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2020 Required Minimum Distributions

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If you have an IRA or 401k and you are over 70 1/2 year old, you need to take a required minimum distribution, or RMD, from your retirement account each year. However, with the coronavirus pandemic, Congress passed specific relief for certain kinds of retirement accounts creating different rules for your 2020 RMD.

New 2020 RMD Rules

Normally, taxpayers over the age of 70 1/2 years old have to take money out of their retirement accounts like IRAs and 401k plans. The reason is simple. The IRS doesn’t want that money sitting there untaxed forever. So, when you get into retirement, it wants to tax that money that you enjoyed paying no taxes on for all of those years.

With the coronavirus pandemic of 2020, however, Congress looked to provide some relief to taxpayers in the form of $1,200 payments, small business loans, and relaxing the rules on accessing and using retirement plan money. One of those benefits is the suspension of required minimum distributions, or RMDs for 2020.

All RMDs, regardless of the owner’s age, or how many required minimum distributions have already been taken are suspended for 2020. In other words, there are no required distributions during 2020. If you took an RMD in 2019, you still have to report and pay taxes on it as you file your 2019 income taxes, which are now due by July 15, instead of April 15, 2020.

The elimination of RMDs for 2020 includes IRA plans, including SEP-IRAs, as well as 401(k) plans, 403(b) plans and 457(b) plans.

What If I Already Took 2020 RMD?

Unfortunately, Congress didn’t make it easy to “put back” an RMD that had already been taken. The most likely folks to have taken an “early” RMD are those that turned 70 1/2 during 2019 who took advantage of the ability to defer that RMD into the next year (2020). Those people had to take the RMD by April 15, and not everyone likes waiting until the last minute.

There is the possibility that if your withdrawal is eligible for a rollover that the RMD could be rolled into another tax-advantaged account. However, if there was a withholding there is no way to get that money back. In order to fully exempt the entire withdrawal, the amount withheld would have to be made up out of other funds and rolled into the new account.

IRS Standard Deduction 2019

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What is the standard deduction amount for 2019? The IRS updated the number and it’s a little bit higher this year.

When filing income taxes, taxpayers can choose to either itemize tax deductions, or take the standard tax deduction amount. The IRS adjusts how much the standard deduction is each year based upon inflation. The 2019 standard tax deduction amount is a bit higher than the 2018 deduction amount for most taxpayers because of limited inflation.

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Remember, even though you will be filling your taxes in early 2020, those tax returns are for the year 2019, so use the 2019 standard deduction amount on taxes you work on in first quarter 2020.

2019 Standard Tax Deduction Amount

As usual, there are different deduction values depending upon how you file your income taxes.

Filing Single: The 2019 standard Deduction is $12,200, up $200 from 2018.
Married Filing Jointly: Standard deduction for married filing jointly in 2019 is $24,400, which is up $400 from 2018.
Head of Household: The head of household standard deduction is now $18,350.

The annual gift exclusion is $15,000 this year.

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2020 Standard Deduction Amounts

If you are curious, the 2020 standard deduction amount has been released by the IRS. These numbers will be used when filing your 2020 taxes in early 2021. These are NOT the deduction numbers used while filing 2019 taxes before April 15, 2020.

Single and Married Filing Separately: $12,400
Married Filing Jointly: $24,800
Head of Household: $18,650

The annual gift exclusion remains $15,000 for 2020.

Itemize or Use Standard Tax Deduction

Itemizing isn’t really what it used to be under the new tax law. Instead, taxpayers will need to file one, or more, of seven additional schedules that go along with Form 1040.

For example, Educator expenses, Health Savings Accounts, moving expenses, IRA deductions and Student Loan deductions are all found on Schedule 1. You’ll need Schedule 3 for Child and Dependent care expenses. Schedule 4 has both Self-Employment tax, and where you’ll need to report taxes if you have a nanny.

All reputable tax software, calculates how to still make your deductions (if they add up to enough) and will fill in the appropriate schedules for you. If doing taxes by hand, then, find the big deductions first, and see if they provide anywhere near the amount necessary to bother filling out the various forms and schedules..

Other large deductions include medical expenses, but only if they exceed 9 percent of your income, and property taxes.

Deductions Without Itemizing

Some deductions are available without itemizing, such as the child tax credit.

Other common tax deductions will require additional forms beyond the basic 1040: educator expenses, health savings account deduction, moving expenses, IRA deductions, student loan interest, and tuition and fees.

Standard Deduction with Small Business

It is still possible to take the standard deduction if you own a small business. Many small businesses file a Schedule C to report income and expenses related to the business. Various businesses can have large deductions (and income) including the home office deduction.

Other Tax Information

Here is how to get an IRS tax transcript and information on what happens if you don’t file your taxes on time.

How To Deduct Property Taxes

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When it’s tax season, everyone’s thoughts turn to tax deductions. Financial advisors and accountants alike are flooded with calls from frantic clients looking to save money on taxes by finding new deductions or other tax tricks. The most common question by far is, “Is this Deductible?” Remember, this tax season is tricky.

