send you this refund, that you make sure it is calculated correctly.
It seems like 2020 tax returns are the most complicated in years. If you have questions about any of these topics, please contact our office for more information. As always, I am looking for article ideas that you would like me to cover. If you have an idea for a future article, or just have a topic you would like more information on, please send me an email.
At Faw & Associates, we are always available to answer any of your tax or financial planning questions. You can get more information on this or many other topics at our website – www.fawandassociates.com or you can contact us directly by calling our office at (336) 838-3080. You can also email me at jim@fawandassociates.com any time with your question or concern.