2020 individual tax returns: more details
Economic Impact payment, Most of you should have received:
- last year: $1,200 per person (so $2,400 when filing married jointly) and $500 per qualifying child. This was subject to an AGI phaseout of $75,000 single, $112,500 head of household and $150,000 married filing jointly and usually came fast from IRS when you e-filed (not paper) and had a refund via direct deposit.
- this year $600 per person, subject to the same phaseouts
Again, the Stimulus money (last year and this year) was an advance on a credit in your 2020 return, so if you did not get it and you qualify for it, we will claim it in your 2020 tax return. We have to input in the return how much you received.
- An example of this is if you had a newborn in 2020, it would qualify you for an extra $1100 credit on your 2020 return ($500 1st stimulus, $600 2nd stimulus). The stimulus you received, which was an advance on this 2020 “recovery rebate credit”, did not figure it in (child was not born in 2019), but because this credit is for 2020 tax year, you would get it when you file!
- Another example is if your 2019 income phased you out of the stimulus but your 2020 income is lower (and it is often the case because of Covid), we will compute in your return if you now qualify for some or all the stimulus money given your 2020 income and if so it would lower your taxes / increase your refund.
$300 charitable contributions deduction for taxpayers who don’t itemize: This is money only (not in kind) and you should keep receipts when claiming this. Although it is unlikely IRS would audit such a small amount, they could include it part of a larger scope audit. If your marginal tax rate is 22%, $300 is worth $66 in your federal return and $14 in your Colorado return, not much, but not a reason to leave it on the table. Also, it is an “above the line” deduction, reducing your AGI (Adjusted Gross Income) which can bring other tax benefits.
2020 Traditional IRA maximum deductible contribution is as in 2019: $6,000/person and $7,000 if 50 and older, unless one gets into income phaseouts when taxpayer or spouse have a retirement plan at work. 401k maximum deductible contribution is $19,500 and $25,000 if 50 and older.
IRA contributions, SEP (for self-employed) and HSA (Health Saving Accounts) contributions are the only 3 things you may still be able to tweak at tax time to lower your AGI (Adjusted Gross Income), this is often important for people who have marketplace insurance (Obamacare) in order to increase their health insurance subsidy (“premium tax credit”) reconciled in the tax return unless their income is clearly too high to get into subsidy territory (which is below 400% of Federal poverty line per tables)
Required Minimum Distributions (RMDs)
The tax law has changed in two ways: from 70.5 years old to 72 years old and 2020 optional suspension. Your RMD is the minimum amount you must withdraw from your account each year. It is normally calculated for you by your financial institution. You have to start taking withdrawals from your retirement accounts when you reach age 72 (but still 70 ½ if you reached 70 ½ before 01/01//2020). Roth IRAs do not require withdrawals.
Deadline to take the RMD is April 1 of the year after for the first RMD and then Dec 31 for each year after. Congress in the “Care” act of 03/27/20 allowed for an optional suspension of 2020 RMD: you can take it or not: your choice