Filing Season

Individuals have until July 15, 2020 to file their 2019 Form 1040s and to pay their income taxes. The IRS will not charge interest or penalties from April 15, 2020 through July 15, 2020. The filing deadline for Illinois income tax returns has been extended from April 15, 2020 to July 15, 2020, as well. Individuals who cannot file and pay their taxes by July 15, 2020 should file for extensions until October 15, 2020 and pay the taxes they estimate that are due when they file the extension requests in order to minimize penalties and interest.

 

Federal Income Tax Rebates

Direct payments to individuals are structured as federal income tax rebates of $1,200 for singles and $2,400 for couples filing jointly, plus $500 for each child under age 17. The rebates begin to phase out for joint filers with adjusted gross income (AGI) above $150,000, $112,500 for heads of household, $75,000 for singles and end at AGIs of $198,000, $136,500, and $99,000, respectively. Anyone that can be taken as a dependent by another filer will not receive a rebate if age 17 or older. Most people need to have filed a 2018 or 2019 income tax return to receive a rebate. The IRS will mail a letter to each eligible person within 15 days of the payment. The letter will indicate the method and amount of payment. The rebate is an advanced payment of a special 2020 tax credit and is not taxable income.

 

Cash Donations to Charitable Organizations

The 60% of AGI limit is suspended for 2020. Gifts to donor advised funds are excluded. Non-itemizers can deduct up to $300 for cash contributions. This is a new above the line deduction for individuals who do not file Schedule A.

 

Retirement Related Legislation

Required minimum distributions (RMDs) have been waived for 2020 for plans such as Traditional IRAs, 401(k)s and 403(b)s. As in previous years, there is no RMD requirement for Roth IRAs.

With regard to inherited IRAs, a new 10-year limit on withdrawals is effective if the owner dies after December 31, 2019. The account must be liquidate by the end of the 10th calendar year following the owners year of death. The legislation eliminates stretch IRAs, which previously allowed heirs to stretch withdrawals over the course of their lifetime. There are several exceptions to the new rule.

The 10% penalty on pre-age 59½ pay outs from retirement accounts has been waived on up to $100,000 of coronavirus-related pay outs. An eligible taxpayer is one who has been diagnosed with the SARS-CoV-2 virus or the COVID-19 disease, or whose spouse or dependent has been diagnosed with the virus or disease, or who experiences adverse financial consequences from being quarantined, furloughed, or laid off, or who have had their work hours reduced, or who is unable to work due to lack of child care. Funds repaid within three years are treated as rollover distributions. Otherwise, the resulting tax may be spread over three years.

Also, eligible individuals can borrow up to the lesser of $100,000 or 100% of the account balance from plans such as 401(k)s until September 23, 2020.

The legislation increased the starting age for RMDs to 72 from 70½.

Individuals have additional time to make an IRA contribution for 2019. The contribution is due no later than July 15, 2020.

Individuals over age 70½ can now continue to make IRA contributions if they have earned income such as wages or self-employment income. The age limit has been eliminated. Roth IRA contributions do not have an age limit.

 

Kiddie Tax Changed

The Tax Cuts and Jobs Act (2017) changed the tax rates assessed on unearned income (interest and dividends) for children under age 18 (and students up to age 24) to the same as trusts and estates. The new legislation contains a provision revoking this change. As a result, the child’s unearned income will revert to being taxed at their rate or their parent’s rate, whichever is greater. The repeal is retroactive and can be applied to both 2018 and 2019 tax years.

 

Enforcements

The IRS has temporarily halted most of its enforcements and collections actions. The halting of the enforcements runs from April 1, 2020 through July 15, 2020 but may be extended.