LUTZ BUSINESS INSIGHTS
five ways coronavirus impacts your 2020 personal taxes
daniel sweeney, tax manager
Congress passed a variety of tax-relief measures throughout 2020 because of the Coronavirus pandemic. Even income taxes did not escape the impact of COVID-19. Here are five ways that the Coronavirus will affect your 2020 taxes.
1. Net Operating Losses for 2020.
If 2020 was not the year for your business, there is a silver lining. 2020 is the last year to take advantage of preferential rules for net operating losses. The “normal” rules would force taxpayers to take their business’s net operating loss to a future year and potentially subject the loss carryforward to an 80% of taxable income limitation. As of right now, 2021 will reimpose the normal rules. For 2020, the net operating loss can be carried back 5-years with no 80% of taxable income limitation. The carryback of the loss would hopefully result in a tax refund when carried back to a year that had taxable income.
The $250,000 (single) or $500,000 (married) limitation on excess business losses has also been removed. Like the changes to net operating losses, the “normal” limitations are set to reapply for the 2021 tax year. If business in 2020 was not great, there is the possibility for some relief that would not normally be available.
2. Estimated Tax Payments and IRS backlog
In a normal year, estimated tax payments would have been due April 15th, June 15th, September 15th, and January 15th (of the following year). IRS Notice 2020-23 postponed the due date for 2020 estimated tax payments for the first quarter and the second quarter of 2020 until July 15th, 2020. The IRS has not been great about keeping track of payments they received in 2020. Taxpayers may receive more notices than usual about their 2020 estimated tax payments, even if the payments were made on time.
3. Charitable Deduction for Non-Itemizers
After 2017’s tax reform (the beloved Tax Cuts and Jobs Act), the vast majority of taxpayers no longer itemize their deductions. Itemized deductions include the deduction for contributions made to a qualifying charity. As such, most taxpayers no longer receive a tax benefit for their charitable contributions. The story slightly changes for 2020.
Now taxpayers can take a charitable deduction for up to $300 (single) or $600 (married) even if they do not itemize their deductions. The contributions must be cash/check, and a receipt still needs to be received. While not a huge tax-break, it is an additional deduction available for 2020 and 2021.
4. No Required Minimum Distributions from your IRA.
For those over age 70½ or are the beneficiaries of an inherited IRA, the requisite to make your required minimum distribution for 2020 was waived. If required minimum distributions were made out from the account, you had until August 31st, 2020, to put the distribution back into the account.
However, even if the funds were placed back into the account, taxes may still have been withheld. The portion related to the taxes withheld would normally not be placed back into the account. Fortunately, those withheld taxes can still be claimed on your 2020 tax return.
For 2021, required minimum distributions are set to resume. It is worth following up on what happened to your required minimum distribution, even if it was placed back into your account.
5. Stimulus Payments (Economic Impact Payments)
Throughout the summer of 2020, the Treasury Department made direct payments of up to $1,200 per taxpayer and $500 qualifying child. The Treasury made additional $600 payments at the end of December 2020 and beginning of January 2021. Unfortunately, College students claimed as a dependent lost out. A qualifying child needs to be under age 17 for the parent to receive a payment.
These payments were really structured as an advance payment of a tax credit calculated on your 2020 tax return. The tax credit will be calculated based on your 2020 income. However, the payment you received was likely based off your 2019 or 2018 income.
The good news is that if the stimulus payment you received is higher than the tax credit on your 2020 tax return, you do not have to pay anything back. The better news is that if the calculated tax credit on your tax return is higher than your stimulus payment, then you will get an additional tax credit on your 2020 tax return.
The stimulus payment was partially reduced for taxpayers with adjusted gross income (AGI) over $75,000 (single) or $150,000 (married) for 2018 or 2019. If 2020’s AGI is lower, you may receive an additional tax credit if you did not receive the full stimulus payment amounts.
No Change –The Due Date
At the moment, the IRS is not planning to change any of the due dates for the 2020 tax filing season. For 2019 tax returns, the due date was pushed back to July 15th. For 2020 tax returns, the due date is still April 15, 2021, for personal income tax returns, along with an April 15th deadline for first quarter estimated tax payments. The IRS is still multiple months behind on processing 2019 tax returns but has said that they expect to be ready to go for 2020 returns. We will keep up-to-date and inform you if there are any changes. If you have any questions, please contact us.
ABOUT THE AUTHOR
DANIEL SWEENEY + TAX MANAGER
Daniel Sweeney is a Tax Manager at Lutz that focuses on a number of areas including tax preparation and planning for individuals, partnerships, and corporations. His experience also includes international tax and tax research.
AREAS OF FOCUS
- Individual, Partnership, & Corporate Taxation
- Trust & Estate Taxation
- International Taxation
- Tax Research
AFFILIATIONS AND CREDENTIALS
- Nebraska State Bar Association, Member
- Hastings Young Professionals, Member
- Nebraska State Bar
- BA in Political Science, American University, Washington, D.C.
- JD, University of Nebraska Lincoln College of Law, Lincoln, NE
- LLM Tax, Northwestern Pritzker School of Law, Chicago, IL
- Hastings College Adjunct Professor of Federal Income Tax
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