Here are four changes for tax year 2020 around COVID-19 to be aware of as you head into the upcoming tax season.
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Tax year 2020 came with quite a few changes (largely due to the pandemic). Here are four changes around COVID-19 to be aware of as you head into the upcoming tax season.
Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, eligible taxpayers can claim the Recovery Rebate Credit on their Form 1040 or Form 1040-SR for 2020. Taxpayers may be eligible if they fall into one of the following categories:
Taxpayers who received the correct amount for their Economic Impact Payment do not need to fill out any information about the Recovery Rebate Credit on their Form 1040. The money they received is not taxable.
Paycheck Protection Program (PPP) loans may be forgiven fully or partially depending on what expenses a business spent their funds on. Borrowers should apply for loan forgiveness with their lender.
Loan forgiveness amounts are not taxable.
Under the COVID-19 Relief bill signed into law December 27, 2020, PPP-funded expenses are tax-deductible.
Under the CARES Act, the 60%-of-AGI limitation is lifted for cash donations for taxpayers who itemize. This means that they can elect to deduct up to 100% of their 2020 AGI (donations to donor-advised funds and private, non-operating foundations do not qualify).
Taxpayers who take the standard deduction will be able to take a new “above-the-line” deduction for $300 of cash donations.
For corporations, the taxable income limit on cash charitable contributions is increased to 25%, up from 10%.
Taxpayers affected by COVID-19 may withdraw up to $100,000 from IRAs, workplace retirement plans such as 401(k)s and 403(b)s, and personal retirement accounts and will not be subjected to the 10% early withdrawal penalty. Distributions are taxable, but those taxes can be spread over three years.
Additionally, now taxpayers can withdraw up to $5,000 per spouse for birth or adoption-related expenses without incurring the early withdrawal penalty.
Loan limits from qualified retirement plans between March 27, 2020 and Sept, 23, 2020 may be increased to the lesser of the following for taxpayers impacted by COVID-19:
Plus, taxpayers will have six years to repay the loan (increased from five years).
This post is an excerpt from our ebook: What You Need to Know for Tax Season 2021. You can find more information on changes for tax year 2020 by downloading the full ebook.
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