America is continuing to battle the COVID-19 pandemic; however, tax season is still coming. The IRS started accepting and processing tax returns on February 12. As you gather your documents for your 2020 tax return, here are a few items you may want to consider.
Thanks to the CARES Act, itemized individual filers are allowed a deduction up to 100% of their adjusted gross income (AGI). What if you are a standard deduction filer? The CARES Act also provided a benefit for you – an above-the-line deduction that allows you to write off $300 of contributions. Therefore, for the 2020 tax season, all filers should gather receipts and documentation for all giving made during 2020.
In 2020 many Americans spent more time in doctors’ offices than any prior years combined, so you might want to consider looking at medical bills paid in 2020. If you had unusually high medical expenses during 2020, you should evaluate whether this deduction may be available to you.
Did you receive a stimulus check from the IRS? If so, that information will need to be provided to your accountant. The stimulus will act as an advance on money you would have received as part of your tax refund. If you didn’t receive a stimulus check but should have under the income tests, you will be able to claim the stimulus on your tax return as a credit.
During 2020, many Americans found themselves out of work and obtained unemployment benefits. If you received unemployment income, those benefits are taxable. The unemployment benefit received will need to be included in your tax documents.
Did you take any money out of 529 or Educational Savings Account in 2020 to pay school tuition but received some of that money back when school was canceled? Depending on what you did with the refunded funds, you may have a tax-triggering event. For the 2020 tax season, filers should gather information on what was paid to the educational institution, what was returned and where those funds were used.
The CARES act allowed taxpayers under the age of 59½ to take up to $100,000 out of their 401(k) or IRA without paying an early withdrawal penalty. While there is no penalty for this withdrawal, those amounts are taxable. Under the CARES Act, you could skip the required minimum distributions in 2020 without penalty.
HORNE will continue to keep you updated on current and future tax planning. If you have any questions, contact your tax advisor.