2020 Tax Law Changes and Issues

Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

As you are aware, several laws have been enacted in the past two months to address the fallout of this pandemic. Many of the provisions are tax related. Here is a brief summary of the most important tax items for you to know and consider:

1. 2019 Income Tax Filing Deadline: The deadline for filing your 2019 income tax returns was extended to July 15, 2020. The state of Iowa extended its deadline for filing to July 30, 2020. 
2. 2019 Tax Due Deadline: The federal due date for paying tax due for 2019 was also extended to July 15, 2020. The deadline for paying the state of Iowa 2019 tax due was extended to July 30, 2020. 
3. Federal Estimated Payments: The deadline for paying your first and second quarter federal estimates was extended to July 15, 2020. The third and fourth estimates are due as regularly scheduled (September 15 and January 15). As always, make your fourth quarter federal estimate in December, 2020, despite the January 15 deadline.
4. State of Iowa Estimates: The state of Iowa did NOT extend the deadline for payment of quarterly estimates. The first estimate was due April 30 and the second estimate is due June 30. If you did not submit a first quarter estimate and were required to do so, you'll need to submit that payment as soon as possible.
5. Tax Projections – 2020 Estimates: If you believe your income will be substantially different in 2020 because of Covid-19, or any other reason, you may want to adjust your estimated payments accordingly. 
6. Due Date for Contributions to Retirement Accounts: The deadline for making 2019 contributions to retirement accounts (Traditional IRAs, ROTH IRAs, SEPs, etc.) was extended to July 15, 2020.    
7. Stimulus Money: The CARES act provided for an Economic Impact Payment of $1200 to every individual ($2,400 for a married couple) unless a) they are a dependent of another taxpayer; or b) have income above certain thresholds. There is an additional $500 payment to taxpayers for each of their dependents under the age of 17 (as of the end of the year of the tax return used to determine eligibility).

Taxpayers will receive a reduced payment if their adjusted gross income (AGI) is between:
a.    $75,000 - $99,000 (single or married filing separately) 
b.    $112,500 - $136,500 (Head of Household)
c.    $150,000 - $198,000 (married, filing jointly)

Taxpayers with AGI above the phase-out levels, will not receive a payment at all. The IRS will look at both your 2018 and 2019 income tax returns to determine if you are eligible for the immediate payment. If you are entitled to a payment, you should have received it by now by electronic deposit, paper check, or debit card. Even if you were not eligible based on your 2018 or 2019 income tax returns, you may still qualify if your 2020 is at, or below, these thresholds. You will get a credit (same as a payment) on your 2020 income tax return in order to claim the stimulus payment based on your 2020 income. 

8. RMD Suspended for 2020: The requirement that taxpayers over the age of 72 make a required withdrawal from certain retirement accounts has been suspended for 2020. As such, if you do not need the funds and would like to allow those accounts to continue to grow tax deferred, you can elect to not take this distribution.
9. Consider a ROTH conversion for 2020: Because of the suspension of the required minimum distributions and because the stock market declining significantly (although it is has recovered substantially), many people are converting a portion of their traditional IRAs or other tax deferred retirement accounts to a ROTH IRA. This allows the taxpayer to take full advantage of the lower income tax brackets that they may not fully utilize without taking the RMD. Furthermore, by converting assets that have declined in value, the taxpayer is able to pay income tax on the lower value in 2020 and then, hopefully, the assets will increase in future years and no income tax will be paid when the funds are eventually needed by the taxpayer or distributed to beneficiaries after the taxpayer’s death. 

For questions relating to this article, please contact a member of our taxation law group. You can also visit our COVID-19 Resource Center for regular updates and practical information relating to the Coronavirus.

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Disclaimer: This information is intended for general information purposes only and is not intended, nor should it be construed or relied on, as legal advice. Please consult your attorney if specific legal information is desired.