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2020 Tax Season

I was expecting 2020 to be a quiet year in terms of tax law changes.

But, boy, was I wrong! The government funding bills signed by President Trump in December 2019

inflation adjustments. All in all, this means American taxpayers are staring at a long list of tax changes for the 2020 tax year. If the past is any indication, the IRS should start accepting 2020 returns in late January or maybe early February.

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Here are just of few of some of the changes that may effect your 2020 tax return.

Recovery Rebate Credits

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, most Americans received a stimulus check in 2020 for $1,200 ($2,400 for couples filing jointly), plus $500 more for each child under age 17. The payments were phased out for joint filers with adjusted gross incomes above $150,000, head-of-household filers with AGIs above $112,500, and single filers with AGIs above $75,000.

Technically, your stimulus check was an advance payment of a special 2020 tax credit known as the recovery rebate credit. When you file your 2020 return, you'll have to reconcile the stimulus check you received with the recovery rebate credit you're entitled to claim. For most people, the stimulus check payment will equal the tax credit allowed. In that case, your credit will be reduced to zero. However, if your stimulus check was less than your credit amount, the tax you owe will be reduced by the difference (and you might even receive a refund). And if your stimulus check was more than your credit amount, you generally won't have to repay the difference to the IRS. (Also note that the stimulus check payments are not taxable!)

Charitable Gift Deductions

More donations to charity can be deducted for 2020 under the CARES Act. The 60%-of-AGI limit on deductions for cash donations by people who itemize is suspended (gifts to donor-advised funds and private nonoperating foundations are excluded). The relief applies only to charitable cash contributions that you make this year and deduct on the Schedule A that you file in 2021. Carryovers of excess charitable contributions from prior years don't get the break.

Nonitemizers can also write off up to $300 of charitable cash contributions. This is a new "above-the-line" deduction for 2020 only. It also applies only for people who don't file Schedule A. This write-off is per return, meaning married couples who file jointly can only deduct $300, not $600.

Education Tax Breaks

The 2020 lifetime learning credit phases out at higher modified AGI amounts for couples—$118,000 to $138,000 ($116,000 to $136,000 for 2019). The AGI range for singles is $59,000 to $69,000 ($58,000 to $68,000 for 2019).

The income caps are also higher in 2020 for tax-free EE bonds used for education. The exclusion starts phasing out above $123,550 of modified AGI for couples and $82,350 for others ($121,600 and $81,100 for 2019). It ends at modified AGI of $153,550 and $97,350, respectively ($151,600 and $96,100 for 2019). The savings bonds must be redeemed to help pay for tuition and fees for college, graduate school or vocational school for the taxpayer, spouse or dependent.

There are two expansions to 529 college savings plans starting in 2020, too. First, funds can now be used to pay for fees, books, supplies and equipment for certain apprenticeship programs. In addition, up to $10,000 in total (not annually) can be withdrawn to pay off student loans.

Deduction for Pass-Through Income

A key dollar threshold on the 20% deduction for pass-through income was increased for 2020. Self-employed people and owners of LLCs, S corporations and other pass-through entities can deduct 20% of their qualified business income, subject to limitations for individuals with taxable incomes in excess of $326,600 for joint filers and $163,300 for others ($321,400 and $160,700, respectively, for 2019).

Interest on Tax Refunds

For those who received a federal tax refund in 2020, you may have also been paid interest. The IRS wants you to know that refund interest payments are taxable and must be reported on your federal income tax return. In January 2021, the IRS will send Form 1099-INT to anyone who received interest totaling $10 or more. Make sure you report it on your 2020 return.


The fine for filing late returns is higher for returns with post-2019 due dates. The minimum penalty for returns filed 60 or more days after the due date is now the lesser of $435 (up from $215) or 100% of the required tax shown on the return.

Retirement Plans

There are a lot of changes in 2020 for retirement plans. Most of the changes come from the SECURE Act, which was signed into law late in 2019. However, the CARES Act includes a few provisions affecting retirement accounts, too.

Both acts significantly impact required minimum distributions (RMDs). For example, under the SECURE Act, the beginning age for taking RMDs rises from 70½ to 72. (This change only applies to account owners who turn 70½ after 2019.) The CARES Act allows seniors to skip their RMDs in 2020 without penalty.

The SECURE Act also allows owners of traditional IRAs to make contributions past the age of 70½ starting in 2020. In addition, folks having a baby or adopting a child can now take payouts from IRAs and 401(k)s of up to $5,000 without having to pay the 10% fine for pre-age-59½ withdrawals. Beginning in 2020, fellowships, stipends or similar payments to graduate or post-doctoral students are treated as compensation for purposes of making IRA contributions, too. This will help qualifying students begin saving for retirement sooner, since contributions to a retirement account generally can't exceed the amount of your compensation.

The rules for withdrawing money from inherited IRAs and workplace retirement accounts are also tightened by the SECURE Act—many accounts now need to be cleaned out within 10 years of the death of the IRA owner or 401(k) participant. Exceptions allow payouts over the beneficiary's life expectancy for surviving spouses, the disabled or chronically ill, minor children until they reach 18 and beneficiaries who are not more than 10 years younger than the account owner. (Inherited accounts of individuals who died before 2020 aren't affected by this change.)

In addition to the RMD suspension mentioned above, the CARES Act includes a few other key retirement-related tax breaks for 2020. First, it waives the 10% penalty on pre-age-59½ payouts from retirement accounts for up to $100,000 of coronavirus-related payouts. A coronavirus-related distribution can also be included in income in equal installments over a three-year period, and you have three years to put the money back into your retirement account and undo the tax consequences of the distribution. If you've taken advantage of this coronavirus-related easing, you must attach Form 8915-E to your return to spread out the tax on the distributions. Second, the CARES Act allowed eligible individuals to borrow more from workplace plans such as 401(k)s—up to the lesser of $100,000 or 100% of the account balance—until September 23, 2020. Repayments on retirement plan loans due in 2020 are also delayed for one year.

Many key dollar limits on retirement plans and IRAs are higher in 2020, too. The maximum 401(k) contribution for 2020 is $19,500, but those born before 1971 can put in $6,500 more (both amounts are $500 higher than in 2019). The caps apply to 403(b) and 457 plans as well. This year's cap on contributions to SIMPLE IRAs is $13,500 ($500 more than last year), plus $3,000 extra for people age 50 and up.

The 2020 contribution limit for traditional IRAs and Roth IRAs stays steady at $6,000, plus $1,000 as an additional catch-up contribution for individuals age 50 and up. However, the income ceilings on Roth IRA contributions went up. Contributions phase out in 2020 at adjusted gross incomes (AGIs) of $196,000 to $206,000 for couples and $124,000 to $139,000 for singles (up from $193,000 to $203,000 and $122,000 to $137,000, respectively, for 2019).

Deduction phaseouts for traditional IRAs also start at higher levels in 2020, from AGIs of $104,000 to $124,000 for couples and $65,000 to $75,000 for single filers (up from $103,000 to $123,000 and $64,000 to $74,000 for 2019). If only one spouse is covered by a plan, the phaseout zone for deducting a contribution for the uncovered spouse starts at $196,000 of AGI and ends at $206,000 (they were $193,000 and $203,000 for 2019).

If you haven't maxed out your contributions for 2020, think about contributing all or a portion of a year-end bonus to your 401(k) before December 31 to save on taxes. You also have until April 15, 2021, to make a 2020 contribution to a traditional IRA or a Roth IRA.


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