Pay attention to these key tax changes caused by coronavirus pandemic

Pay attention to these key tax changes caused by coronavirus pandemic

The coronavirus pandemic has upended the economy and life as we used to know it. In the process, it also altered the income-tax landscape.

Several key changes, some designed to ease the financial burden of the resulting recession, are notable this year. They include changes affecting filing deadlines, retirement accounts and charitable deductions.

New filing deadline

Perhaps the most obvious change was delaying the regular income-tax filing deadline, and date for paying 2019 taxes, from April 15 to July 15, 2020. Many taxpayers already had filed before the coronavirus really began to impact the economy in late February and were unaffected by the new deadline. For others, the delay offers more time to get records in order and make payments. Estimated payments for the first and second quarters of 2019 also were delayed until mid-July.

Your COVID-19 money questions, answered:How much and where do I pay taxes on the extra $600?

Automatic extensions, taking the 2019 filing deadline to Oct. 15, can be made by submitting Form 4868 with the Internal Revenue Service, but tax payments for last year still must be submitted by July 15.

Some deduction changes

Following tax reform in 2017, which raised the standard deduction, fewer people are itemizing deductions. That trend likely will continue. But there are some notable changes for people taking the standard deduction, the vast majority, and for those who itemize.

Look for excess cash by reviewing interest listed on Schedule B of form 1040. Too much cash could be a sign you invest too conservatively.

One new rule for people taking the standard deduction is that they will be able to deduct up to $300 worth of cash contributions to charities, starting for 2020.

Also of note: Medical deductions will remain a bit easier to claim. Such costs can be deducted, for people who itemize, to the extent they exceed 7.5% of adjusted gross income. That limit was supposed to rise to 10%, making such costs more difficult to write off, but the easier 7.5% threshold was retained for 2019 and 2020.

The basic standard deduction amount rises to $12,400 for singles and $24,800 for married couples filing jointly in 2020. Those figures are up $200 and $400, respectively, from 2019. People 65 and older get slightly higher standard deductions.

IRA contributions still available

The weeks before the annual tax-filing deadline is when many people put money into traditional or Roth Individual Retirement Accounts. With this year's 2019 filing deadline moved to July 15, now is a high point for the IRA-contribution season.

In other words, you still can contribute to an IRA and count it for 2019. The basic annual limit is $6,000, plus an extra $1,000 in catch-up contributions for people 50 and up. If funding a traditional, deductible IRA, this is one of the few ways left to shave your 2019 tax bill retroactively.

Regular or Roth:Which one is the right retirement account for you?

The ability to make a deductible IRA contribution is affected by your income if you participate in a retirement plan at work, but with so many people facing job disruptions, it’s possible your situation has changed recently.

IRAs can be a good option for “gig” workers who might not have coverage in 401(k) workplace retirement accounts, noted Fidelity Investments. Self-employed individuals also may open a Simplified Employee Pension or SEP IRA, with higher contribution limits.

Minding retirement loans, withdrawals

Rules affecting retirement withdrawals were treacherous and confusing even before the coronavirus hit, and recent legislation has changed several key provisions, at least temporarily.

Before, the general rule was that permanent withdrawals from traditional IRAs or 401(k) accounts faced taxation at ordinary-income rates. Investors pulling out money before age 59 1/2 also typically would face a 10% penalty.

Among temporary changes, you now can avoid that 10% penalty (if under 59 1/2) on up to $100,000 in coronavirus-related withdrawals from a retirement account. Another change allows you to spread coronavirus-related distributions (which cover a lengthy list of circumstances) over three years, reducing the tax impact. Better yet, you can opt to put this money back into a retirement account, also within three years, and avoid the tax bite altogether.

In short, if you haven't touched your 401(k) or IRA account lately, you probably don't have any tax ramifications to worry about. Otherwise, it's time to read the fine print.

Stay tuned to stimulus payments

The "economic impact" or stimulus payments sent out earlier this year won't be taxable, but you still should pay attention to relevant details when you file your 2020 return early next year.

The CARES Act created an unusual tax credit for 2020; the stimulus checks are advance payments of that credit. Most people won't need to do much about them when filing 2020 returns. The payments won't "reduce your refund or increase the amount you owe when you file your 2020 federal income tax return," the IRS said in an update.

Is July 15th still tax day?:Treasury may consider delaying deadline to Sept. 15, Mnuchin says

However, the agency is urging taxpayers to retain Notice 1444, Your Economic Impact Payment, which lists the amount of payment, how it was made and other details that could prove handy. In particular, some taxpayers might qualify for a credit that exceeds their stimulus payment – based on lower income or other factors – and thus could claim the difference next year.

While stimulus payments aren't taxable, unemployment-insurance benefits are. Keep that in mind if you recently joined the millions of Americans in claiming jobless payments for the first time in many years.

A break for older investors

The IRS has decided that any older investors who already took a required minimum distribution, or RMD, this year from certain retirement accounts can roll the money back into the same or similar accounts. Doing so could lower a person's current tax bill and allow them to rebuild their investment portfolios, as such withdrawals are normally taxable.

Under this new provision, RMD money can be rolled back into retirement accounts, tax-free, until Aug. 31.

This change mainly affects people who pulled money out near the start of the year, well before virus problems began to mount. It updates a CARES Act provision that allowed taxpayers to skip their normal RMDs this year if they hadn't made them yet or made them around the time the legislation passed. The RMD suspension was designed to ease the pandemic's financial fallout.

The new rollover rules apply to money taken from IRAs and 401(k)-style plans. IRS notice 2020–51, on, discusses the changes in detail. RMDs normally apply after investors reach age 72.


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