Sep 01, 2020
By Paula Rogers, CPA President and Partner at Terry Lockridge & Dunn
It is time to start your 2020 income tax planning! Here are several new tax laws passed this year to consider as you start planning your 2020 tax obligation.
- Make up to $300 of charitable contributions. For the 2020 tax year only, an above-the-line deduction of $300 is available to all Americans who want to make a cash charitable contribution. You can donate to more than one charity, but the total amount of contributions must be $300 or less to be able to take an above-the-line deduction. While you will still need to itemize your deductions if you want a tax break for donations greater than $300, this above-the-line deduction for $300 or less helps alleviate the elimination of the charitable deduction for most taxpayers.
What you need to do. Donate $300 to your favorite charitable organization(s) by December 31, 2020. You must receive a written acknowledgment from the charitable organization(s) to which you made the $300 contribution before filing your 2020 tax return.
- Donate up to 100% of your income. The normal contribution limit of 60% of your income is suspended for 2020, allowing you to contribute as much of your income as you want to various charities. This applies to cash donations only and gifts to donor-advised funds are excluded.
What you need to do. While only a tax break for a few taxpayers, this initiative is meant to help struggling charities during the pandemic. If you are considering additional giving, you must make your charitable contributions by December 31, 2020. Remember to obtain written acknowledgment from each charity you donated to before filing your 2020 tax return.
- Use retirement savings to pay for birth or adoption expenses. Adding a child to your family is very expensive. To help with these costs, you can now cash out up to $5,000 per parent from your retirement accounts to pay for birth and/or adoption expenses. While the withdrawal will not be hit with the 10% early withdrawal penalty, you will still have to pay income taxes.
What you need to do. Consult your financial advisor or benefits coordinator to find out how to withdraw the funds from your retirement accounts. Since this withdrawal will deplete your retirement savings, first consider whether you have other sources of cash to cover expenses.
- No age limit for contributing to IRAs. You can now contribute to an IRA regardless of your age as long as you have earned income. The old rule prevented you from contributing to an IRA past age 70½. The IRA contribution limit for 2020 is $6,000 if you are under age 50 and $7,000 if you are over age 50.
What you need to do. Consider getting a part-time job or doing some consulting work if you project that you will not have earned income by the end of 2020. You can then use this earned income to fund your traditional or Roth IRA.
It is more important than ever to keep up with rule changes and be on the lookout for tax planning opportunities. As always, should you have any questions or concerns regarding your tax situation please feel free to call. The accountants at Terry Lockridge & Dunn can be reached at 319-364-2945 in Cedar Rapids, or 319-339-4884 in Iowa City.