Unfortunately, many tax deductions are either too small to have very much impact on how much taxes you pay, or are too narrowly tailored to actually be a tax deduction that most people can take. Add into the mix the fact that many of the things that people “just know” are tax deductible, actually are not tax deductions until they are higher than a certain “floor”, and most searches for new tax deductible items end in disappointment.

The good news is that some big items are deductible for almost everyone. These are the best tax deductions out there and they are good for high-income taxpayers and lower-income taxpayers alike. These include deducting mortgage interest, many educational expenses, and tax deductions for children, and the related child tax credit. One of the other biggies that can bring tax burden relief is deductible property taxes.

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Deducting Property Taxes on Income Tax Forms

Many people are surprised to find out how much property taxes they pay on real estate, particularly on their primary residence. This is because a large percentage of home owners pay their property taxes via their mortgage loan.

That is, that the mortgage company collects an extra amount of money with each payment which it keeps in an escrow account. Over the year, that extra money adds up to enough cash to cover the amount of property taxes due. If it the escrow account comes up short, the mortgage company fronts the money and then increases the part of the monthly loan payment for escrow.

Even though the mortgage company handles paying the property taxes for you, it does so with your money, which means you are the still the one who paid the property taxes, and therefore, you are the one who gets the property tax deduction. Check the 1098-INT tax form the mortgage company is required to send you each year. Both the amount of mortgage interest paid for the year and the amount of property taxes paid annually should be listed. Enter the amount of interest you can deduct on Line 6 of Schedule A Form 1040 from the IRS.

Deducting property taxes graphic — Use Schedule A to deduct property taxes paid on your home.

Don’t forget about other property taxes too! The most common type of property taxes that are deductible, other than real estate property taxes, are the property taxes on cars. Automobile property taxes are deductible if they are computed based upon a percentage of the car’s value. In other words, the taxes that are levied by the state, county, or city that are a variable amount depending on how much the car is worth are deductible. Flat taxes and fees, such as a $25 annual fee, that are the same amount no matter what the car is worth are not deductible.

Keep an eye on the mail for all tax forms, including 1099 Forms for real estate and brokerage and banking accounts. There are important tax numbers on each of these.

Tax Filing Day 2018 Taxes Due

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If you can’t get your taxes filed on April 15, 2018, don’t worry!

This year, April 15th falls on a Sunday. Normally, that would move tax day to Monday April 16th. However, Washington D.C. celebrates a legal holiday called Emancipation Day on April 16th, so tax due day is now April 17th.

So, get going!

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Unfortunately, there aren’t really many options now. The one big exception is making a contribution to your IRA, assuming your IRA is deductible based upon your income and retirement plan availability. If you have an online account linked to a checking account, or something, that is the easiest way to make your contribution happen. Just log in and setup a deposit into your IRA account. Your brokerage will ask if you want it to count as a 2017 contribution, or a 2018 contribution.

Don’t forget to go back into TurboTax, TaxCut, or what the HR Block tax software is (I’m not going to bother looking it up ) and input the contribution. IRA contribution deductions are not automatic, so you have to put it into your tax forms.

If you are worrying about some sort of tax form or “proof” that you made the contribution, don’t worry. Those forms are called Form 5498. Those tax forms are sent by your IRA custodian (the company that holds your IRA account) directly to the IRS. You will also get a copy, but you don’t have to do anything with it. These forms are not due to be sent out until May 31, partly in order to accommodate last minute IRA contributions.

In other words, you make the contribution, and put it on your tax form, and don’t worry about the proof, your IRA company will take care of that for you. (Don’t try and fake the contribution though, because if the IRS doesn’t get a matching amount to what you put on your tax return on all of your Form 5498s, a computer is going to flag that for review.)

After that, get your taxes, or payment in a mailbox by midnight tonight. Be sure to check the Post Office website to see which, if any, post offices will be making after hours postmarks on mailed returns. Not all of them do. Don’t be a late filer based on a wrong guess about which Post Office you use to mail your return or payment.

IRS Filing Extension

If you can’t file your taxes by April 17, then it’s still no big deal. You can get a free, automatic, no questions asked extension for 6 months from the IRS by filling out Form 4868. There is a catch. If you OWE money, it is still due on April 17th. Any amount not paid by April 17th is subject to interest. So, if you are sure you are getting a refund, just send in your extension form and don’t worry about it.

If you are not getting a refund, then make your best guess and send the IRS a check. If you overpay, you’ll get refund when you did file your final tax return. If you underpay, you’ll still owe interest, but only on the amount you didn’t pay. For example, if you end up on your final income tax return 1040 owing $1,482 but you only sent the IRS $1,300 on April 17th, then you only owe interest on the $182 you didn’t pay, which will be a smaller amount than interest on the whole thing.

Don’t forget, tax time is a good time to pull one of your free credit reports, or take a look at a free credit score at Credit Karma, or something like that.

Good luck, and may the deductions be ever in your favor.