This year appears to be a time of rapid change in every area of our lives. Even our income taxes will be shifting in 2020! Here is what you can expect.
Stimulus payments. Economic impact payments, distributed by the IRS in response to the coronavirus pandemic, went out to millions of taxpayers this spring. Depending upon the actions of Congress in upcoming weeks, we might also see additional stimulus money this year.
But some people didn’t receive a stimulus, due to earning over the limit in 2018 or 2019. If your income has dropped this year, you might actually be eligible for a payment of $1200, or $2400 for married taxpayers, plus $500 for each dependent child (up to three). If your income falls below the threshold you will receive that money as a tax credit (yes, refundable) when you file your 2020 return next year.
Early retirement withdrawals with no penalty. Usually, a withdrawal from your retirement account before age 59 ½ would result in a 10 percent tax penalty. That rule has been waived this year, so that those impacted by the pandemic can access much-needed funds.
Certain rules do apply, and you will still owe regular income tax on any distributions that you take from a retirement account. Generally speaking, we urge you to investigate all other means of funding a financial emergency so that you don’t need to touch your nest egg. If you do need to take a withdrawal, you can put the money back within three years, not subject to normal contribution limits.
A waiver on required minimum distributions. Generally speaking, those over age 72 must take required minimum distributions from retirement accounts each year (and pay applicable income taxes on those distributions). If you’d rather not take a distribution this year, you can skip it.
Those who don’t itemize deductions can contribute to charity. Normally, you must itemize deductions in order to receive a deduction for charitable donations. The CARES Act allows taxpayers to deduct $300 worth of contributions to charity, even if you take the standard deduction.
Advance planning is always the key to avoiding unpleasant surprises with regard to financial or tax matters. Remember to stay on top of changes this year, and give us a call if you have questions about how these issues might impact your situation.
Asset Protection Group does not offer tax planning or legal services, but may provide references to accounting, tax services or legal providers.