5 tax moves to make this abnormal April
Wednesday, April 01, 2020
April has always been a serious month for taxpayers. April 15 has been Tax Day for 65 years and since most of the millions of at-the-deadline filers tend to owe Uncle Sam, they're not very happy.
This year, though, there is an even more solemn reason for no April fooling around. Things, tax and otherwise, have gotten very serious as the United States and the world fight the deadly coronavirus pandemic.
On the tax front, new laws have been written and old ones adjusted to help us deal with the deadly virus and the precautions, like limiting social and business interactions, we must take. And, of course, Tax Day 2020 has been moved to July 15.
All that means we don't have to worry about a last-minute tax crunch this April. We just need to take care of ourselves and those who matter the most to us.
There also is a positive tax take to the COVID-19 changes. The later filing deadline, combined with our self- (or state-) imposed house arrest status, means we can use this April's days to make some tax moves.
I know you have a lot on your mind and taxes, thanks to the changes, aren't at the top of your list. Still, here are five things, several of them related to COVID-19 tax revisions, that you should look into this month.
1. Check out your coronavirus payments: By now, you've heard that most folks will be getting some money from Uncle Sam to help us cope with the financial effects of the economy's near total shutdown. The maximum coronavirus relief payments are $1,200 for single taxpayers, $2,400 for married coupled who file jointly, plus $500 for each dependent child who is younger than 17.
The Internal Revenue Service is in charge of delivering the money. Most of us, according to the tax agency, don't have to do anything. It will simply use the information we put on our 2019 returns or, if we haven't filed yet, our 2018 return to determine what we're due. You can compare those returns' adjusted gross incomes and dependent child claims to see how much you can expect.
Also remember this is an advance of a tax credit against our 2020 tax year filing. So if either your 2018 or 2019 tax return shortchanges you now, you'll be able to get the remainder when you file in 2021.
It's probably too late to get a 2019 return in now, but at least you'll know if you'll be getting the maximum stimulus amount now.
2. Evaluate your retirement situation: If you're an older person, specifically you turned 70½ last year and didn't take your first required minimum distribution (RMD) back then, you're in luck. That RMD deadline was today, April 1. But the Coronavirus Aid, Relief and Economic Security (CARES) Act waived that payment.
In fact, everyone who's facing an RMD in 2020 is off the hook. The new law says you don't have to take out that money this year. That saves you some tax money. You would have been paying tax on the RMD that was based on your account's value at the end of 2019, a time when all investments were worth much more.
If you're not tapping your nest egg and you're not struggling due to COVID-19 financial stresses, consider putting some money into your retirement accounts. If fact, if your tax situation means you get a tax deduction from a traditional IRA contribution, the new July 15 deadline works to your advantage. You can make a 2019 tax year contribution to your IRA (as well as to a health savings account (HSA) if you have one of these, too) by the new 2020 Tax Day.
3. Delay your first 2020 1040-ES filing: Estimated taxes were among the many taxes affected by Capitol Hill's COVID-19 actions. The first of these four extra tax payments usually is due on the normal April 15 Tax Day. But since that's now July 15, your first estimated tax payment for the 2020 tax year is due on July 15, too. If you're facing financial difficulties, this could let you use the cash for things like rent or utilities.
Note that this is just a deferred payment. You'll still have to pay the appropriate estimated tax amount by mid-July. Also, your estimated tax amount for the second quarter is still due (for now) by June 15. Still, if you need the extra payment time this month, take it.
4. Help others: Many, many people are in a tight spot now. They've lost their jobs. They have bills coming due. And the coronavirus relief checks are not going to be enough or arrive soon enough to help that much. These folks are relying on outside help to get by until life returns to normal. If you can afford to help, consider giving to a nonprofit that's focusing on the increased special needs in these decidedly abnormal times.
Here, too, the CARES Act offers you a new philanthropic tax incentive. You can claim up to $300 given to an IRS-approved charity as an adjustment to your income. This is one of the items on Form 1040's Schedule 1 that previously were known as above-the-line deductions. This means you don't have to itemize to get at least some tax benefit from your gift.
5. Don't fall for scams: Finally, it's a sad fact that way too many are not good. And way too many use terrible situations like a global pandemic for their own nefarious ends. So beware scams that use COVID-19 as a hook. That definitely includes tax scams, especially ones that will be tied to the soon to be distributed coronavirus relief checks. As this delivery process begins, crooks looking to steal your money and your identity will no doubt show up with claims they can get you your relief check sooner or even get you more. Don't fall for any of it!
OK, I know. This is a lot of tax stuff to consider in a month that, for this year at least, you don't have to think so much about taxes. But July 15 will be here before you know it, so it's better to be prepared.
More April Tax Moves: If you're really, really bored during your shelter-in-place time and want even more tax topics to consider, check out the April Tax Moves over in the ol' blog's right column.
Yep, even in these unusual health and tax times, they are right where they usually are, under the countdown clock now ticking off the days, hours and seconds to the July 15 Tax Day 2020.
If any of them apply to or help you make the best of your tax circumstances, use them.
Then hunker down and continue clearing your streaming queue. My list includes Mel Brooks' classic Young Frankenstein, with Dr. F and Igor discussing, in the clip below, how the Abby Normal brain came to be placed in the monster's head. It's a perfectly distracting and funny film and counterpoint to these dour and abnormal times.
|Coronavirus Caveat & More Information
In 2020, we're all dealing with extraordinary circumstances,
both in our daily lives and when it comes to our taxes.
The COVID-19 pandemic and efforts to reduce its transmission
and protect ourselves and our families means that,
for the most part, we're focusing on just getting through these trying days.
But life as we knew it before the coronavirus will return,
along with our mundane tax matters.
Here's hoping that happens soon!
In the meantime, you can find more on the virus and its effects on our taxes
by clicking Coronavirus (COVID-19) and Taxes.
Is the following statement correct?
People that are currently enjoying a stretch inherited IRA or Roth IRA that they received before the SECURE act can confidently eliminate their 2020 RMD without worry that doing so will somehow cause them to be caught up in the SECURE 10 year total withdrawl law?
I am guessing the above is correct, but you are smarter than me as I don't work in this field and am just some dude with an inherited IRA :)
Posted by: Dale R Kane | Thursday, April 02, 2020 at 10:41 PM