The most trending tax and financial industry issues.

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Lane Keeter, CPA

Partner: Tax Consulting, Estate Planning, and Heber Springs Managing Partner

Individual Tax Changes Because of Covid19

Man, things can change fast! When I wrote my last column for this newspaper, the economy was clicking along a light speed. Now, we are in the middle of a health crisis and huge part of our economy has come screeching to a halt.

To combat the economic fallout, the government has enacted several pieces of major stimulus legislation, as well as made changes via executive orders and administrative pronouncements. In this article, I'll present some of tax changes that may affect you, the individual.


Delayed Tax Due Date

One of the first changes to occur was the delay of tax filing day. The IRS has announced that tax returns and tax payments normally due on April 15 are now not due until July 15, 2020. This delay includes 1st quarter estimated tax payments due on April 15 as well. The State of Arkansas has also delayed its individual April 15 deadline for 2019 returns and payments due with those returns. However, Arkansas 1st quarter estimated tax payments are still due.


IRA Contribution Deadline

There are a number of other tax attributes that are tied to the April 15 tax return due date. One of those is the deadline for making individual retirement account contributions for the previous year. With the delayed deadline, you can now make IRA contributions for 2019, both regular and Roth IRAs, until July 15, 2020.


Other IRA/Retirement Plan Related Changes

Staying on the subject of IRAs, there are a number of other changes to IRA provisions that could affect.

First, if you are over age 72 and required to take what are known as "required minimum distributions"(RMD) from your IRA, for 2020 only, you now do not have to take your RMD. Unfortunately, if you have already taken your RMD, it doesn't appear you can undo that.

For those under age 59 1/2, normally if you pull money out of your regular IRA or 401(k), you not only have to pay income tax on the distribution, but also a 10% extra early withdrawal penalty. But under one of the recent relief laws, if you must take an early distribution due to certain covid19 related issues, the penalty will be waived, up to a total distribution of $100,000. Further, you have the option of paying the income tax on the distribution over a three-year period, or alternatively recognizing 100% of it in 2020, which could be advantageous if your 2020 income is lower than normal. Finally, you can also recontribute the distribution back to the IRA, again having three years to do it, and it will be treated as a rollover contribution, therefore, not subject to tax at all.


Charitable Contributions

Donations to charity are normally itemized deductions for individuals. With the much larger standard deduction available the last few years, many people do not itemize any longer, so increasing their charitable giving can result in no tax savings. For those that do itemize, cash charitable deductions are limited to 60% of adjusted gross income (AGI). Under covid19 relief legislation, for 2020 a new $300 "above the line "charitable deduction is available, meaning you can deduct it even if you do not itemize. Further, the 60% of AGI limitation is temporarily suspended. This means you could literally give away all your income for the year to charity and virtually eliminate all taxable income. Hey, if you can do that, well then, here's a high five for you!


Student Loans Paid by Employers

Finally, an employer can pay off up to $5,250 of an employee's student loan and the payment will not be included in the employee's income if the payment is made between March 27, 2020 and the end of this year. I'm not sure how often this kind of thing happens (I personally in 37 years of practice have not seen it), but the benefit is there for the taking.

Needless to say, it's during times like these that many people need all the help they can get. These individual relief actions are designed to ease just a bit some burdens people may be under.

Be safe out there, and let's all do our part to support each other and get through this together!

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