Believe it or not, the first quarter of 2021 is nearly behind us. Happy Spring and happy tax season to you all! Most states have also extended their tax filing date to match that of the IRS. Here are some tax tips and common questions in relation to 2020 tax preparation.
Individuals have until May 17 to file 2020 federal returns and pay taxes. You don’t have to file for an extension; the one-month delay is automatic. This relief does not apply to estimated tax payments that are due on April 15, 2021. The delay also doesn’t apply to business return filings, such as Form 1120. Most states, including Indiana, have announced similar extensions of their 2020 income tax filing deadlines. The IRS urges taxpayers to check with their state tax agencies for those details https://www.taxadmin.org/state-tax-agencies.
The deadline to make 2020 IRA and Health Savings Account contributions has also been extended to May 17.
The CARES Act enabled any taxpayer with a Required Minimum Distribution (RMD) due in 2020 to skip those RMDs for the 2020 tax year. If you chose to waive your RMD for 2020, you will not be receiving a 1099-R for that associated account (IRA, Inherited IRA, 401(k), 403(b)). If you took your RMD and also took advantage of the opportunity to roll those funds back into your retirement account following the CARES Act waiver for 2020 (funds must have been paid back by August 31, 2020), you will be receiving a 1099-R.
The Tax Cuts and Jobs Act of 2017 eliminated the deductibility of professional fees (financial advisor, tax preparation expenses, professional dues, etc.) from 2018-2025.
The first two rounds of Economic Impact Payments (stimulus checks) were advance payments on the 2020 Recovery Rebate Credit. Most eligible people already received the payments and won’t include this information on their 2020 tax return (the payments are not considered income and taxpayers will not owe tax on the payments). However, suppose you didn’t get a first and second Economic Impact Payments or got less than the full amounts. In that case, you may be eligible to claim the 2020 Recovery Rebate Credit on your 2020 federal tax return. Any first and second Economic Impact Payments issued to you will reduce the 2020 Recovery Rebate Credit you are eligible to receive.
The IRS issued an announcement on March 26 clarifying that the purchase of personal protective equipment, such as masks, hand sanitizer and sanitizing wipes, for the primary purpose of preventing the spread of coronavirus are deductible medical expenses. The amounts paid for personal protective equipment are also eligible to be paid or reimbursed under health flexible spending arrangements (FSA, HSA, HRA).
Sources include IRS and Kiplinger.