Did You Know?
The CARES Act also means that charitable contributions this year carry more deductions than at any other time:
1. The CARES Act creates a new above-the-line deduction for you and for all taxpayers for total charitable contributions of up to $300. The incentive applies to cash contributions made in 2020 (extended now through 2021) and can be claimed on tax forms next year.
2. The law also lifts the existing cap on annual contributions if you itemize, raising it from 60% of adjusted gross income to 100%.
Individual Tax Provisions included in the CARES Act
- Individual rebates are coming:
• $1,200 ($2,400 for eligible individuals filing a joint return) plus $500 for each qualifying child.
• Subject to income limitations and eligibility requirements.
- Exemption for 10% penalty on retirement plan withdrawals:
• Generally, distributions from a retirement plan before the age of 59 ½ are subject to a 10% penalty.
• Not in 2020 (up to $100,000).
• If the distribution is subject to income tax, the tax can be spread over 3 years.
• Also, you can put the money back in within 3 years, and avoid income taxes on the distribution.
• Pretty broad eligibility.
- Required Minimum Distributions (RMDs):
• Generally, you are required take annual distributions from Traditional IRAs (and other retirement plans) once you reach age 72 (recently increased from age 70 ½ effective 1/1/2020).
• Not in 2020.
• If you’ve already taken your 2020 distribution, you might be able to return it within 60 days if you’d like.
• And, if you turned age 70 ½ in 2019, and have a distribution to take by April 1, you can skip that one as well.
- $300 above-the-line charitable deduction:
• Generally, you must itemize deductions to deduct charitable contributions.
• In 2020, you can deduct up to $300 in charitable contributions and take the full standard deduction.
- Waiver of charitable contribution limitations based on AGI:
• Generally, you cannot deduct more than 60% of your AGI in charitable contributions, per year.
• In 2020, that limitation is waived for eligible cash contributions.
• Not all contributions qualify.
- Tax-excluded education payments from employers temporarily include student loan repayments.
• Generally, an employer can exclude from an employee’s wages up to $5,250 per year for qualified education expenses.
• In 2020, the definition of qualified education expenses includes eligible student loan repayments.
• No double dipping – i.e. you can’t get tax-free income from your employer AND deduct the interest that was paid.
We hope all of you are staying healthy and making the most of these circumstances. We’ll continue to keep you updated as necessary.
In addition to the information provided in this e-mail, you may want to refer to the IRS website for more information, particularly the FAQ section.