If you haven’t been working on your 2020 tax return yet (or if you are and haven’t filed yet), this is for you!
Congress, in its usual manner, made some last-minute tax law changes which is giving the IRS some major trouble to program their computers for filing 2020 tax returns.
Here are four major tax breaks for you to make sure you take advantage of.
Recovery Rebate Credit. There has been a lot of incorrect rumors running around about this. Some folks think you have to pay it back. Others didn’t get it and think their chance is lost. Both rumors are wrong!
The two rounds of stimulus checks paid to individuals in 2020 are considered “advanced payments” on a 2020 refundable tax credit. On your 2020 return, there is a new worksheet, called “Recovery Rebate Recovery Worksheet.” It requires you to enter the amounts that you actually received in the two rounds of stimulus checks (the big one last spring and the second one that just occurred at the end of December/first of January). WARNING: Make sure you are accurate with these numbers. You should have received letters from the IRS stating the amount of your first payment and IRS is in the process of sending out letters for the second round. If you enter an amount greater than you actually received, the IRS will slow down your refund and increase scrutiny of your entire return. If you received a stimulus check (either or both) that was less than the calculated amount you were entitled to, the difference becomes a credit against other tax or even an increase to your tax refund.
Non-itemizers (which is most folks these days) can now write off up to $300 of charitable contributions on the face of their 2020 tax return. The charitable donations must have been to a 501(c)3 organization. You should keep records of your giving to back this up. Receipts from the charity is always the best, but they don’t have to send out a receipt unless your cumulative gifts for the year exceed $250. The $300 cap is for all returns, regardless of filing status for 2020. In 2021, the cap for married filing joint goes up to $600.
Schedule SE (Self-Employment Tax computation) has been revised to allow for a deferral of paying all the Self-Employment Taxes. Folks who have self-employed income can now defer paying the tax owed from March 27, 2020 through Dec. 31, 2020, with half of the deferred amount due Dec. 31, 2021 and the rest due on Dec. 31, 2022. There is a new section on the form Schedule SE (Part III) to compute this. Bonus, deferring paying the Self-Employed Tax does not prevent the deduction of 50% of it on your 2020 return.
If you got a special coronavirus distribution from your 401(k) or IRA in 2020, you must file form 8915-E with your 2020 return. You still must pay tax on the actual distribution, but if you are under 59.5 years old, the 10% penalty is waived. Bonus, if you recontribute the amount taken out over the next 3 years, then you don’t have to pay any tax… eventually. You will need to amend your returns and get a refund as you recontribute.
Well, there you have it. Some good news in these trying times. Enjoy!
Did you hear? Prov 15:30b says, “Good news gives health to the bones.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com Also on Facebook.